Amazon: Making History

Amazon has been operating for two decades and is one of the world's largest retailers with its Fulfillment Centers at its backbone.

Amazon prides itself as being one of the world’s largest online retailers with offerings in a variety of categories that satisfy the vast majority of consumers’ desires. To this end Amazon’s business model is multi-faceted and aligned well with its operating model. This is because it has consistently been able to meet customer demand by delivering on having items that consumers want and delivering them quickly.

Business Model

Amazon primarily sells goods directly to customers. This is done as Amazon or by allowing third party retailers to list items on their platform. It also maintains a subscription service with Amazon Prime which allows members to receive faster shipping and access to media content. Finally, Amazon has a small electronics product line. By far, its most recognizable component is the selling of goods, which it does well with low cost and massive availability.

As an online retailer, Amazon holds one of the largest inventories of goods. In support of this endeavor they run massive warehouses known as fulfillment centers. In addition to the items sold by Amazon directly, third party partners are able to sell items on their platform. These items are both new and used and are sometimes stocked at the Amazon fulfillment centers. By opening the website to retail partners Amazon benefits from every sale made. Amazon can track items that sell well from these partners and then make a decision to sell that same item through their name at lower cost or allow the retailer to continue operating on their platform without competition. In this way, Amazon gains the benefit of building awareness for consumer demand without the initial investment in the product. There is no risk to experiment with a product, but then when the results are favorable, they can undercut prices. Retail partners are offered an early advantage in moving their product quickly to market without having to worry about distribution and IT operations. As long as retail partners continue innovating and providing high quality customer service, they can maintain a competitive advantage.

Fulfillment Center Operations

The fulfillment center is a great example of Amazon’s operating model in action. The process for distribution is quite labor intensive and requires the use of many seasonal workers during the holidays to ensure that packages are shipped quickly during peak shipping times. Trucks arrive at the distribution center with a variety of goods. Workers then pick out items, scan them, and place them in shelves across the warehouse so that a single item is distributed fairly evenly across the warehouse. Each worker, has a scanner that records the item and its specific location within the warehouse.

When orders are placed by a customer a picker receives the order on the scanner and is informed of the location for each item. The scanner is linked to a computer system that figures out the fastest route within the warehouse to pick up all the items. Keeping items distributed evenly throughout the warehouse allows a worker to find items faster. Once the items are found, they are placed in yellow containers that travel on conveyor belts that will eventually lead to the packing area.

The packing area is aided by computers that determine the optimal box, packing material, and length of tape to use. Packed items are then placed on conveyor belts where shipping labels are attached and packages are sent to delivery trucks. Workers at the delivery trucks then pack the boxes in such a way to maximize the space used inside the cargo area. Items are then shipped out to other warehouses for delivery to the customer.

Future Investments in Automation

There is a lot of automation involved in the process, but it currently still requires human labor. In order to decrease cycle times for finding items, Amazon has implemented the Kiva system. A normal human picker can typically fulfill orders in about 90 minutes. With the use of robotic shelves, the time to fulfill orders drops dramatically to 15 minutes.

Alignment

Amazon’s business model is to provide anything a customer wants and delivers it to their door quickly. Through years of iteration, Amazon has developed a very efficient system that accurately gets orders delivered quickly. The use of automation in the form of scanners, computer algorithms, conveyor belts, and moveable shelves has helped Amazon get the job done quicker and better over the years. Amazon also capitalizes on the human element of its operations by maintaining a culture of continually sustaining and improving operations to literally make history.

Sources

http://www.wired.com/2014/06/inside-amazon-warehouse/

http://www.investopedia.com/articles/investing/061215/difference-between-amazon-and-alibabas-business-models.asp

http://www.digitalbusinessmodelguru.com/2013/07/analysis-of-amazon-business-model.html

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1 thought on “Amazon: Making History

  1. Great article! Amazon is incredible in its ability to handle fulfillment. It’s effective operations model has enabled it to grow to its current state.

    I was not aware of the way it can undercut retailers. I wonder how this affects prospective retailers – are they aware of Amazon’s practice of undercutting them if their product is successful enough, and how many retailers does this dissuade from distributing through Amazon? To your point though, it provides an initial easy distribution channel for new retailers.

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