In the span of two decades, Amazon has gone from a lowly online bookseller to the most formidable and dominant force in retail. Amazon’s innovative approach to supply chain management has been key to its success, ensuring that it can get millions of items to customers at the right price and faster than anyone else.
A behemoth in retail and e-commerce, Amazon is a trendsetter and an innovator—so it’s critical for small to midsize businesses (SMBs) to keep up with what the company is doing. As such, we’re highlighting some of the most forward-thinking trends in Amazon’s supply chain strategy.
While it could take time for these innovations to trickle down to the SMB front, they all present competitive challenges and opportunities on the horizon. Let’s get started.
Two-Day Delivery Is So 2005
Amazon’s 2005 launch of Amazon Prime—an annual membership that offers free two-day shipping on hundreds of thousands of items—was a game changer. It further established Amazon’s online retail dominance.
And, right as other online retailers began to catch up and started offering free two-day shipping … Amazon took it a step further and began offering one-hour deliveries with Amazon Prime Now.
With a separate mobile app, customers can arrange to have deliveries made during specific hours of the day. In select markets, customers can also order groceries and even take out from local restaurants—making Amazon a direct competitor to delivery services such as Favor and Instacart.
Though the inventory for Prime Now is far more limited and is only available in select cities, it has grown in size and availability since its debut in December 2014.
Game of Drones
Amazon made waves back in 2013 when CEO Jeff Bezos announced that the company is developing a drone-based delivery system, dubbed Amazon Prime Air. Customers with eligible orders (packages must be under five pounds) who live within 10 miles of an Amazon fulfillment center will be able to receive their packages via drones within 30 minutes or less.
Though many considered the 2013 announcement to be little more than a publicity stunt, there’s no question that Amazon considers drone-based delivery to have great potential for its distribution system.
Though Prime Air is still in development and is currently facing some regulatory hurdles, it is expected to make its public debut as early as 2017.
The good news for SMBs is that Amazon has the weight and political influence to pave the way for more businesses to legally operate drones for commercial delivery purposes.
Need More Detergent? It’ll Be There in a Dash
Last year Amazon unveiled Dash buttons—little internet of things (IoT) devices that allow users to simply press a button to order a household staple such as detergent or coffee.
Like one-click purchasing, the Dash buttons represent Amazon’s desire to make buying things as easy as possible. While the Dash buttons might seem like a gimmick, online ordering via IoT devices may be here to stay.
3PL? More Like 3PLoser
Same-day shipping and one-hour shipping are not something that traditional third-party logistics (3PL) providers such as UPS, USPS and FedEx are well equipped to handle. Bucking all conventional wisdom with regards to outsourcing distribution, Amazon has begun to more heavily rely on its own fleet of delivery vehicles to fulfill same-day deliveries.
Research firm Gartner notes that other companies should explore Amazon’s approach to insourcing distribution (this content is available to Gartner clients):
“By making its own deliveries, the online giant can claim a piece of the pie owned by FedEx, UPS and the United States Postal Service.”
Anything You Can Make, Amazon Can Make Cheaper
Amazon is no longer just a retailer and distributor. It is also a manufacturing giant. Somewhere along the line, CEO Jeff Bezos realized that not only could Amazon sell products for less than its competitors: it could also make them much cheaper than its competitors.
The AmazonBasics line includes a wide variety of household items, including dog poop bags, iPhone chargers, Bluetooth speakers, backpacks, batteries and more.
By streamlining manufacturing, distribution and retail of these select products, Amazon has a significant competitive advantage due to the scale it operates on. It wouldn’t be surprising if the AmazonBasics line expanded into more consumer staple products.
I, For One, Welcome Our Automated Warehouse Overlords
Amazon caught some serious flak several years ago over working conditions in its fulfillment centers. While Amazon has made some efforts to improve working conditions, it may eventually remove the human element from its fulfilment centers altogether.
In 2012, Amazon acquired Kiva Systems, a provider of robotic and automated warehouse solutions. In 2015 the company was rebranded as Amazon Robotics. These automated robots can pick, pack and sort shipments—all without the need of human assistance. Take a look:
While a lot of these techniques may seem futuristic or out of grasp for businesses that lack Amazon’s scale and resources, there are a number of reasons for SMB’s to pay attention:
- Amazon is making significant strides in improving and shortening delivery times by subverting traditional 3PL models and investing in new technology like drones and warehouse automation.
- For SMBs that compete with Amazon in the e-commerce and retail space, it will be difficult to compete with things such as drone delivery and same-day delivery. In that case, it would be wise to invest in things where SMBs could have a competitive edge, for example: customer service, product knowledge or niche product selections. Of course, small businesses need to ensure that they are also making appropriate investments in supply chain management technology.
- Regardless, SMBs should look to Amazon’s example as what the future of supply chain management could look like.
What other companies are trailblazing the way with supply chain management? Email me your thoughts at firstname.lastname@example.org.
Perfect your supply chain processes like this industry giant at the High-Tech Supply & Demand Summit
From its beginnings in 1995 as one of the first online shopping websites, Amazon.com, under the stewardship of CEO Jeff Bezos, has focused on the logistics of distribution as central to the online retail experience. Its growth has been monumental. While the firm started off hand-delivering books, it now sells almost everything, processing in excess of 400 orders a second at peak times, and bringing in revenues of nearly $90bn a year.
Much of Amazon’s success comes down to supply chain management. In 2015, it topped Gartner Inc.’s Top 25 Supply Chains, beating out McDonalds and Unilever to head the field. It did so thanks to its constant innovation, and a consumer-centric approach that emphasises frugality and works from the customer backwards.
For years it has been investing heavily in reducing the delivery time of its products, getting it down to same-day delivery - and it is set to make this even faster with the introduction of drones. Its recently-introduced “Dash” button also enables users to order basic household supplies at the touch of a button, so they don’t need to log on to a computer to order. Such tools are also a boon in that they provide a wealth of real-time data from which they can gain even more specific information about when demand for a product will rise and fall, so that they can adjust stocks accordingly.
Indeed, Amazon is increasingly becoming a logistics company, as it facilitates the storage and sale of goods from third party vendors. It announced last month that it was hiring more than 6,000 full-time employees across its fulfilment network, and while it always thinks outside the box, much of its success comes down to doing basic things extremely well. For one, its warehouses have been strategically placed, moving closer and closer to metropolitan areas over recent years as the company buys up more space for distribution centres around major cities.
Amazon’s supply chain process is simple, yet effective. It starts with the customer placing an order. The order prompts a red light to come on in the warehouse which shows the worker the products that have been ordered, and the bar code is matched with the order. The product is then placed in crates on a conveyor, which goes through the distribution centre before being sorted by bar codes. Crates arrive at the central point, and bar codes of products are matched with orders and sorted automatically into one of several thousand chutes before going into a box. The bar code then identifies the customer order, boxes are packed taped and weighed, and they are shipped by either US postal service or UPS for the last mile, arriving at the consumer within 1 to 7 days.
Amazon’s warehouses are divided into 5 storage areas.
Library prime storage - Books and magazine
Case flow prime storage - Broken case and high demand
Pallet prime storage - Full case and high demand
Random storage - Smaller items and modern demand
Reserve storage - Low demand/irregular shaped products
Emulating Amazon is a challenge that many will fail in, primarily because the economies of scale they have in place allow them to do so much at a fraction of the cost. However, their consumer-centric approach is certainly something to look at, and their use of frugality as a driver of innovation has the potential to inspire lower costs and new ways of working that could help compete with a behemoth such as Amazon.
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