In today’s world, ordering a book at midnight and receiving it on your doorstep by lunchtime the next day has become ordinary. That’s not magic. It’s the Amazon supply chain, a finely tuned machine that delivers millions of products daily across the globe. But how exactly does it work? 

Inventory Management

Amazon boasts a network of strategically placed fulfillment centers close to customers. This reduces shipping distances and speeds up delivery. This network is so effective that, contrary to what most people may think, Amazon stores most of the items sold on its platform in its own warehouses, totaling 288 million square feet of space as of 2018. Products are stored using an ecosystem that makes warehouse management possible.

Amazon has 5 types of facilities:

• Crossdock centers – These centers hold the packages until there’s enough stock to justify sending them to fulfillment centers closer to customers.  It’s like having a staging area before things get distributed further down the line.
• Fulfillment Centers – These massive warehouses store a wide variety of products, from books to bikes. Amazon retrieves and packages orders for shipment using a combination of robots and human workers. With hundreds of fulfillment centers globally, they’re the backbone of the Amazon supply chain.
• Sortation Centers – As orders near their destination, they enter a sortation center to ensure the packages get routed to the most efficient carrier (UPS, FedEx, etc.) for final delivery.
• Delivery Stations – Amazon steps up with delivery stations in some areas with high order volume. These facilities receive packages from fulfillment centers or sortation centers and become mini-hubs for final delivery.  By having their own delivery stations, Amazon gains more control over the last-mile process, potentially leading to faster and more reliable deliveries in these critical areas.
• Amazon Prime Now Hubs – These hubs stock time-sensitive items like groceries, specifically chosen for their ability to be delivered within a short timeframe (often 2 hours or less).  With a focus on speed and convenience, Prime Now hubs cater to a specific customer need within the broader Amazon ecosystem.

Transportation & Delivery

Speed is key for Amazon. They have a vast network of air and ground carriers to ensure fast and reliable delivery.  Amazon has also invested in services like Amazon Logistics, its own delivery network, and is exploring futuristic options like drone delivery.

Demand Forecasting

Amazon uses Probability Level Demand Forecasting, a system designed to help sellers in their marketplace anticipate inventory needs. It provides forecasts accounting for the inherent uncertainty in predicting demand.  For instance, instead of just predicting a single sales figure for a new gadget released before the holidays, they might forecast a range of possibilities (low, medium, high) with assigned probabilities. Instead of a single prediction, P-Level Demand Forecasting offers several forecasts, each with an associated probability of being accurate. There are typically four probabilities provided:

• P70. Amazon estimates a 70% probability that weekly consumer demand will be at or below the number of units shown. There’s a 30% chance they’ll buy more. 
• P80. There is an 80% probability that Amazon will purchase the level of demand indicated (or less), and a 20% chance Amazon will buy more. 
• P90. There’s a 90% probability that weekly consumer demand will be at the level indicated, and 10% chance Amazon will buy more. 
• Mean. This is used for vendors that import or whose manufacturing and production are overseas and need a five- or six-week waiting period to deliver products. In most cases, the probability percentage is around 50 – 60%. 

Fulfillment

Amazon offers two fulfillment options: Fulfillment by Amazon (FBA) and Fulfillment by Merchant (FBM).  

Fulfillment by Amazon (FBA)

With FBA, sellers send their products to Amazon warehouses and let them handle storage, picking, packing, shipping, and customer service inquiries related to fulfillment. This frees up sellers’ time and resources to focus on product sourcing, marketing, and business growth.

With FBA comes a whole scheme of fulfillment fees sellers must pay to get the service. Actually, Amazon’s vast network of fulfillment centers can accommodate a wide range of inventory levels and order volumes, which can save sellers money on storage costs, packaging materials, and labor compared to managing their own fulfillment.

Fulfillment by Merchant (FBM)

FBM allows sellers to manage the entire fulfillment process themselves. Since they avoid FBA fees, sellers can potentially keep more profit. This can be particularly beneficial for high-priced items with wider profit margins.

From customizing packaging and handling specific customer requests to potentially faster fulfillment times for local deliveries, sellers have complete control over the fulfillment process. Amazon’s storage limitations do not restrict them, and they can manage their inventory levels more precisely. However, this increases the workload and requires a significant investment in labor, warehouse space, and shipping supplies.

Technology and Innovation

Technology is the backbone of Amazon’s supply chain efficiency. Machine learning algorithms analyze vast amounts of data to optimize everything from inventory placement in warehouses to routing delivery trucks. These algorithms can even predict product demand with greater accuracy, further refining the Probability Level Demand Forecasting model. Additionally, Amazon heavily invests in robotics and automation. 

The Future of Amazon’s Supply Chain

The future promises even more innovation. We can expect a wider adoption of automation with even more sophisticated robots handling tasks currently done by humans. Autonomous vehicles might become a reality for last-mile delivery, further reducing delivery times.  Artificial intelligence will continue to play a central role, with even more advanced algorithms for demand forecasting and supply chain optimization. However, challenges remain. Sustainability concerns regarding packaging waste and the environmental impact of rapid delivery need to be addressed. Additionally, labor issues surrounding working conditions in fulfillment centers require careful consideration.

Conclusion

The Amazon supply chain has revolutionized e-commerce, offering consumers an unparalleled selection of products with fast and reliable delivery.  This efficiency benefits both Amazon (increased sales and profitability) and consumers (wider selection, faster delivery times, and competitive prices). As Amazon continues to push the boundaries, gaining visibility becomes critical for success. Contact the BellaVix Team to boost your visibility on Amazon and grow sales.

Keep up with the latest Amazon and Walmart news updates and subscribe to our BellaVix newsletter 👇👇👇