Amazon Supply Chain Management is a comprehensive and automated set of services that facilitates the movement of products from manufacturers to customers worldwide. This system ensures products are always in stock, enables faster and more reliable shipping, and significantly reduces costs.
Here are some key learnings about Amazon Supply Chain:
- Amazon’s success hinges on its ability to deliver products quickly and reliably. They achieve this through a complex network of fulfillment centers, sophisticated inventory management systems, and automation wherever possible.
- Amazon constantly seeks new technologies to improve efficiency. This includes robotics in warehouses, data analytics to predict demand, and drone delivery.
- Everything in the Amazon Supply Chain revolves around the customer. They focus on getting products to customers quickly and efficiently, with minimal hassle.
In addition to the key learnings, here’s some information to deepen your understanding of Amazon Supply Chain Management, including:
- 2 Amazon Supply Chain models: FBA and FBM
- How does the Amazon Supply Chain work: Store products, manage inventory, ship them to fulfillment centers, pick, and pack for delivery.
- 6 key factors of the Amazon Supply Chain: Warehousing, delivery, technology, manufacturing, pricing, international reach.
Let’s get to the details!
More about 2 Amazon Supply Chain Models
To utilize Amazon Supply Chain, you can choose one of two fulfillment models. That is:
- Fulfillment by Amazon (FBA)
- Fulfilled by Merchant (FBM)
For a detailed breakdown of each model, please continue scrolling.
FBA (Fulfilled by Amazon)
FBA refers to a program offered by Amazon that allows sellers to store their products in Amazon’s fulfillment centers. When a customer places an order, Amazon takes care of the entire fulfillment process (Picking, packing, shipping, and customer service).
Pros and cons of this Amazon supply chain strategy:
- Pros:
- Convenience: Amazon handles everything from storage and picking & packing to shipping and customer service.
- Faster delivery times: Utilizing Amazon’s fulfillment network often leads to faster shipping times and increased customer satisfaction.
- Prime eligibility: Products fulfilled by Amazon are automatically eligible for Prime-free two-day shipping. Learn more about the Prime program at Amazon Business vs Prime.
- Increased sales potential: FBA sellers often get better product placement and win the “Buy Box” more frequently, which can lead to more sales.
- Cons:
- Fees: FBA comes with a number of fees, including fulfillment fees, storage fees, and potential removal fees. These fees can eat into your profit margins.
- Less control: You have less control over the fulfillment process with FBA.
FBM (Fulfilled by Merchant)
Unlike FBA, FBM allows sellers to fulfill customer orders themselves. When using this Amazon Supply Chain strategy, sellers are responsible for storing, packaging, and shipping their products directly to customers.
Pros and cons of FBM:
- Pros:
- Greater control over branding: You have complete control over the packaging and presentation of your products. Thus, you can maintain a strong brand identity.
- Potentially lower costs: For sellers with high-volume or bulky items, using FBA can be more cost-effective compared to FBA storage fees.
- Direct inventory control: You have complete control over your inventory levels and can monitor stock more closely to avoid stockouts.
- Cons:
- Slower shipping times: Unless you have a robust fulfillment infrastructure in place, FBM can lead to slower shipping times compared to FBA.
- Increased operational complexity: Managing your own fulfillment requires significant time, resources, and expertise. This can be a burden for smaller sellers or those with limited resources.
- Customer service: You are responsible for handling all customer service inquiries related to fulfillment. This task can be time-consuming and requires dedicated staff.
Handy tips: To get more insight into the two forms of fulfillment mentioned above, you can refer to the article: Amazon vs Amazon Marketplace comparison.
How Does Amazon Supply Chain Work?
First, you can look at the diagram to best visualize how Amazon logistics works:
Our focus will now shift to a detailed examination of each step:
Receive products from sellers
Amazon Supply Chain begins with the crucial step of receiving products from sellers. However, only FBA seller can send their products in bulk to Amazon fulfillment centers. It is vital to note that FBA seller can’t deliver their inventory directly to the nearest FBA warehouse. Only professional carriers are allowed to make delivery appointments with Amazon Fulfillment Centers.
It should be noted that:
- For global sellers: Shipping to the Amazon Fulfillment center is handled by Amazon Global Logistics.
- For domestic sellers: Amazon Sponsored Program Carrier Program is responsible.
Upon arrival, products undergo a meticulous process of receiving to check if they are accurate, of high quality, and in compliance with Amazon’s standards. Then, advanced barcode scanning and inventory management systems accurately log the products into Amazon’s vast inventory.
A big shortcut: Amazon Supply Chain can assist you in delivering items to your customers as well as reducing workload. However, if you are a multi-channel seller, you may need an additional tool to help you manage your inventory and save time. LitCommerce’s Marketplace Integration toolset, which includes Amazon Integration, is an excellent solution. It can help you streamline your workflow and provide you with a seamless cross-platform selling experience.
Store and distribute inventory
These fulfillment centers are designed to optimize storage space and facilitate the smooth movement of inventory.
Amazon utilizes advanced robotics and automation to manage its inventory. Robots assist in the movement and retrieval of products within the fulfillment centers. This advanced technology enables Amazon to maximize efficiency and minimize the time it takes to fulfill customer orders.
Fulfill customer orders
Fulfilling customer orders is a critical stage of Amazon Supply Chain Management. Amazon’s sophisticated fulfillment system goes into action:
- Picking and packing: Highly automated systems within the fulfillment centers locate and retrieve the ordered items. Robots or associates pick the items, and the system then directs them to a packing station. Here, trained associates carefully pack the items according to size, weight, and fragility to ensure safe delivery.
- Delivery: Amazon utilizes a multi-pronged approach to product delivery. Its growing delivery fleet includes trucks, vans, and even airplanes for designated areas. We will reveal more details in the following sections.
Deal with order return
To complete Amazon Supply Chain Management, the company has implemented a streamlined and customer-friendly returns process to ensure a positive experience for its customers.
When a customer initiates a return, Amazon’s system generates a pre-paid return label and provides instructions for the return.
- Customers can choose to drop off the return at a designated location or have it picked up by a carrier.
- Once the return arrives at the fulfillment center, it undergoes a thorough inspection to determine its condition and eligibility for resale.
Moreover, Amazon uses sophisticated algorithms and processes to check returned items and decide if they can be resold, fixed up, or thrown away.
6 Key Factors of Amazon Supply Chain Management
To take full advantage of the power of the Amazon supply chain process, you need to understand the following six key aspects:
- Warehousing
- Delivery
- Technology
- Manufacturing
- Pricing
- International reach
1. Warehousing
The warehouse system is a crucial component of Amazon Supply Chain Management. It is a complex network of facilities designed to get items to customers as quickly and efficiently as possible.
Amazon divides the distribution network into five types of facilities, including cross-dock centers and fulfillment centers. Here’s a breakdown of the key aspects:
- Fulfillment Centers: These are massive warehouses that store a wide variety of products. When a customer places an order, items are picked from the shelves here and prepared for shipping.
- Sortation Centers: Packages from fulfillment centers are delivered here, sorted by destination, and loaded onto trucks for delivery.
- Delivery Stations: These are smaller facilities located closer to final destinations. Packages are delivered here from sortation centers and loaded onto vans for final delivery to customers.
- Prime Now Hubs: These hubs are specifically designed for Amazon’s ultrafast Prime Now delivery service. They store a limited selection of high-demand products for near-instant delivery.
Remarkably, Amazon enforces strict standardization across its warehouse system. This ensures a consistent experience for both employees and customers, regardless of location.
2. Delivery
Amazon’s commitment to fast and reliable delivery is a cornerstone of its Amazon Supply Chain Management strategy. Here are some highlight points related to Amazon’s delivery strategy:
- AMZL: Amazon Logistics (AMZL) is Amazon’s in-house delivery service that handles the “last mile” delivery of Amazon packages, meaning they transport the order from the warehouse to the specified delivery location. AMZL is responsible for shipping roughly 46% of Amazon’s packages. Even more compelling is
- Amazon doesn’t just rely on trucks! Their growing fleet of cargo planes, called Amazon Air. They are used to speed up deliveries by flying packages directly between fulfillment centers.
- AMZ has invested in air cargo services at over 15 US airports, with each jet transporting more than 30 containers. That’s why in 2022, Amazon Logistics processed 4.79 billion U.S. delivery orders, equating to 13.13 million delivery orders per day or 546,941 per hour (According to Capital One Shopping).
- Delivery partners: Although AMZL has an outstanding growth rate, Amazon does not ignore joining hands with other shipping partners in its Amazon supply chain process. They also collaborate with:
- Other carriers such as UPS, FedEx, and the United States Postal Services (USPS)
- A network of independent contractors through Amazon Flex
- Amazon Delivery Service Partners, which operates fleets of delivery vans
- Delivery options: From standard free shipping with Prime membership to ultrafast one-day or even same-day delivery options in select locations, Amazon provides a range of choices for customers. This caters to the growing demand for instant gratification.
3. Technology
Technology plays a pivotal role in Amazon Supply Chain Management. Let’s take a look at some state-of-the-art technology being applied:
- Robotic automation: Amazon heavily invests in robotics within its fulfillment centers. Robots handle repetitive tasks like product picking and movement, significantly increasing efficiency and accuracy. Some of the legends in Amazon’s robot system include:
- Sparrow: It is a smaller robot arm that can reach into totes and reliably grasp 65% of the more than 100 million products in Amazon’s inventory.
- Kiva robots: These are short, orange robots that move shelving units around the warehouse floor and bring them to pickers.
- Mobile robots: These are considered the workhorses of Amazon’s warehouses.
- Air capabilities: While ground transportation forms the backbone of Amazon’s delivery network, air freight plays a crucial role in ensuring fast delivery times for certain products and locations:
- Amazon Air: The company has invested heavily in its own fleet of cargo planes, which allows it to control delivery schedules and transport time-sensitive items faster.
- Prime Air: Amazon is also developing drone delivery systems (Prime Air) for short-distance deliveries in specific areas. This futuristic technology may revolutionize delivery times in urban areas.
- Data analysis: Data is the lifeblood of Amazon’s supply chain. This platform uses machine learning algorithms to make data-driven decisions for tasks like:
- Demand forecasting: By conducting an analysis of past sales data and identifying trends, Amazon can more accurately predict future demand for products.
- Route optimization: Delivery routes can be optimized based on factors like traffic patterns, weather conditions, and driver availability.
- Warehouse layout: Data analysis can be used to optimize warehouse layouts for better product placement and picking efficiency.
4. Manufacturing
Actually, Amazon does not directly manufacture anything themselves. Instead, they use a combination of private labeling and white labeling to sell their products. To make it easier to understand:
- Private labeling involves designing, branding, and producing products under Amazon’s own brand name. At one point, Amazon had more than 45 private brands and sold more than 243,000 products on the platform.
- White-labeling refers to the practice of purchasing unbranded or generic products from manufacturers and reselling them under Amazon’s brand name. Amazon is known to work with third-party suppliers and manufacturers to sell a range of products under the “AmazonBasics” brand.
However, according to The Verge, Amazon plans to reduce the number of items branded with its name. This decision is attributed to the increasing number of accusations against Amazon for collecting user data with the intention of promoting more of its in-house products.
Expanding Amazon-label goods can create conflicts of interest for sellers and does not ensure optimal Amazon Supply Chain Management.
5. Pricing
Pricing strategy is a key driver of Amazon Supply Chain Management. Amazon’s pricing policy enables you to segment customers into two groups:
- Prime: Members in this group pay $14.99/month (plus tax) and receive fast, free delivery. They also get some benefits like exclusive deals and free access to popular movies,shows, music, games, and books.
- Standard: These clients can use only standard or slower delivery.
Understand that segmentation allows both sellers and Amazon to respond instantly to fluctuations in demand. It also correctly calculates the order flow and ensures the efficiency of Amazon’s Supply Chain Management.
On the other hand, pricing factors also affect the supply chain for FBA sellers. Due to high long-term storage fees, FBA sellers need to calculate future demand carefully to avoid overburdening fulfillment centers.
6. International reach
The final component that strongly affects Amazon Supply Chain is global reach. With operations in multiple countries, Amazon has established a robust network of suppliers, fulfillment centers, and delivery partners to serve diverse markets around the world.
As an Amazon seller, you benefit greatly from this extensive network. With Amazon’s timely and efficient delivery options, sellers can expand their businesses globally. Check out the list below to see which markets Amazon has entered:
- North America:
- amazon.com
- amazon.ca
- amazon.com.mx
- Europe:
- amazon.co.uk
- amazon.de
- amazon.fr
- amazon.it
- amazon.es
- amazon.nl
- amazon.se
- amazon.pl
- amazon.com.tr
- Asia:
- amazon.co.jp
- amazon.in
- amazon.sg
- Middle East:
- amazon.ae
- amazon.sa
- amazon.eg
- Other:
- amazon.com.au
- amazon.br
Amazon Supply Chain Management: FAQs
The Amazon Supply Chain is highly efficient, thanks to continuous optimization, embracing technology, and fulfillment strategies. Amazon’s use of advanced technology, extensive network of warehouses, multi-tier inventory management, and excellent transportation contribute to its efficiency. The company’s investments in infrastructure, such as warehouse technology and trucking capabilities, further enhance efficiency The Amazon Supply Chain is successful due to a three-pronged approach: tech, efficiency, and scale. They leverage automation with robots and AI for tasks like order picking and inventory management. This focus on efficiency extends to their vast network of fulfillment centers, strategically placed to get products to customers quickly. Finally, the massive scale of their operation allows them to negotiate better deals with suppliers and carriers, further driving efficiency. Amazon’s supply chain relies heavily on automation. It uses robots, conveyor belts, and other technologies to sort, store, and ship products efficiently. This allows it to handle large volumes of orders quickly and keep costs down. Amazon is also developing AI-powered tools for planning and managing inventory.
Amazon Supply Chain Management: Final Words
Amazon’s unrivaled efficiency, speed, and customer-centric approach have set the bar high for the supply chain. By studying and implementing Amazon Supply Chain Management, you can optimize your operations, reduce costs, and meet customer demands more effectively.
Furthermore, if the idea of selling on multiple channels simultaneously resonates with you, feel free to reach out to us for expert guidance on utilizing LitCommerce tools. Plus, stay ahead in the industry by exploring my Retail Blog, where you can discover the latest trends and invaluable strategies for enhancing your eCommerce business.