How Does Amazon Supply Chain Work in 2023 | Full Guide

If you have ever wondered how Amazon processes millions of orders and rightly delivers products to customers, then you’re simply inquiring about Amazon’s supply chain.

Amazon’s supply chain model is one of the world’s largest, most efficient, and state-of-the-art supply chain operations.

Its sophistication didn’t begin this way. It evolved from a garage warehouse to having thousands of fulfillment centers all over the world. Yet, its fundamentals are similar to its inception stage.

Amazon embraces technologies to improve operations, efficiency, and speed.

So, how exactly does this Amazon supply chain work?

Before we answer that question on how it works, we will begin this discussion with what the Amazon supply chain is. Stay with us!

What is the Amazon Supply Chain?

Before we start on how the Amazon supply chain works, it is important to explain what the Amazon supply chain is.

The Amazon supply chain refers to product warehousing, inventory management, pricing, and delivery.

Each element is carried out to ensure a smooth supply chain.

There are different fulfillment options for sellers on Amazon. They can handle the fulfillment themselves or let Amazon sort, package, and ship products through their fulfillment center.

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Third-party sellers on Amazon can use either of these fulfillment services:

  • Fulfillment by Amazon (FBA) – Sellers leverage Amazon’s fulfillment for products sold on the Amazon Marketplace
  • Fulfillment by Merchant (FBM) – Sellers handle fulfillment for their products sold on the Amazon Marketplace

How Does the Amazon Supply Chain Work?

So, how does Amazon’s supply chain work?

Since Amazon has recognized the need for super-fast delivery, it has invested heavily in reducing delivery time and even introduced same-day delivery.

Since this generation is a want-it-now era, Amazon’s supply chain works this way precisely.

  • A customer places an order
  • The fulfillment center is on standby.
  • The order barcode has matched the product.
  • The product is placed in a crate on a conveyor belt.
  • The crate goes through the distribution center before being sorted
  • The crates arrive at the central point.
  • The Bar code of the product is matched with an order.
  • These are sorted automatically into one of several thousand chutes before being boxed.
  • The bar code identifies the customer’s order.
  • Boxes are packed, taped, and weighed.
  • Orders are shipped

Let us iterate the main points on how the Amazon supply chain works. The Amazon fulfillment center follows the following steps after a shopper has clicked the buy button:

#1 Receiving Products 

After placing an order, the products are separated between those coming from Amazon and third-party vendors using FBA.

At Amazon Fulfillment Centers, products are either taken off trailers by forklift or manually built into pallets.

#2 Storing of Items 

Amazon stores items with yellow bins, all tracked by a computer.

These bins are used to transport products based on size.

#3 Picking Orders 

When you click the “buy button”, and your order comes in, a robot will bring pods full of items to Amazon associates working at pick stations. These pickers will read the screen, retrieve the item and place it into a yellow plastic box – also known as a tote.

#4 Quality Assurance 

These orders are checked manually to ensure the robot’s address and information align with the computer’s information.

#5 Packing Orders 

Lastly, items that belong to different shipments are organized and scanned before being sent to the pack station.

At the pack station, the system will recommend box sizes and measure out the amount of tape required.

Amazon ships third-party vendor items in original boxes, but Amazon works with third-party vendors to reduce packaging. 

This sounds easy. There are elements to achieve this pretty straightforward process. They are just right below.

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Elements/Components of Amazon Supply Chain

Amazon’s supply chain model is the most important element of the company’s success story.

Now, let’s break down the pieces of the Amazon supply chain strategy that has turned an e-commerce company that started in Jeff Bezos’s garage into a multi-billion e-commerce company.

They include:

  • Warehousing
  • Delivery
  • Technology
  • Manufacturing
  • Pricing
  • Global Reach

1. Warehousing

Warehousing bears a huge part in Amazon’s success. They ensure products are easily accessible from everywhere in the world.

As a result, vast numbers of warehouses and distribution centers are located near large cities and mini-warehouses in smaller areas. Their warehousing strategy is strategic positioning near metropolitans and populated areas to ensure supply can be met with demand.

Currently, Amazon has about 175 fulfillment centers/warehouses worldwide, with the majority located across North America and Europe.

In addition to these warehouses, Amazon also has a network of partner distribution centers and wholesalers. If they cannot fulfill the order from its distribution center, they use their partners instead.

2. Amazon Supply Chain: Delivery

Amazon has a plethora of delivery options. This is the main differentiating factor between the Amazon supply chain and other online retailers.

One of these options is the free two-day prime delivery. Another is the prime Now Option which gets products from one place to another in less than two hours.

All these come into play to make Amazon’s delivery fast and easy.

Other delivery strategies include:

  • Prime (1-2 hours, Same Day, One-Day, and Two-Day Options)
  • Hub & Locker Delivery
  • Amazon Key (In-Home / In-Car / In-Garage Options)
  • Amazon Scout Robot (Currently in test mode)
  • Hub Counter with local retail partners
  • Designated Day Delivery (to group orders together)
  • No-Rush Shipping (6-day shipping with a discount incentive)
  • Release Date Deliveries (Pre-order Option)

The retailer also leverages existing delivery routes via FedEx and UPS, too.

3. Amazon Supply Chain: Technology

Amazon’s supply chain has embraced technology to cut down costs (including warehousing and staffing costs) and work smarter thereby improving company efficiency and delivery speed.

They use solutions like automation and robots in the fulfillment centers to pick, pack and ship inventory. For example, Amazon Scout Robot Delivery is being tested in some US locations before being widely rolled out.

These tools not only up the company’s efficiency and delivery speeds but also cut down on warehouse and staffing costs – freeing up funds for other logistics or supply chain needs.

Interestingly, one of the best tech advancements has remained the anticipated Amazon Prime Air Drone Delivery. Although in development, the drones will deliver small packages to customers in less than 30 minutes once it is launched.

Read about: How to Get Amazon Prime for Free Forever | 10 Easy Steps

Customers will require an Amazon-branded landing mat and live within 15 miles of the nearest drone-enabled fulfillment center to qualify for this delivery option.

4. Manufacturing

Amazon allows third-party sellers but has discovered that these products can be made cheaper and more profitable. This has led to it manufacturing its lower-cost products and white-labeling products from other sellers.

This is a genius move by Amazon.

Currently, Amazon sells its own branded product line ranging from pet products to household goods and this keeps growing.

Essentially, they’ve found a way to keep everything in-house, from production to delivery. It is a sure way to cut costs, skyrocket profit, and control the quality of products.

5. Global Reach of Amazon supply chain

Amazon operates 11 online marketplaces worldwide. This allows sellers to grow their business internationally without minding the physical location.

With Amazon, sellers can introduce their brands and products to millions of customers in Amazon’s marketplace.

In addition, Amazon is set to build its second headquarters and partner with Whole Foods. This will change the food delivery system.

6. Pricing

One of the crucial aspects of any business is to remain cost-effective. They have successfully segregated their regular/standard customers from the prime customers.

Prime customers pay more for the cost of the product but benefit from free and fast delivery. Standard customers enjoy slower delivery.

Likewise, when it comes to its FBA program, Amazon is aware that having a large amount of inventory will raise storage costs and slow delivery down.

So, to ensure fulfillment centers are not overloaded, Amazon charges high long-term storage fees to its FBA sellers. The result is that sellers only send enough inventory to fulfillment centers to meet demand, and thus, Amazon’s costs do not rise.

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Conclusion

How exactly does the Amazon supply chain work? We have discussed that expressly in this article.

Amazon’s supply chain is patterned in that it works with economies of scale. Also, they are customer-centric, organized, and make use of technologies.

The rate of Amazon’s innovations has been incredible, making it difficult for competitors to keep up.

Lastly, Amazon continues to innovate regarding the supply chain to improve speed and efficiency.

Their strategies are worth emulating.

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