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 largest, most efficient, and state-of-the-art supply chain operations in the world.
Its sophistication didn’t begin this way. It actually 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 off on how the Amazon supply chain works, it is important to explain what the Amazon supply chain is.
The Amazon supply chain simply refers to the whole process of 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 either choose to handle the fulfillment themselves or let Amazon sort, package, and ship products through their fulfillment center.
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 actually work?
Since Amazon has recognized the need for super fast delivery, it has invested heavily invested in reducing delivery time and even introduced same-day delivery.
Since this generation is a want-it-now era, Amazon supply chain works exactly this way.
- A customer places an order
- The fulfillment center is on standby
- The order barcode is matched with the product
- 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
- 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 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 actually follows the following steps after a shopper has clicked the buy button:
#1 Receiving Products
After an order is placed, the products are separated between those coming from AMazon and from 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 and all are 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 tallies with the information in the computer.
#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, right? There are elements to achieve this pretty straightforward process. They are just right below.
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 garage into a multibillion e-commerce company.
- Global Reach
Warehousing bears a huge part in Amazon’s success. They basically ensure products are easily accessible from everywhere in the world.
As a result, there are vast numbers of warehouses and distribution centers 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 that 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 currently being tested in some US locations before being more widely rolled out.
These tools not only up the company’s efficiency and delivery speeds, but they 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, once it is launched, the drones will deliver small packages to customers in less than 30 minutes.
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.
Actually, Amazon allows third-party sellers but has found out that these products can be made cheaper and more profitably. This has led to it manufacturing its own lower-cost products, as well as 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.
In essence, they’ve found a way to keep everything in-house; from production to delivery. It is a sure way to cut down costs and 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 not minding the physical business location.
With Amazon, sellers can introduce their brand 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.
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.
The 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.
How exactly does the Amazon supply chain work? We have discussed that expressly in this article.
Amazon’s supply chain is patterned in a way 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, when it comes to the supply chain, Amazon continues to innovate to improve speed and efficiency.
Their strategies are worth emulating.