The Supply Chain and Inventory Planning Blog

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Unlocking Amazon's secret to success: supply chain

2/1/20 12:43 PM / by Fuse Inventory

Since launching in 1994 as an online bookseller, Amazon has notoriously evolved into the world’s highest-valued company by offering cloud services, media, manufactured goods, and much more. With over $200 billion in revenue, they’ve captured over 13% of the world’s e-commerce sales last year. So how exactly did they go from selling books to having warehouses in the air over the course of 25 years? In one word: scale. 

The optimization of Amazon’s supply chain has fueled their exploration of other innovative projects; thus allowing their success to snowball and propel the company forward. What sets Amazon apart from any other retailer is their ability to own the entire supply chain from start to finish -- the sales of which make up over 65% of their product revenue. They were able to do this by scaling:

Manufacturing

Over time, Amazon has collected data from its customers to inform product trends. They have been able to take this insight and couple it with the economies of scale they’ve built to cultivate low-cost comparable products sold at competitive prices. 

Warehousing

The accessibility of goods is what fuels Amazon’s shipping breakthroughs. Warehouse locations are carefully chosen based on consumer data and geography. What’s even more innovative is their anticipatory shipping algorithm which forecasts demand by location regardless of order placement. Amazon utilizes this to ensure goods are shipped before an order is placed, thus shortening the delivery window.

Technology

In addition to this patented forecasting, Amazon optimizes order fulfillment by location with more traditional means of order forecasting. What sets them apart to the consumer, however, is the ease and automation of the purchasing experience. Amazon’s release of the dash button, subscription services, and AI ordering liberated us from the confines of traditional online ordering. 

Delivery

Amazon’s popular 2-day shipping has since been adopted by many large retailers in recent years. Therefore it’s no surprise that they became the pioneers in same-day and eventually, 2-hour shipping promises. The secret to this initiative’s success has been Amazon’s fleet of owned cargo including airplanes and delivery vans. And if wheels weren’t enough, the company also invested in pick up hubs including lockers and brick and mortar partnerships. 

Final thoughts

With all this differentiation, it’s no surprise the retail behemoth has maintained 20% annual growth numbers. In the past 15 years, Amazon has evolved from fulfillment-by-amazon (FBA) for third-party sellers to become a powerhouse of owned goods and services. Fueled by their strengths in the supply chain, forecasting, insights, and innovative practices, Amazon lives by the ideology, "Why make a dollar when you can make five?"

Tags: supply chain, supply chain management, merchandise planning, inventory planning, supply chain optimization, demand forecasting, ecommerce, industry, inventory, inventory management system, retail

Fuse Inventory

Written by Fuse Inventory