Amazon is among the companies growing at the fastest rate and has one of the top supply chain operations around the globe.
Amazon supply chain strategy is comparable to in 1995 when the company offered only books on the internet. But, it’s bigger in size and features numerous technological advances that have helped to improve both processes and improve efficiency.
This article will go over the main factors that contribute to Amazon’s growth and what to anticipate from the supplier chain giant soon.
Table of Content
What is Amazon supply chain strategy?
The sellers that sell their products on Amazon Marketplace have different options of fulfillment. For example, sellers can decide if they would like to manage fulfillment themselves or allow Amazon to sort, pack and ship their items through their fulfillment centers.
As a third-party vendor selling products on Amazon Marketplace, as a third party seller selling on Amazon Marketplace, you can choose to utilize Amazon’s fulfillment service:
Fulfillment through Amazon (FBA) Sellers can use Amazon’s fulfillment services for items offered through the Amazon Marketplace
or sell through their own fulfillment (FBM) – Sellers manage fulfillment for their items offered through the Amazon Marketplace
The components of the Amazon distribution strategy
Now, let’s look at each component that comprises this strategy. Amazon Supply Chain Strategy, including:
How does Amazon supply chain model work?
The most important thing to know is Amazon’s warehouses and delivery services.
From the moment a consumer makes an order for a product through Amazon, the process begins with the FBA center. The product is then selected and matched to the barcode of the order. It is then shipped to be delivered to the client. Amazon has huge warehouses across the globe with different sizes and is used for different purposes.
The warehouses of each contain the following storage spaces that are identical to all of them:
- Random storage is intended for the storage of small objects that are in moderate demand
- Reserve storage – It is intended for the storage of goods that have an irregular shape and are in lower demand.
- Pallet Prime storage – This storage space is designed for products with large quantities and full case products.
- The Case Flow Prime Storage This storage space is intended to store damaged case products and products in high demand.
- Library Prime Storage This storage area is intended to store magazines and books.
In addition, these are just a few of the types of warehouses that Amazon is able to offer:
- Prime Now – These are warehouses for the storage of items that fall into an unspecified category but are in extremely high demand. They need to be delivered within a one to two hour time period after an order was placed.
- Pantry warehouses – These warehouses are designed for dry groceries, perishable, frozen, and perishable food items.
- Sortition centers are the place where packages are sorted according to specific regions.
- Delivery stations handle last-mile logistics where goods are sorted and then delivered directly to the customer.
Amazon’s warehouses are equipped with a majority of their tasks already automated, in addition to employing workers on site. The modern technology they utilize also includes robots that help in the processing of picking, sorting, and packing.
Amazon offers a wide range of delivery options that customers can choose from, based on the type of customer they are: Prime customers or members. At the beginning of the quarter in 2021, Amazon reported 200 million Prime members who pay across the globe, an increase of 150 million Prime members paid all over the world as in the 4th quarter of the year. In the years since 2014., Amazon Prime memberships have not stopped increasing ( source). Prime members have the option of same-day delivery, one-day or two-day delivery. They can also get delivery within two to three hours.
They also provide No-Rush Shipping which is ideal when you don’t need to make your order to be delivered quickly. This option offers a six-day product delivery and discounts. Also, there is Designated Day delivery, Release Date Deliveries, first-class, and Super-saver delivery for free to select from.
To transport and deliver packages, Amazon uses trucks and even has cargo Amazon Air which is used to air transport their packages. Amazon’s trucks make up a large component of their transportation system, and their fleet of trucks is increasing every day. An innovative method of speeding delivery speeds has been accomplished through drones too. Additionally, they are equipped with vans and bikes too.
If a buyer makes an order through Amazon, the goods are selected at the FBA center and then undergo a quality test before they are packed. It’s an established fact that Amazon is known for its high-quality products as well as customer happiness. After quality assurance has been completed, the product is ready to be shipped. There are various sizes of boxes that can be used for the products based on their dimensions. The sealant tape is also measured according to the size of the box.
How Amazon’s Supply Chain benefits Amazon sellers
The typical small to the medium-sized retailer does not have the capacity or advanced logistics processes that Amazon has developed. Amazon’s supply chain does not just help them and their customers but also the third-party sellers that sell their goods on Amazon.
Amazon sellers can choose between two ways to complete their orders: FBM or FBA.
In the case of FBM (Fulfilled By Merchant), the seller is responsible for the entire fulfillment process, including storage packages, packing, and delivery.
In FBA (Fulfilled with Amazon), sellers are able to send their items via Amazon fulfillment centers. Amazon handles all the storage as well as order fulfillment. Additionally, they can also make their products Prime eligible, which permits sellers to have their orders delivered to their customers within 2 to 3 days.
Through FBA, sellers are able to utilize Amazon’s highly-technical fulfillment network to increase the size of their businesses. In lieu of stressing about how you’ll keep your items or the best way to ship and package orders, let Amazon manage everything.
Amazon fulfillment centers
Amazon offers 11 fulfillment centers throughout the US and more than 185 locations around the world to make sure that wherever customers live, they will receive their purchases promptly and on time.
When sellers make orders within Seller Central, Amazon will determine which warehouses or warehouses to ship their stock to. This is based on the amount of demand for your kind of item across the US. For instance, Amazon may split your shipment between two fulfillment centers: a New Jersey fulfillment center and one in Texas fulfillment facility.
Sellers have the option to ship their entire inventory to one fulfillment center. Amazon will then divide its inventory among several fulfillment centers to make sure sellers fulfill their 2-day prime shipping guarantee anywhere in the world.
Fulfillment centers are where the magic occurs! Receiving, quality control storage, packaging, and even shipping are all done in these centers.
Interesting fact Have you ever heard that prior to COVID-19, you could visit the Amazon fulfillment facility? Although you’re not able to visit them in person, Amazon offers virtual tours to give you an idea of what technology and their employees are doing for Amazon. It’s worth watching if you are interested in seeing the places where your items go and originate from.
The challenges facing the Amazon supply chain process
However efficient it may be, there are always numerous issues or risks involved. Let’s look at a few Amazon supply chain problems.
- While Prime is fantastic for consumers but it’s not so great for sellers. FBA sellers’ products are eligible to receive free shipping; however, they must pay for the shipping costs associated with their items. They aren’t able to pick which products they will offer free shipping. Since all their products fall with this free shipping option, shipping charges can eat away at their profits.
- There is a problem with slowing down the amount of time required to allow Amazon to record all items into the system. This causes delays in getting the packages ready for delivery. This kind of delay can have an immediate negative impact on customer satisfaction and result in negative reviews and star ratings. In addition, inexpensive delays like this can result in the capital of sellers being impacted.
- The Amazon supply chain’s risk also involves the possibility of your product being lost among the countless products which are dealt with daily. Amazon reimburses sellers in the event of products that are lost; however, they will decide on the amount, regardless of the amount you paid on it. The result is that sellers suffer losses. Find out more information about the FBA’s reimbursements in our comprehensive blog.
- There are instances that the demand for certain items is not accurately forecasted from Amazon Supply Chain Analytics, and it affects the satisfaction of consumers. The issue is how the prediction relies on a product’s sales history and the current trend. Therefore, it is not always reliable when making decisions about stocking up in preparation for the season’s peak shopping. You can utilize tools such as the Profit Dashboard to gain exact sales information and perform efficiently managing your stock. This way, you’ll never have to face difficulties in getting the perfect amount.
- Last-mile deliveries of orders during busy shopping periods often end up with issues in logistics. This can result in a large number of dissatisfied customers who don’t get their orders in the time they were planned. But, it’s also prompted Amazon to handle this task independently so that the issues with deliveries made the last mile are getting better.
Amazon Supply Chain has been through the ages and is certainly one of the fastest supply chains in the world. This has taken the online shopping world by storm and inspired other companies to improve and offer speedy delivery to their customers. Of course, it’s not without some pitfalls, but the popularity far exceeds the issues it is facing.