Understanding Amazon’s Supply Chain Strategy

Amazon’s supply chain strategy has redefined e-commerce logistics, establishing a model of efficiency and speed that other retailers strive to replicate. Here’s an overview of Amazon’s approach, covering its supply chain, warehousing, delivery, technology, manufacturing, and international expansion.

The fulfillment process

1) Inventory and Storage

Ensuring items are available is the first step towards getting products to customers. For some sellers, this means having a supply of the inventory in stock at a business, warehouse space, storage facility, or third-party warehouse. Marketplace sellers on Amazon have two fulfillment options:

• Fulfillment by Merchant (FBM): Sellers handle all aspects of order fulfillment.
• Fulfillment by Amazon (FBA): Amazon manages storage, sorting, packing, and shipping.

With these options, sellers can leverage Amazon’s extensive network while focusing on core business functions, such as product development and customer service.

2) Order placement

With the inventory ready for distribution, the next step in the process occurs when a customer orders the item. A brand’s marketing, optimization, and reputation all play an integral role in driving these conversions. 

Once a transaction is completed, the seller can begin processing the order and move on to the final phase of delivering the chosen item to its intended recipient.

3) Pick, pack and ship

The pick, pack, and ship stage includes steps required to ship a product to a customer. The process typically involves the following steps:

• Picking – This is the selection of the specific items that are included in the customer’s order. In a warehouse setting, this might involve using a handheld device to scan the items and add them to the order.

• Packing – Once the items have been picked, they need to be appropriately packaged for shipping. This usually requires placing the items in a box or other packaging, along with any necessary packing materials to protect the items during shipping.

• Shipping – The final step is to ship the order to the customer. The shipper must print a shipping label, attach it to the package, and hand it off to the appropriate shipping carrier, such as USPS, UPS or FedEx.

Seller fulfillment options

Fulfillment by Merchant

Fulfillment by Merchant (FBM) is when a brand uses its own warehouse or fulfillment provider to ship a product to the end customer. For example, a customer would order a product on Amazon. The order is transmitted to the brand’s warehouse and picked, packed, and shipped to the end customer.

This seems like a suitable fulfillment method – inventory stored in one location to fulfill orders on Amazon, a brand’s website, or other marketplaces like Walmart.com.

The merchant avoids having to comply with Amazon-specific packaging, labeling or shipping requirements and enjoys more flexibility when bundling products. 

Relying on FBM will be unlikely to gain Prime eligibility and have to manage the return process in-house. In most cases, shipping costs will be higher than the FBA alternative, and shipping times will be several days longer. 

Fulfillment by Amazon

One way that Amazon sellers try to reach their full potential and land the coveted Buy Box is by opting to use Fulfillment by Amazon (FBA) rather than managing the process alone.

The service outsources order fulfillment to the online retailer, placing your products in an Amazon FBA warehouse where an Amazon employee can pick, pack, and ship them.

Unlike a Vendor Central 1P relationship, the seller retains complete control over pricing and inventory management while relying on Amazon logistics for the rest. 

Success for an Amazon seller via FBA or FBM means requires careful inventory management. It’s imperative that the sellers are capable of meeting customer demand and planning for seasonal surges and events such as Cyber Monday or Prime Day. 

Understanding Amazon’s FBA shipping criteria allows sellers to keep their products in stock for customers and ensures a fast and efficient shipping process. Amazon’s FBA shipping rules include:

• using boxes that match Amazon’s size requirements
• avoiding loose packing materials such as packing peanuts or shredded paper
• not placing shipping labels over box seams
• a scannable barcode with no extraneous barcodes on case-packed units or shipping containers
• packaging should be sufficient to protect the products while in transit to the Amazon distribution centers 

By partnering with Amazon on fulfillment, sellers enjoy an easier path to Amazon Prime status for their products, reduced customer interactions and more streamlined processes for returns. 

Multi-channel fulfillment

Amazon also offers similar fulfillment services for products that are ordered from other websites.

Amazon Multi-Channel Fulfillment (MCF) can simplify the logistics of order fulfillment by providing the same features and services of Amazon FBA to fulfill orders that originate from most online merchants, including a brand’s direct-to-consumer (DTC) website.

Much like any other third-party logistics (3PL) company, Amazon allows sellers to store their inventory in their vast fulfillment network. Once products are in one or more of the company’s warehouses, order fulfillment can be automated by integrating Amazon’s services with other e-commerce platforms.

Amazon will then handle the picking, packing and shipping of products even when they are ordered via a sales channel other than Amazon. These orders remain fully trackable, and Amazon Multi-Channel Fulfillment can also manage customer returns according to the seller’s preferences. 

While brands can use Amazon’s MCF and FBA programs simultaneously, it’s worth noting that the company will always prioritize Amazon orders over those from other sources.

Sellers who use Amazon as one of their sales channels are not the only ones who can use the Multi-Channel Fulfillment program. Even brands that use only their own DTC site or alternative e-commerce solutions can still choose to have Amazon handle their order fulfillment. 

Amazon’s fulfillment advantages

Warehousing

Amazon’s warehousing strategy is a cornerstone of its rapid delivery model. Warehouses are positioned near major metropolitan areas, with some smaller facilities in less populated regions. Products are organized using an efficient storage system that aids “pick-and-pack” robots and staff, enabling quick order fulfillment.

Amazon utilizes various types of warehouses and fulfillment centers dedicated to particular tasks. According to the company, these include:

• Sortable fulfillment center – Around 800,000 square feet, sortable fulfillment centers can employ more than 1,500 full-time associates. In these buildings, Amazon employees pick, pack, and ship customer orders such as books, toys, and housewares. Thanks to the innovations of Amazon Robotics, associates often work alongside robots, allowing them to learn new skills and help create a more efficient process to meet customer demand.

• Non-sortable fulfillment centers – Between 600,000 to 1 million square feet, non-sortable fulfillment centers employ more than 1,000 full-time associates. In these centers, associates pick, pack, and ship bulky or larger-sized customer items such as patio furniture, outdoor equipment, or rugs.

• Sortation centers – At sortation centers, Amazon associates sort customer orders by final destination and consolidate them onto trucks for faster delivery. Amazon’s sort center network powers the ability to provide customers with everyday delivery, including Sunday delivery.

• Receive centers – Amazon’s receive centers support customer fulfillment by taking in large orders of the types of inventory that are expected to sell quickly and then allocating those items to fulfillment centers within the network. 

• Specialty – Amazon’s fulfillment network is also supported by additional types of buildings that handle specific categories of items or are pressed into service at peak times of the year, such as the holiday season. 

Delivery

Similar to its approach to warehousing, Amazon is revolutionizing the delivery options that customers can utilize when shopping on the platform. In recent years, Amazon has accelerated the time needed to get orders from storage to the purchaser and launched new methods that increase efficiency. 

Amazon offers a range of delivery options:

• Prime: Two-day, free shipping.
• Prime Now: Two-hour delivery for select products.
• Drones and Robots: High-tech solutions such as Amazon Prime Air allow for faster delivery.

Amazon and its sellers still use third-party carriers like UPS, FedEx and the U.S. Postal Service for some deliveries, Amazon has also added its own proprietary shipping options. Drones that land in your backyard or on your roof can deliver products in a matter of hours. Amazon-branded trucks and delivery vans are now offered via a franchise-like structure to entrepreneurs and small businesses interested in expanding the company’s delivery footprint. 

The company also focuses on making the delivery process more convenient via its Hub & Locker and Hub Counter locations. At the same time, Amazon Key gives delivery drivers the ability to place packages inside a home or garage.

Global expansion

Amazon supports cross-border selling through its network of 11 international marketplaces. Sellers can reach customers across North America, Europe, and Asia, with support for localized logistics and fulfillment. For instance, Amazon’s European Fulfillment Network (EFN) allows for inventory consolidation, enabling sellers to reach multiple European markets from a single distribution hub.

By strategically aligning warehousing, fulfillment, and distribution on a global scale, Amazon provides sellers with streamlined entry points into international markets.

Customer service and returns

Amazon has built a reputation for having a strong customer service team and for making it easy for customers to return products. This is likely because Amazon has invested heavily in developing a comprehensive and user-friendly returns policy and process and training its customer service staff to be knowledgeable, helpful, and efficient.

Amazon also offers a wide range of options for returning products, including the ability to return items by mail, at a local drop-off location, or select retail stores, and provides clear instructions for how to do so. Additionally, Amazon provides convenient tracking and updates throughout the returns process and often offers refunds or replacements quickly and without hassle.

All of these factors contribute to making the customer service and returns experience with Amazon generally positive and stress-free.

When third-party sellers opt for an FBA agreement, Amazon handles the customer service and return processing for those brands. While this sometimes leads to concerns about the condition of returns and fraud, it does minimize the costs and time-consuming burden of handling those responsibilities in-house. 

Technology 

Amazon’s supply chain management relies heavily on technology and is often among the first to integrate new technologies. The company uses robots, automated conveyor belts, and other technology in its fulfillment centers to streamline the process of sorting, storing, and shipping orders.

Advanced software optimizes routes and schedules for its delivery trucks, planes, and other transportation assets, to reduce costs and increase efficiency.

Sophisticated algorithms and data analytics help track and manage inventory levels and predict product demand. Barcodes and RFID tags track products throughout the supply chain, ensuring goods are shipped and delivered accurately and on time.

Overall, Amazon’s use of technology in its supply chain helps the company to operate more efficiently, reduce costs, and improve the speed and accuracy of its fulfillment and delivery operations. But the advantages also extend to the companies it works with.

For example, the Seller Central and Vendor Central dashboards provide sellers with a central hub to manage their relationship with Amazon, and each offers a wealth of data to help with forecasting and optimization. 

Manufacturing

As Amazon has grown, so has its focus on private-label brands. Inspired by the success of house brands in brick-and-mortar stores, Amazon hoped to capitalize on its ability to market low-priced products backed by the company itself. Since committing to the tactic, they have offered private label products, some bearing the Amazon name, in categories ranging from food to clothing to electronics. 

However, new reporting indicates a shift may be on the horizon. While sellers and brands utilizing Amazon have previously focused on competing with Amazon’s private label brands, the new priority may be on learning how to adjust to a marketplace with fewer Amazon-branded products available, but new challenges that would accompany such a transition.

Both Vox and the Wall Street Journal addressed the potential change in Amazon’s strategy in recent weeks. Their reports centered on the possibility that Amazon’s efforts to drive market share in-house may lead to more harm than profit.  

Among the motivations for a decision to minimize these offerings is the scrutiny Amazon has faced from government regulators due to their private label products. There are well-documented questions about how Amazon’s role as a marketplace and data-collection company may conflict with its aspirations to sell more of its in-house brands.

Regardless of what happens in the future, current sellers should be aware of the industry climate and have a plan to respond in ways that will grow their businesses. 

Amify can deliver for your brand 

Find the right Amazon warehousing strategy for your business with help from the experts at Amify. They understand the impact that a delivery option can have on your bottom line and how growing sellers can make Amazon’s supply chain strategy and operations an important advantage. Contact us today to learn more.