SCM (Supply Chain Management) is a management concept and organizational strategy. It is based on an integrated approach to controlling the entire flow of information about raw materials, materials, products, and services, emerging and transforming the company’s logistics and production processes. This concept aims to obtain a measurable total economic effect (cost reduction, satisfaction of demand for final products). Amazon’s supply chain model is one of the largest, most efficient, and most modern supply chains globally. Nevertheless, its foundations are similar to its creation more than twenty-five years ago, although on a much larger scale. Over the years, technological innovations have been introduced to streamline operations and improve efficiency, while money has been invested in ensuring that Amazon continues to develop. Thus, a comprehensive review of the complete supply chain is essential to understand the reasons for Amazon’s success.
Amazon’s Supply Chain
Amazon’s chain of definitions refers to the entire process of product warehousing, inventory management, pricing, and shipping deadlines. In the case of Amazon, each of these elements is calculated for the current flow chain (Min et al., 2019, 45). Therefore, first of all, to maximize the supply of goods, Amazon cared about sellers who use devices that require the various options available to them to fulfill orders. It is FBA (Amazon fulfillment) and FBM (seller fulfillment); it offers these two options: those who want to store, pack, and ship goods themselves do so with FBM. People who prefer non-intervention can use Amazon execution (FBA) to store, pack, and ship orders. In this way, Amazon fully embraces all of its suggestions (Min et al., 2019, 47). In addition, Amazon utilizes high-tech equipment, including robots (the sudden and long-awaited arrival of drones), to further increase utilization efficiency.
This is a critical part of Amazon’s supply chain, which is why there are a huge number of stores and distribution centers located near major cities. Amazon currently has 175 fulfillment centers (warehouses) worldwide, most of which are located in North America and Europe. Amazon has a network of 493 warehouses worldwide that are located in about 180 million square feet of space (Min et al., 2019, 50). All of this follows the push marketing strategy that the company is applying to held inventories. The more Amazon can promote goods in its warehouses, the more it will be able to sell and therefore will require a vast distribution network to ship these goods to customers faster. This expert warehouse strategy provides control over the company’s distribution operations to ensure that they can obtain customer orders more quickly and at a reduced expense anywhere in the world.
This extensive network of warehouses permits Amazon to deliver orders to customers efficiently and quickly with minimal effort. Efficiency is critical; for this reason, each lineup is optimized from the inside out with five unique warehouse locations for maximum productivity. These include prime storage library: books and magazines; case flow prime storage: broken cases and high-demand merchandise. It also involves prime pallet storage: full drawer and high-demand items; casual storage: small goods and contemporary merchandise (Min et al., 2019, 51). Finally, backup storage is essential: low-demand and irregularly shaped items. Workers and robotic collectors (about 100,000 robots) can immediately find products and begin preparing them for shipment (Min et al., 2019, 53). In addition to these warehouses, Amazon also has a network of partner distribution centers and retailers. If an order cannot be completed from its distribution centers, Amazon can conveniently rely on its partners.
This prompt and speedy delivery is an increasingly crucial factor in Amazon’s supply chain and one of the biggest differentiators between Amazon and other online retailers. The company offers many variations on delivery, such as Prime, shipping is 1-2 hours, same-day, and there are also same-day and two-day alternatives (Cohen, 2018, 76). There is also the hub, locker, and key Amazon delivery, containing options in the house in the car, or in the garage. Indeed, through advances in technology, the corporate also proposes delivery with Amazon Scout robots (currently in test mode). More to-the-point delivery types include Hub Counter with local retail partners and assigned day shipping, essential for grouping orders (Cohen, 2018, 81). The company also used a type such as leisurely delivery, which means shipping within six days at a discount and delivery release date, a pre-order option.
Presents such a multitude of shipping options have been a game-changer for Amazon. The vast number of delivery options is, without a doubt, one of the most significant factors that attract customers. Amazon ensures that many buyers will choose them among other e-commerce retailers (Cohen, 2018, 79). Thus, by offering a variety of shipping options, the company can satisfy a wider range of customers, thus ensuring itself the ability to receive more purchases. Sometimes drones, planes, and lockers can be unreachable, but a simple strategy of offering trackable next-day delivery options and expedited packages along with standard delivery attracts clients.
Technology is at the heart of Amazon’s success, enabling its supply chain to operate more efficiently and reduce costs in the long run. Amazon’s supply chain relies heavily on solutions, including automation and working in its fulfillment centers to gather and package orders prepared for shipment. It also incorporates inventory stacking and order delivery. Amazon Scout Robot Delivery is currently being tested in some regions of the U.S. before wider adoption (Iddris, 2018, 54). Despite the significant initial investment, Amazon is continually developing technology. According to reports, the corporation invested $775 million to obtain Kiva Robots, and Amazon Robotics was bought in 2012 (Iddris, 2018, 48). This is because the application of technology expedites order completion, reduces personnel costs, and can release funds for other logistical elements.
Probably the most anticipated technological advancement is the expected use of Amazon Prime Air Drone Delivery. Still in development, once launched, the drones will deliver small packages to customers in less than 30 minutes. Clients will only need an Amazon-branded landing mat and have to live within 15 miles of the nearest drone-enabled fulfillment center to be eligible for this delivery option in the future (Iddris, 2018, 60). Consequently, the introduction of robots could have extreme effects on e-commerce entrepreneurs. Accordingly, Amazon is constantly reviewing the business and automatizing certain elements to dominate the competition and increase its customer base.
Amazon noticed rather quickly that it would be profitable to begin producing and white labeling some of the most popular products sold on the market. A somewhat reflective but ingenious course of action for Amazon could offer the customer cheaper product options while increasing greater profits. Amazon currently retails its line of products, from pet products to home goods, and its inventory continues to grow (Hahn et al., 2018, 17). When Amazon produces its line of items, it maintains everything within the company, from manufacturing to shipping to customers.
Thus, it is a surefire way to cut costs and enhance profits. Accordingly, the corporation researched market trends and created its brand. Selling products under its trademark (private label) grows exponentially and is one of the best ways to eliminate competition, especially when trading on Amazon (Hahn et al., 2018, 19). Correspondingly, the company controls not only the product, its quality, and aesthetics but also feedback from clients and demand for services and products.
Maintaining profitability is an essential part of Amazon’s supply chain. The corporation intelligently differentiates its customer base by segmenting prime and standard clients and offering different delivery options for various prices. For instance, Prime members can pay more for the product price but have the advantage of receiving “free” and super-fast shipping. In contrast, standard buyers may choose only regular or slower delivery (Ayers & Odegaard, 2017, 287). The creation of these multiple delivery windows enables Amazon to support a steady ebb and flow of orders.
This has a positive impact on fulfillment and permits Amazon to respond to any fluctuations in demand without affecting the rest of the supply chain. Similarly, when it concerns the FBA program, Amazon is very conscious that maintaining large inventory amounts will increase storage costs and, crucially, delay order execution (Ayers & Odegaard, 2017, 289). Hence, Amazon charges high long-term storage charges to its FBA sellers to ensure that fulfillment centers are not overloaded. As a result, vendors consign only enough inventory to fulfillment centers to satisfy demand, and, consequently, Amazon’s costs do not increase.
Amazon’s Global Reach
The Amazon European Fulfillment Network (EFN) provides Amazon’s supply chain with even more opportunities around the world. Operating eleven online venues in North America, Europe, and Asia, Amazon offers sellers an uncomplicated way to increase international business and expose their brand to millions of potential customers (Ayers & Odegaard, 2017, 301). Each of these Amazon marketplaces represents a huge e-commerce opportunity for merchants who can attract customers who not only trust the Amazon shopping experience but are also highly loyal. One of the most significant benefits for sellers is the ability to use the Amazon brand without any upfront costs associated with their name recognition. Indeed, Amazon’s supply chain now has significant coverage, ensuring Amazon’s global support. The company also effectively scaled its e-commerce business when it expanded its product coverage (Ayers & Odegaard, 2017, 305). In this way, the corporation promoted existing merchandise rather than constantly adding new items to its inventory. One high-demand product sold worldwide can be highly profitable. Thus, gradually the number of such products for sale on Amazon increased.
Further Development of Amazon’s Supply Chain
Amazon has attempted to implement several different solutions to the delivery problem that has arisen in the last few years. The most recent is the company’s plan to create its delivery fleet. The objective is to eliminate their challenges, especially from partners. This is a significant issue because these delivery agents are the only parties customers can see. Shipping difficulties harm the company’s reputation. Amazon needs not only the assistance of small regional couriers’ independent fleets but also its private delivery trucks (Ivanov, 3535, 2021). The creation of its extensive network of trucks and planes will help Amazon gain more control over how it transports goods. The future is likely to involve more shipments within Amazon’s systems, which should provide more protection for Prime retailers and increase expenses. The corporation is also increasingly involved in handling and clearing shipments from Chinese retailers through customs (Ivanov, 3535, 2021). This provides them with more control over incoming inventory and reduces outsourcing costs.
It is essential to highlight that even during the COVID-19 pandemic, Amazon has been expanding its supply chain. There have been more drivers and warehouse workers, new product lines, markets, and many others in recent months. For example, sellers report that joining Amazon’s Global Selling service is becoming easier (Phadnis & Fine, 2017, 2320). The company’s Build International Business (BIL) tool can do most of the work with the product, allowing the company to focus primarily on rights and compliance with country regulations.
Despite extensive plans to build a second headquarters, the company has never shifted its focus from supply chain management. Amazon’s supply chain refers to the entire process of product warehousing, inventory management, pricing, and delivery times. In Amazon’s case, each of these elements is optimized for a continuous supply chain. This has elevated Amazon globally as a significant source of sustainable competitive advantage. Amazon today has the most innovative and highly customized supply chain in the world. This is because they never cease to make improvements in the various elements of the supply chain.
Ayers, J. B., & Odegaard, M. A. (2017). Retail supply chain management. New York: CRC Press.
Cohen, R. (2018). How Amazon’s delivery logistics redefined retail supply chains. Journal of Supply Chain Management, Logistics and Procurement, 1(1), 75-86.
Hahn, Y., Kim, D., & Youn, M. K. (2018). A brief analysis of Amazon and distribution strategy. Journal of Distribution Science, 16(4), 17-20.
Iddris, F. (2018). Digital supply chain: survey of the literature. International Journal of Business Research and Management, 9(1), 47-61.
Ivanov, D. (2021). Supply chain viability and the COVID-19 pandemic: A conceptual and formal generalisation of four major adaptation strategies. International Journal of Production Research, 59(12), 3535-3552.
Min, S., Zacharia, Z. G., & Smith, C. D. (2019). Defining supply chain management: in the past, present, and future. Journal of Business Logistics, 40(1), 44-55.
Phadnis, S. S., & Fine, C. H. (2017). End‐to‐end supply chain strategies: A parametric study of the apparel industry. Production and Operations Management, 26(12), 2305-2322.