Evolution of Amazon's Supply Chain

EVOLUTION OF AMAZON'S SUPPLY CHAIN

Unlike most "brick and mortar" bookstores, Amazon's supply chain consists of wholesalers, book publishers, and internal warehouses strategically located for optimal delivery. Amazon keeps a small inventory and sources out of stock items with wholesalers and publishers after receipt of an order. All items ship to internal DCs where Amazon employees pick, pack, and ship the order to the customer. The majority of orders are filled within 4 to 7 business days. (See Figure 1 for Amazon's Supply Chain.) The DCs carry a mix of products based on transportation costs, time to deliver to consumers, and costs of dealing with multiple items. Amazon also uses "postal injection" (full truckloads of orders are driven from a DC to major cities, bypassing postal service sorting hubs, eliminating process steps and travel distances for parcel delivery carriers) to reduce shipping costs by 5-17%.

The benefits of this distribution network are low inventory levels, which reduce storage and handling costs, money tied up in inventory, taxes and insurance, and obsolescence. One major downside of this type of supply chain is the cost of the picking and packing employees must doused to fulfill orders. One measurement that shows Amazon's supply chain was reasonably successful areis the gross margins and fulfillment costs and trends shown in Figure 2.

Amazon's supply chain relies heavily on technology, from its user-friendly on-line order system to its backend Enterprise Resource Management (ERP) system with strong dependence on EDI. One piece of this solution is the inventory management policies and systems.

STREAMLINING INVENTORY MANAGEMENT

Amazon's inventory costs are significant and it uses inventory management policies to optimize the fulfillment network. With these policies, Amazon refined customer demand