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  • Writer's pictureCargoful Team

The Amazon lesson

Once upon a time, in the brick-and-mortar kingdom, there was a cheap book shop with a dream. Its name was Amazon, and no one yet knew it would forge a big, big empire…. and reach 1 trillion dollars in value.

Amazon’s takeover seems to hide some secret, fairy magic. By now, more than 1.9 million SMEs sell through its platform, which created more than 400.000 job positions in the troubled 2020. Understanding the strength points of this growing giant becomes imperative for any businesses operating in the logistics sector. In this article, we unveil the key strengths of Amazon’s supply chain and how it disrupted the freight space.

Amazon’s supply chain management

If you ever had the impression that Amazon always gets bigger and will never stop to do so, well, you were right. As Jeff Bezos synthetised in his renown diagram, Amazon’s strategy is to grow indefinitely, providing consumers ever lower prices and faster delivery, reducing costs and scaling up.

While this theory seems banal, its implementation required high competencies - and great investments - to achieve a never-before-seen mastering of supply chain management.

To indagate its functioning, we will start from the milestones: the Amazon Fulfilment Centres and the Amazon Delivery Fleet.

Amazon Fulfilment Centres

Just like any business, Amazon’s logistics relies on some neuralgic points, where most operations take place: warehouses. But what that makes Amazon Fulfilment Centres special is not just their number (they are almost a thousand around the globe), but mainly their diversification. In fact, Amazon implemented a capillary network of diverse structures, each in charge of a different step of the supply chain or a specific shipping mode. Among these, we can find:

  • Sortable fulfilment centres, where employees pick, pack, and ship small or medium-sized orders and non-sortable fulfilment centres, where larger-sized items are processed.

  • Sortation centres, in which orders are sorted by destination and placed into trucks.

  • Receive centres, which process large orders of the types of inventory that quickly sell and portion it out to fulfilment centres.

  • Prime Now Hubs, small warehouses located in suburban areas, through which Amazon guarantees down to 2-hours-delivery.

  • Pantry/Fresh Food DCs and Whole Foods Retail, which make up a distribution network for perishable goods.

  • Delivery stations, where orders are prepared for last-mile delivery.

Inside the warehouses, Amazon relies on a systematic, ever-growing automation: robots convey and sort items, while advanced algorithms use real-time information to optimise storage. At contrary, as for the more “responsibility” tasks (i.e., picking and preparing an order), Amazon highly relies on humans. Its strategy here is to use artificial intelligence not to delete manual labour but rather to facilitate it, for example choosing the most efficient frequency of picking or the best size of boxes. To consolidate the mechanization of its processes, Amazon bought the robot-making company Kiva System, today Amazon Robotics.

In 2020, Amazon Fulfilment Centres accounted for 175 centres worldwide and over 500 warehouses near cities.

Delivery Fleet

Even during delivery phase, Amazon’s key words are automation and diversification: it is AI to select the most efficient transportation mode (according to location and delivery speed), while routes can be covered by airplanes (for same-day delivery), trucks, vans, bikes, or even robots! Amazon has in fact recently patented multiple drone technologies, ranging from responsive drones to airborne fulfilment centres.

As for last mile delivery, Amazon knows how complicated and expensive this can get. This is why they developed many strategies to find external partners: Amazon offers employees three-months of pay and $10,000 start-up costs to launch their own delivery business, while the company acquired 20,000 vans to resell as a credit to small entrepreneurs who accept delivering for them.

How can SMEs survive and strive in the Amazon era?

Keeping up with this constant innovation can prove hard for small firms, which lack the scale, the finance and sometimes even the vision to compete with Amazon’s strategy. So that, if you want your logistic business to survive the Amazon era, you must act in the strive for agility.

As we explained in our previous article, closer the consumer, faster the shipment: and we have seen above how Amazon cut down delivery time by expanding almost to the customers’ doorstep. However, most merchants simply lack the funds to implement such a capillary system, so that the strategy forcedly has to move from space to time.

But how to make complicated, labour-intensive processes instant?

The equation here is simple: speed calls for efficiency, efficiency calls for technology, and technology calls for handy, effective tools to make SME’s life easier. In particular, Warehouse Management Systems and Transportation Management Systems are vital instruments when competing with Amazon’s scale.

While the first one assists you inside the warehouse, by planning the inventory, the transfer and the positioning of received goods, the latter takes care of all the other operations: from optimizing fleet utilization, to tracking vehicles real-time, to even keeping costs and revenues under control. It may seem like a dream, but this is already reality, and our bread and butter, here at Cargoful.

So that, if Amazon’s unstoppable - and sometimes scary - growth may seem a crescent mine, we may also recognize its ability to trigger positive evolutions: as businesses renew their strategies in the name of technology, they will not only improve cost structures or fulfil customers more rapidly, but also foster a greener logistics: going paperless, reducing truck routes and optimising packages.

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