How Amazon's Supply Chain Works in 2022 | Complete Guide
If you have ever wondered how Amazon processes millions of orders and successfully delivers products to customers, then you just need to know about Amazon's supply chain.
Amazon's supply chain model is one of the largest, most efficient and modern supply chain operations in the world.
Its sophistication didn't start that way. It has actually grown from a garage warehouse to thousands of distribution centers around the world. However, its fundamentals are similar to its creation phase.
Amazon is adopting technologies to improve operations, efficiency and speed.
So how exactly does this Amazon supply chain work?
Before we answer this question about how it works, we'll start this discussion with what Amazon's supply chain is. Stay with us!
What is the Amazon Supply Chain?
Before getting started on how the Amazon supply chain works, it is important to explain what the Amazon supply chain is.
Amazon's supply chain simply refers to the entire process of product warehousing, inventory management, pricing, and delivery.
Each element is made to ensure a smooth supply chain.
There are different fulfillment options for sellers on Amazon. They can choose to handle fulfillment themselves or have Amazon sort, pack, and ship products through their fulfillment center.
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Third-party sellers on Amazon can use any of these distribution services:
Fulfillment by Amazon (FBA) – Sellers leverage Amazon fulfillment for products sold on Amazon Marketplace
Merchant Fulfillment (FBM) – Sellers manage the fulfillment of 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 recognized the need for super-fast delivery, it has invested heavily in reducing delivery times and even introduced same-day delivery.
Since this generation is an era of desire, Amazon's supply chain works exactly that way.
A customer places an order
The distribution center is on standby
Order barcode matches 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 product barcode corresponds to an order
These are sorted automatically in one of several thousand chutes before being packed
The barcode identifies the customer order
The boxes are packed taped and weighed
Orders are shipped
Let's repeat the main points about how Amazon's supply chain works. Amazon's fulfillment center actually takes the following steps after a shopper clicks the buy button:
#1 Receipt of products
Once the order is placed, the products are separated into those sourced from Amazon and those from third-party vendors using Fulfillment by Amazon.
At Amazon fulfillment centers, products are either removed from trailers by forklift or manually loaded onto pallets.
#2 Item Storage
Amazon stores items with yellow bins and all are tracked by computer.
These bins are used to transport products depending on their size.
#3 Order picking
When you hit the "buy button" and your order arrives, a robot will bring pods full of items to Amazon associates working at pick-up stations. These pickers will read the screen, pick up the item, and place it in a yellow plastic box, also called a tote.
#4 Quality control
These commands are manually checked to ensure that the robot's address and information matches the information on the computer.
#5 Packing Orders
Finally, items belonging to different shipments are organized and scanned before being sent to the packing station.
At the packing station, the system will recommend box sizes and measure the amount of tape needed.
Amazon ships items from third-party vendors in original boxes, but Amazon works with third-party vendors to reduce packaging.
Sounds easy, right? There are elements to make this process quite simple. They are just below.
Amazon Supply Chain Elements/Components
Amazon's supply chain model is the most important element to the company's success.
Now, let's break down the elements of Amazon's supply chain strategy that transformed an e-commerce business that started in Jeff Bezos' garage into a multi-billion dollar e-commerce business.
They understand:
Storage
The delivery
Swiss
Confection
Price
Global Reach
1. Storage
Warehousing plays an important role in Amazon's success. They basically ensure that the products are easily accessible from anywhere in the world.
As a result, there are a large number of warehouses and distribution centers located near major cities and mini-warehouses in smaller areas. Their warehousing strategy is strategic positioning close to metropolises and populated areas to ensure supply can meet demand.
Currently, Amazon has approximately 175 fulfillment centers/warehouses worldwide, with the majority located in North America and Europe.
In addition to these warehouses, Amazon also has a network of partner fulfillment centers and wholesalers. If they can't fulfill the order from its distribution center, they call on their partners instead.
2. Amazon Supply Chain: Delivery
Amazon offers a multitude of delivery options. This is the main differentiator between Amazon's supply chain and other online retailers.
One of those options is free two-day shipping. Another is the Now prime option which gets products from one location to another in less than two hours.
All of these things come into play to make delivery from Amazon quick and easy.
Other delivery strategies include:
Premium (1-2 hours, same day, one day and two day options)
Delivery Hub & Locker
Amazon key (in-home/in-car/in-garage options)
Amazon Scout Robot (currently in test mode)
Comptoir Hub with local business partners
Designated day delivery (to consolidate orders)
No-rush shipping (6-day shipping with discount incentive)
Release date deliveries (pre-order option)
The retailer also leverages existing delivery routes through FedEx and UPS.
3. Amazon Supply Chain: Technology
Amazon's supply chain has embraced technology to cut costs (including warehousing and staffing costs) and work smarter, improving business efficiency and speed of delivery.
They use solutions such as automation and robots in distribution centers to pick, pack and ship inventory. For example, Amazon Scout Robot Delivery is currently being tested in select locations in the United States before rolling out more widely.
These tools not only increase business efficiency and delivery speeds, but they also reduce warehouse and staffing costs, freeing up funds for other logistics or supply chain needs.
Interestingly, one of the best advancements in technology has remained the early delivery of Amazon Prime aerial drones. Although in development, once launched the drones will deliver small packages to customers in less than 30 minutes.
Read about: How to get Amazon Prime free forever | 10 easy steps
Customers will need an Amazon-branded landing pad and live within 15 miles of the nearest drone-enabled fulfillment center to qualify for this delivery option.
4. Manufacturing
In fact, Amazon allows third-party sellers, but has found that these products can be made cheaper and more profitable. This led him to manufacture his own products at a lower cost, as well as white label products from other sellers.
It's a stroke of genius from Amazon.
Currently, Amazon sells its own line of branded products ranging from pet products to household items, and it keeps growing.
Essentially, they found a way to keep everything in-house; from production to delivery. It is a sure way to reduce cost and skyrocket profit and control product quality.
5. Amazon Supply Chain Global Reach
Amazon operates 11 online marketplaces around the world. This allows sellers to expand their business internationally without worrying about the physical location of the business.
With Amazon, sellers can showcase their brand and products to millions of customers in Amazon's marketplace.
Additionally, Amazon is set to build its second headquarters and partner with Whole Foods. This will change the food delivery system.
6. Price
One of the crucial aspects of any business is staying profitable. They managed to separate their regular/standard customers from the main customers.
Preferred customers pay more for the cost of the product but get free and fast shipping. Standard customers benefit from slower delivery.
Similarly, when it comes to its FBA program, Amazon is aware that having a large amount of inventory will increase storage costs and slow delivery.
So, to ensure that fulfillment centers are not overloaded, Amazon charges high long-term storage fees to its FBA sellers. The result is that sellers send only enough inventory to fulfillment centers to meet demand, and therefore Amazon's costs do not increase.
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Conclusion
How exactly does Amazon's supply chain work? We have discussed it specifically in this article.
Amazon's supply chain is designed to work with economies of scale. Also, they are customer-centric, organized and use technology.
Amazon's rate of innovations has been incredible, making it difficult for competitors to keep up.
Finally, when it comes to the supply chain, Amazon continues to innovate to improve speed and efficiency.
Their strategies deserve to be emulated.
References
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