Amazon Supply Chain Explained
Let's take a deeper look at Amazon's supply chain. We all know the legend. Amazon started selling books online, branched out to CDs and video, and today sells just about anything, thanks in large part to its third-party sellers. But Amazon isn’t so much a retailer as it is a logistics company. The Amazon supply chain is the model for everyone else to follow.
Every link in the Amazon supply chain is optimized to provide the highest level of customer service and satisfaction. The company’s obsessive focus on optimizing supply chain management with the latest innovations is perhaps the underlying reason for its global competitive advantage.
Amazon sellers who elect for FBA (Fulfillment By Amazon) take advantage of this supply chain, particularly if they have products that:
Are small and/or lightweight
Many Amazon sellers also choose FBA because they don’t have the resources to ship and store merchandise, let alone match Amazon’s efficiencies. The reason Amazon sellers are so successful is due in no small part to the extensive network of Amazon logistics centers and delivery providers just about anywhere in the world.
Let’s take a look at how Amazon FBA seller products move through the Amazon supply chain. There are essentially two major chains (or tiers)—Warehousing and Delivery—in the Amazon supply chain, each of which has its essential links.
Many Amazon sellers source products overseas, but wherever manufactured or supplied, in most cases FBA sellers don’t even touch the product. That is why it is vital for Amazon sellers to get physical samples and detailed product specifications to ensure quality as well as accurate product descriptions on Amazon. Equally important is that manufacturers and suppliers follow Amazon FBA inventory requirements, which detail:
How products are packed
Shipping label requirements
Shipping and routing requirements for small parcel, less than truckload (LTL) and full truckload (FTL) deliveries
Failure to follow Amazon guidelines can result in distribution delays and/or extended storage that incurs extra storage fees.
Product is shipped directly from the manufacturer or supplier directly to an Amazon distribution center located in a large population center. From there inventory is scanned and disbursed to local warehouses to ensure customer orders are fulfilled quickly and on time. This is particularly important for Prime customer fulfillments.
Amazon employs a pull management inventory strategy. That means it aims to keep minimal stock on-hand at all times at each of its locations to meet the lowest acceptable inventory to fulfill orders and then replenish stock based on historical demand. This saves inventory and warehousing costs, as well as making maximum utilization of available space.
Of particular importance to FBA sellers, Amazon charges higher fees for long-term storage of slow-moving inventory. The higher fee encourages sellers to send in just enough inventory to meet demand and keep Amazon supply chain costs at a minimum.
Needless to say, for this to work requires a highly intelligent and sophisticated inventory management system. Also, needless to say, Amazon got to where it is today by perfecting that system.
Incoming products are scanned both to identify the product and ensure it has arrived at the right local warehouse. In addition, physical inspections are performed to ensure title verification and good condition. It is then placed on a conveyor belt to an inventory location where it is scanned again to confirm its place. Where that might be depends on how frequently products are expected to be purchased and their delivery windows. So, for example, fast moving items are located closer to loading and dock areas while slower moving items are farther away. In some cases, particularly slow moving items might be outsourced to an outside storage facility when storage costs exceed marginal returns on sales.
The key to warehouse efficiency in distributing, maintaining, and retrieving inventory is automation. Robotic pick and pack operations, with something like 200,000 robots and counting worldwide, underpin high warehouse productivity.
Whatever the location, the product sits in inventory until orders are placed for delivery.
Amazon is all about fast delivery. It has grown its Prime membership precisely on the promise of two-day fulfillment. They’ve tested multiple delivery methods, including drone delivery, to optimize the fastest options, particularly to those areas not covered by traditional delivery services.
Depending upon the location where inventory is leaving and where it is headed, products are sent to a sorting center where they are filtered according to region and shipping speed. Products are sent by ground via various independent shipping services (UPS, FedEx. USPS) as well as its own contracted Amazon Delivery Service fleet.
In some cases before traveling the final ground leg to the customer, products are sent to airports where, along with other hundreds of boxes, Amazon transport planes are on hand to ensure promised delivery times to other regions best reached by air.
“Neither snow, nor rain, nor heat, nor gloom of night stays these couriers from the swift completion of their appointed rounds.” Many people think that’s the official motto of the U.S. Post Office, but in fact, it is not. USPS actually doesn’t even have an official motto; the phrase appears in The Histories in which the ancient Greek historian Herodotus describes the mounted courier system of the Persian King Darius.
Today that pretty much sums up the Amazon supply chain.
Supply Chain Support for Your Business
With a better understanding of the Amazon supply chain, FBA sellers can get their products to customers faster and at lower costs. But, the individual Amazon seller doesn’t have the same tools as Amazon has perfected over the years. Managing inventory, even when Amazon handles the logistics, can be tough.
AccrueMe can help. We partner with Amazon sellers to help improve their logistical issues and grow their business. Without the risk of losing control of your business. And with an infusion of growth capital that doesn’t come with high-interest rates or the burden of monthly payments.
AccrueMe only asks for a relatively small percentage of your profits. It’s growth funding for your business without liabilities or debts.
If you are looking for capital to grow your Amazon business, apply now for Amazon funding.
To learn more, visit AccrueMe.