Amazon used to be an online book-selling store in 1995; now it sells almost every imaginable product and service. According to an estimate, the e-commerce platform sells and processes roundabout 3 to 4 million orders daily. There are various reasons behind the success of Amazon; an efficient SCM system is among one them. Today, we’ll discuss Amazon supply chain strategy; its key stages, and its components.
What is Amazon Supply Chain Strategy?
Amazon supply chain strategy consists of various processes ranging from production, manufacturing, and delivering the final product to the end consumers. An Amazon seller has to manage various activities;
- Product Warehousing
- Inventory Management
- Delivering Items
You have to optimize all the processes and elements constantly in order to maintain continuous supply chain activities. According to an estimate, approximately 55% of the sales on Amazon happen through 3rd party sellers. The marketplace completes the fulfillment options by providing FBM and FBA models.
Fulfillment by Amazon (FBA)
FBA helps the company to perform activities like storage, packaging, and shipping. Here, sellers deliver their goods to the Amazon fulfillment units, where the company performs the rest of the activities like refund, return, and customer service. Amazon has got a top search ranking advantage and invites sellers to participate in the prime offer; Amazon Prime is a free and quick delivery service within the US. FBA is great for those sellers who;
- Focus on going global fulfillment and performing wide coverage
- Offering the best service with limited effort
- Selling light and small goods
- Not having their own logistics capabilities
Sellers pay Amazon referral fees, fulfillment, and goods storage cost. It is important to keep in mind that the delivery and shipment rates are competitive; holiday and long-term storage prices are expensive.
Fulfillment by Merchant (FBM)
FBM is when the seller performs all the functions like storage, order fulfillment, and delivery; or they could hire the 3rd party logistics. FBM helps businesses and companies in the following ways;
- Brand awareness
- Customer loyalty
- Customer experience
However, if something happens, then the sellers have to fix it by themselves. In FBM, sellers only have to pay a referral fee to Amazon. FBM is useful for those sellers that have got;
- Complete control over the customer service or support experience
- Selling large and heavy products and goods
- Experience in logistics processes
- Know how to optimize various cost
Stages of Amazon SCM
Some of the key stages of Amazon supply chain management are as follows;
Amazon employees manually remove the products or goods from the trailers or vehicles with a forklift. Here, they divide the shipment into two categories; either shipped from FBA or from the Amazon warehousing facility. According to an estimate, small businesses and entrepreneurs sell half of the goods available on Amazon.
When it comes to storing goods, many warehouses follow the traditional classification strategy. Amazon follows its own logical and rational typology of strong goods randomly. The tiered bin of Amazon’s yellow tracks random products with a computer for speedy and quick access.
After placing the consumer orders, the robots find and take the relevant container with necessary goods to the employees at the picking station. They perform the following actions;
- Read the screen
- Retrieve fragile items
- Put them in the yellow plastic boxes
Quality control happens at the fulfillment stage on the basis of the efficient work of people and robots. It is significant to analyze and track whether the physical location is relevant to the program database. However, employees keep on evaluating the right actions and operations of robots and make adjustments to improve efficiency.
It comprises order sorting, scanning, and then sending it to the packaging department. The robotic system suggests the box sizes and measures the required amount of tapping. They ship the 3PLs products in their original boxes.
Components of Amazon SCM Strategy
Some of the main components of Amazon’s supply chain strategy are as follows;
Inventory & Warehousing
Its warehousing strategy of Amazon offers quick access to products and goods in various countries across the world. Usually, their location is near a populated area, and the company’s workforce carefully distributes products to satisfy the needs and wishes of customers. In order to maintain a balance between supply and demand, they employ various forecasting tools and software to predict demand and maintain a sufficient supply of goods in the warehouse.
In order to optimize the warehouses, they divide their storage facility into the following areas;
- Reserve Storage: low demanded and irregularly shaped items
- Random Storage: small items of modern demanded goods
- Pallet Prime Storage: highly demanded goods
- Prime Storage: picking highly demanded commodities in small quantities
- Library Prime Storage: books and magazines
Amazon implements a mixed logistic strategy by integrating both innovative and traditional tools and applications. Resultantly, it decreases the delivery time, and the strategy becomes easier for users and the company. It allows them to deliver the product in remote and distant areas where other methods aren’t working. Some of the shipping options of Amazon are as follows;
- Testing of Amazon Prime and Scout robots
- Hub counters with local retail partners
- Amazon Key and Hub & Locker Delivery
- Prime service to no rush shipping; release and designated day delivery
Amazon employs robotics and automated technology to fulfill customer orders. Technology impacts processes like packaging, storage, and stacking. However, this strategy decreases the personal cost, storage, and delivery time.
- Prime Air would make the delivery in 30 minutes. The buyer should be in the area of 15 miles near the warehouse
- The company has allocated 775 million US dollars to buy Kiva robots; this investment has shown effectiveness by decreasing the employee cost and quick order execution
Amazon started manufacturing popular cheap goods and products at its own facility along white label products of other sellers. The platform offers affordable goods in various categories ranging from pets, children’s, and household products. However, it allows you to control the entire lifecycle of products like;
- Increasing profitability
- Decreasing cost
The pricing strategy of Amazon divides customers into two categories;
- Standard pricing customers would only receive standard and slow delivery service
- Prime members pay 15 US dollars a month to receive free and quick delivery along with free access to movies and books
Amazon could immediately react to the changes in demand, calculate the order flow and make sure of its effective implementation. The pricing strategy impacts the FBA sellers; high long-term storage fees and charges help merchants to calculate future demands
Conclusion: Amazon Supply Chain Strategy
After an in-depth study of Amazon supply chain strategy; we have realized that Amazon has got the world’s most sophisticated SC network and technology. If you are learning about the SCM of Amazon, then you should keep in mind the abovementioned components and strategies.
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