Amazon’s priority is to guarantee free and fast delivery of goods
As part of an Amazon Prime subscription, customers are guaranteed free delivery of products within one or two days. The company provides American customers with free two-day delivery. Under the Prime Now program, which extends to some cities in the United States, goods are brought to the buyer within two hours – nothing like what UPS and FedEx can do (Wu & Gereffi, 2018).
- Amazon’s focus is to reduce its use of third-party logistics providers as it gains more control over how it moves cargo through its own distribution networks.
- Amazon’s ambition is to lead innovation in organizing transportation and warehousing by introducing new technology.
- Amazon is also at the forefront of implementing new automation technologies: in warehouses, delivery, and customer service.
- Amazon’s aspiration is to build an efficient distribution system through its own transportation fleet (Cohen, 2018).
- Amazon’s plan is to make its high-speed delivery service environmentally friendly. By 2040, the company will be entirely carbon-neutral.
Modes of Transportation
In 2016, the company leased 20 Boeings to ensure uninterrupted deliveries. By 2021, it plans to operate at least 70 cargo airplanes.
Amazon has repeatedly stated that it wants to use mobile aerial drones to deliver goods to customers. The company has patented the design of drone docking stations and is lobbying for drone delivery permits. Thus, the British government recently allowed Amazon to test its drones in Foggy Albion; however, only in certain places.
Amazon is preparing to take a big step in the world of driverless cars. The Wall Street Journal reports that Amazon is negotiating the acquisition of Zoox, a technology developer for unmanned taxis.
Amazon has invested $440 million in electric car manufacturer Rivian and announced plans to buy 100,000 cars for delivery from them. In addition, Amazon will purchase 100,000 commercial electric vans from Rivian Automotive.
Amazon Dragon Boat
In 2013, the company reportedly launched the Dragon Boat project to ship goods directly from manufacturers in China and India to the United States.
Locations of Warehouses
As of 2020, there are 559 warehousing facilities in the US and 1179 facilities worldwide, mainly in across North America and Europe.
Amazon’s logistics infrastructure in the US includes 188 warehouses, 28 sorting centers, 59 local delivery points, and 65 stations for two-hour delivery under Prime Now. According to PiperJaffray, 44% of the US population lives within a radius of 20 miles from an Amazon distribution center (Wu & Gereffi, 2018).
Fulfillment centers replace old-fashioned warehouses
Unlike warehouses, fulfillment centers not only provide storage services but also receive and process orders, pick and pack parcels, receive payment from customers, organize shipment of orders, work with returned goods (Cohen, 2018).
Advantages of Decentralized Locations
Decentralized Stock and Inventory Management:
Can shorten the delivery time
Transportation can be efficiently handled because one route can be used to send goods to several customers at a time. This approach has guaranteed an unprecedented delivery speed for Amazon: this year, the average total delivery time in the United States was less than three days. For competitors such as Walmart and Target, the average delivery time was about five days (Wu & Gereffi, 2018).
Can improve customer service through localization
Decentralization enables Amazon to adapt to cultural, social, and demographic aspects of the area, thus, helping in decision-making when replenishing stock. Local supply chain managers control the flow of goods to warehouses. A one-size-fits-all approach can be dangerous for business (Cohen, 2018).
Can reduce shipping costs
Keeping decentralized inventory is cheaper in the long-term as fulfillment centers are located close to the customer base.
Can prevent stock shortage or overstocking
In case of a stock shortage in one of the centers, neighboring centers can compensate for the deficit.
Disadvantages of Decentralized Locations
Considerable investment and maintenance costs
Decentralized inventory management requires complex infrastructure, investment in more units of equipment, more bills and employees to pay, which means the company can channel less money to other areas, such as marketing (Cohen, 2018).
Lack of flexibility to accommodate changing demand
Lack of centralized control over stock depletion and replenishment as each center determines the volume and range of products at its own risk.
Economic and Political Factors
Compliance with local sales tax laws
Sales tax rate depends on the physical presence of stock in a fulfillment center in a particular US state. Online Amazon sellers must pay a sales tax to communities and states where they have a connection (a nexus). Thus, there can be a lot of confusion and unintended consequences for Amazon sellers (Cohen, 2018).
Disruption of international distribution network
Measures taken by the authorities to combat the spread of CODID-19 led to the disruption of cross-border trade and closure of traditional shipment routes.
Trade war with China
Amazon relies heavily on imports from China; thus, any trade dispute or political tension can result in a product shortage for the company
Demand to raise the minimum wage for warehouse staff
As of 2020, Amazon has 840,000 employees. During the pandemic, the warehouse staff was offered a $2 pay rise to compensate for extra work and the risk of infection. However, it will be dropped in June amid staff complaints.
Amazon has more than 30,000 Kiva robotic loaders and forklifts in its warehouses, which have fully automated the storage, picking, and packaging process. With the help of robots, the Internet giant has reduced operating costs by 20 percent (Boysen et al., 2019).
Chaotic Storage System
All products are laid out in random order, and there are no separate sections for books, electronics, clothing, etc. Each product is stamped with a barcode, and the workforce use scanners to locate them. In a traditional storage system, free space in the warehouse may be empty since it is reserved for specific products currently unavailable. In contrast, in a chaotic storage system, space is used more efficiently (Boysen et al., 2019).
Further investment in automation (Boysen et al., 2019).
- staff cost reduction.
- elimination of accidental or intentional mistakes by employees.
- speed up processing and packing.
- raise company competitiveness.
Expand global distribution network
Geographical expansion is necessary to find new markets and boost sales. Presence in more countries gives access to more suppliers who can offer their products on the Amazon platform (Cohen, 2018).
Boysen, N., de Koster, R., & Weidinger, F. (2019). Warehousing in the e-commerce era: A survey. European Journal of Operational Research, 277(2), 396-411.
Cohen, R. (2018). How Amazon’s delivery logistics redefined retail supply chains. Journal of Supply Chain Management, Logistics and Procurement, 1(1), 75-86.
Wu, X., & Gereffi, G. (2018). Amazon and Alibaba: Internet governance, business models, and internationalization strategies. International business in the information and digital age, 327-356. Web.