Facilities in Amazon’s Warehouses
Discuss about the Center on Budget and Policy Priorities.
As Amazon has grown, it has incorporated huge warehouses to support its operations. These warehouses have thousands of employees to aid in different basic tasks. The tasks include;
- Inspection of incoming goods.
- Packaging and sorting of orders.
- Storage and recording of goods location.
- Shipping of the products.
Due to heavy tasks that could not be carried out by the staff, Amazon automated its operations hence making it easier for the employees to communicate, locate goods and also monitor progress. Amazon recognizes its warehouses as fulfillment centers since it provides all services under one roof (Isckia, 2009). This has majorly ensured success and efficiency in Amazon’s operations.
Amazon as a company has incorporated different facilities to its warehouses. This has increased its ability to satisfy the end consumer by providing top-notch products and services with excellent customer service. This improvement of convenience has made Amazon a formidable competitor in the e-commerce market (LaVecchia & Mitchell, 2016). My focus will be on three of such facilities. They include;
Inside Amazon’s warehouses, both employees and machinery work in harmony in a coordinated manner. Technology has become a basis for operations due to its vast influence. Amazon’s industrial robots were designed by an Amazon’s subsidiary company known as Amazon robotics. These robots are controlled using a central computer and perform tasks using markers on the ground. For example, the Amazon’s robotic shelves have proved a success since they allow products to be packed into smaller and tighter spaces. It has helped reduce human effort hence promoting productivity (Bogue, 2016).
In the fulfillment centers, the Amazon Robotic systems have automated most of the fulfillment center operations. For example, machine learning, autonomous mobile robots, object recognition, inventory management systems, and power management. This has promoted efficiency in the fulfillment operations.
This vital resource has allowed Amazon to explore new opportunities for its product lines. For example, Amazon has begun looking for ways to automate the shelf-picking work in their warehouses. This is because the robots in place are still incapable of different tasks. Besides, Amazon is looking forward to building more warehouses to scale its operations.
Amazon applies a sales approach known as Amazon to buyer approach. The company is considered a multi-level E-commerce company since it operates seven of its websites that include different business operations worldwide. Also, Amazon has incorporated a multi-tier inventory model to ensure efficiency in the flow of information.
The primary tier in the framework is the clustering of distribution centers. This guarantees lower inventory stock is held and requests are met responsively in a dynamic way (Juneja, 2018). The second tier includes the cooperation of wholesalers and distribution centers whereby on the off chance that Amazon doesn’t have a specific ordered product in its centers; it can depend on its wholesalers and accomplices to supply the request to the customer. The last tier includes networks of vendors, third-party sellers or manufacturers where Amazon acts on behalf of them as an intermediary to fulfill orders from customers.
Inventory Management in Amazon
In Amazon, inventory management is aimed at achieving the following objectives;
- Proper maintenance of inventory records.
- A better understanding of the delivery needs of the customer.
- Faster and secure shipment of products.
- Easy tracking of customer purchases.
Some of the product categories that Amazon includes in its inventory include;
- Clothing and accessories.
- Electronics.
- Jewelry.
- Books.
- Beauty and fitness products.
- Automotive products.
- Software and games.
- Professional services.
- Office products.
Amazon developed partnerships with different vendors to allow their inventory to be maintained (Chopra, 2003). For example, we have Ashford.com which provides Amazon with both premium and luxury products. Secondly, we have Drugstore.com which offers health, beauty, pharmaceutical and wellness information and products.
Amazon has primarily focused its energy on customer satisfaction, time efficiency and cost efficiency hence promoting “hassle-free” operations. Through different strategies that Amazon has employed in its inventory management, it has managed to reduce the inventory size. For example, making careful decisions about the products to buy, suppliers to engage and lastly the distribution techniques have ensured effectiveness. Also, to reduce cost, Amazon has promoted the outsourcing of routine activities. It has also partnered with different companies to assist with the shipping of inventory (Ricker & Kalakota, 1999). Despite outsourcing some of the inventory management routine activities, Amazon has adopted some strategies. They include;
- Keeping a stock of popular items.
- Adoption of Amazon services since they proved to be more profitable.
- Low pricing of products.
- The inclusion of products from competing retailers.
Amazon enjoys a great success due to its efficient and quick supply chain network. This is because its supply chain management is fitted with the company’s competitive strategy of being the best retailer sort by customers. The combination of its extensive warehouses, its multi-tier inventory management, transportation and information technology makes its supply chain one of the best worldwide (Chopra, 2003). Additionally, as Amazon outsources some portion of its inventory that is, in storage and circulation of items that are not frequently purchased or not requested for quick conveyance or items whose storage costs surpass their returns, costs are decreased broadly.
To maintain the supply, Amazon stocks products that are frequently purchased or need immediate delivery in its warehouses in order to prevent a compromise on lead times. Responsiveness to customers is improved hence cutting on costs related to product recalling or any other related expenses.
Amazon has divided its customer segments into different classes in regards to price differentiation strategy. For example, in delivery, some of the segments are divided into free super saver delivery, day delivery or prime customers delivery. Customer segmentation offers Amazon an upper hand in the market hence being able to meets changes in demand. An aspect that gives Amazon a higher advantage in its supply chain network is that its supply chain management has grown through the years (Jacobs & Chase, 2010).
Amazon’s Supply Chain Management
For example, when the company began, it primarily started as an intermediary bookstore which has no stock of its own. However, as Amazon grew, it began holding its stock in warehouses. The company adopted a push-pull strategy whereby inventory held was considered to be in a push strategy. On the other hand, the shipment of orders took the role of being a pull strategy. Today, Amazon can follow the pull approach without its stock.
Amazon’s expansion has prompted the company to enhance its logistics abilities. Pressure on the retailers to meet consumer demands and expectations has promoted differentiation in the retailing industry (Laudon & Traver, 2013). However, Amazon has raised its bar in meeting consumer expectations by offering services such as free shipping and also same day delivery. In building its transportation network, Amazon began a project of constructing colossal fulfillment facility networks to improve on its same-day and two-day delivery services
In promoting its intermodal choice of transportation, Amazon brought on board new fulfillment facilities in the United States in 2016 so as connect its spaces, airfreight capabilities, and its partners (Schreiber, 2018). This allowed Amazon to deliver products to consumers quickly and efficiently. In Europe, Amazon has similarly promoted fast delivery of products to consumers. However, UPS and FedEx, two of the largest courier services companies, refused to acknowledge Amazon as a threat to their space of operation. DHL, on the other hand, confirmed that Amazon was a potential and was affecting its operations due to its large transport strategies.
Cross-border capabilities in between China and the US has been achieved due to Amazon’s new air freight capabilities. Delivery times for the United States Amazon prime members have reduced hence allowing Amazon to deliver smaller and less expensive items. It’s now evident to retailers that considering Amazon as a logistics partner may be of much benefit to them. This is because retailers can enjoy reduced transportation costs when Amazon manages their fulfillment and transportation needs.
The importance of facility location has gained much traction, and many organizations realize that a successful facility location can bring efficiency to the operations of an organization (Laudon & Traver, 2013). In our case, the setting of Amazon’s fulfillment centers has gone under in-depth scrutiny to ensure the company’s success. This is because the customer is always the critical factor to consider. The following points address the importance of determining the right location to establish an Amazon’s fulfillment centers.
Customer Segmentation in Amazon’s Supply Chain Management
According to Amazon’s 2014 annual report, shipping costs were considered to be the leading expenses with over $4.2 billion in shipping costs. Due to such expenses, Amazon put some consideration into building fulfillment centers closer to consumers in order to meet orders quickly. However, the location of the facility was a critical issue since it would determine the ease of reach of the customers hence being able to reduce the shipping costs involved.
In every organization, the customer has to receive top-notch service and satisfaction, and for Amazon, this is not an exception. Having products that consumers need immediately after purchase for example groceries, and being able to provide the products can be added advantage to an organization (Bailey & Rabinovich, 2005). Therefore, having fulfillment centers close to consumers can ensure consumer loyalty and satisfaction.
In cases of areas that the requested order volumes are high, such areas would be an ideal location to set up the Amazon’s fulfillment centers. This is because it will be easier for an organization to cover such orders easily without excessive expenses and be able to satisfy the consumer while keeping the cost per order down.
However, in the setting up of Amazon’s facility locations, there are different factors Amazon had to be considered. They include;
In the early years when Amazon was determining the locations to set its fulfillment centers, they considered states that did not charge sales tax (Mazerov, 2010). They also considered basing their centers in small states that had few populations. This is because they could service other bigger states without having to pay sales taxes for the larger states. However, this did not play out for the long run since they had to begin paying for the taxes. In return, some states allowed Amazon incentive tax credits.
Since Amazon is an internet-based retailer company, targeting consumers through carefully setting up their facilities was very important. This is because, by analyzing the demographic profile, Amazon was able to make better decisions. For example, the products to add in their inventory were carefully selected to ensure they attract consumers to buy their products and services.
Amazon’s fulfillment centers are built to hold millions and millions of inventories. Therefore, in choosing the location of the facility, the company had to consider the area it would develop its center so that it could not affect any original operations in that area. Having a good environment to support its style of operation seemed positive, and therefore efficiency and productivity were increased.
Transportation Network in Amazon
To many Amazon shoppers, products sold on the Amazon website have the lowest prices than other sites. However, this is not the case. In fact, what Amazon does to control stock against demand fluctuations is to tweak its prices from time to time (Chopra, 2003). Through this strategy, the company takes advantage of the psychology of the customer’s price perception (Rotman, Lee & Perkins, 2017). In this strategy, the company cleverly outsmarts its competitors.
According to an analysis conducted by Boomerang Commerce, Amazon offers great discounts on popular products while making a profit out of the less popular ones. By following a consistent strategy of low prices on best-selling items, a perception is driven to consumers that Amazon’s prices are better than other companies such as Walmart.
For example, a $350 Samsung television sold at Amazon would be discounted to about $250 after some months, particularly on a black Friday. This price undercuts its competitors hence being able to make more sales. However, at the same time the television is discounted, Amazon hikes the price of an HDMI cable that would be concurrently used alongside the TV. This causes the buyers to buy both products at the same time. Amazon applies this technique since it understands that the less popular item may not affect the price perception of the customers as the TV would. Therefore, the company increases the price of the HDMI cable.
In controlling stock against cost pressures, Amazon designed different strategies to combat such issues. For example, shipping costs have been a concern for Amazon for a long time. This is because the company spends billions of monies on shipping costs. In the recent years, the company tried to make efforts in diversifying into logistics options. Amazon entered into contracts such as the leasing of twenty cargo planes and also building its airport hub to handle its shipping (Fitzsimmons, Fitzsimmons & Bordoloi, 2008). The company also identified these investments as necessary to handle huge demands which would overwhelm shipping companies such as UPS and FedEx after their failures in on-time delivery in 2013’s Christmas season.
However, as Amazon’s sales are rising so is the shipping costs. To assist with this, Amazon has designed delivery services such as Prime Now service hence growing its sales. Moreover, in the period between 2012 and 2015, e-commerce sales kept pace with the net shipping costs. This was a great sign since the increase in shipping costs were primarily from increased demand.
Conclusion
Amazon has been very keen in adopting innovative approaches in both their inventory management and supply chain networks. For example, Amazon has made it possible for millions of orders to be fulfilled and shipped to clients at great speeds and prices than their competitors. Through Amazon’s strategic plans such as the implementation of efficient warehouses, efficient systems, and price strategies they have been able to combat strategic issues within the market efficiently (BOZARTH & HANDHELD, 2008). Therefore, Amazon has made it possible for both third-party seller and its vendors to make sales without huge losses hence contributing a lot to their development.
In Amazon’s history, adoption of cutting-edge technology has been a fundamental choice in its fulfillment centers. The reason for this was to assist employees in delivering excellent services to its customers. Employees at Amazon work in tech-enabled environments since their daily roles depend on technology to improve processes (Leinbach, 2007). Introduction of Robotics in Amazon’s fulfillment centers has improved commitment to invention particularly in logistics. The robots undertake the task of lifting and moving shelves throughout centers. They have helped speed the order processing time and also reduced the time taken in picking products for new customer orders. Technology will remain to be a stepping stone of innovation in Amazon in order to promote more advancement of processes.
Amazon’s anticipated growth has provided opportunities for promoting sustainability development hence setting a stepping ground for the future of e-commerce. Due to its large market command and influence, Amazon can promote huge sustainability impacts on sustainable brands. Brands can define their marketing, market position and grow their presence with integrity. Sustainable e-commerce can improve and ensure upstream investments made to secure supply chains are not undermined (Dedrick, J. L. (2010). Though implementing such approaches is not easy, Amazon can maneuver this reality by understanding opportunities and risks, e-commerce strategies, and consumer expectation.
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