Imagine you’re a headphone company.
You’ve got a great landing page, manageto get clients yourself and don’t rely on anyone else for exposure.
You’ve also invested quite a bit in creatinga decent distribution network, decent meaning a modest 2-4 day delivery.
But unless your headphones have the perfectbass and treble combination, you’ll still have to deal with other brands in the market.
Except that your competition uses Amazon fulfillment.
Yes, they do pay a-not-so-modest average of13% per item plus an additional fee, but with one-day shipping, they can lure enough customersto more than make up the difference.
While you struggle and sweat to ensure deliveriesare on time, Amazon can do everything overnight.
Having a superior product is great and allbut research shows that 25% of customers won’t consider buying if it isn’t shipped in 2days or less.
What’s worse is that two-thirds are willingto pay a premium to get it early.
Guess who’s capitalizing on that? Through the years, Amazon has built one ofthe most intricate but efficient supply chains.
It’s partnered with several regional andglobal logistics companies, made deliveries with drones, paid less tax than sausage stallsin Austria and bossed the online retail space, making more revenue than the next 9 biggestretailers combined.
Since the inception of prime in 2005, Amazonhas consistently stayed ahead of the game.
Unlimited two-day shipping was a luxury unheardof at the time and just when it seems others have caught up, they’ve raised the stakesagain.
Amazon’s fulfillment network consists ofseveral types of facilities with different roles in the supply chain.
There are Inbound Cross Dock centers whichreceive goods from vendors, inbound and outbound sortation centers, return centers, delivery-stations, airport-hubs, prime now hubs, whole food distribution centers, and a few others.
Building more facilities means a rise in inventorycosts but in the long run, this reduces transportation costs.
Every so often, a new distribution centeris built when the volume of deliveries in an area is large and profitable enough toinvest in.
For Bezos, it’s always about playing the longgame.
Except for the FirePhone – that was prettyshort-lived At the heart of the storage and distributionnetwork are Fulfilment Centres.
Amazon has more than 250 of these globally.
Fulfillment centers are massive facilities, the largest one is around 93, 000 meter square in size.
It is here that most of the products are broughtin from vendors, inspected to make sure they meet standards, organized into shelves andlater shipped in the appropriate packaging when an order is placed.
When that happens your package along withothers near you is collected by external logistics drivers who deliver them to their respectiveairport-hubs.
Now Amazon does have its own fleet of planesand trailer-trucks but they’re only responsible for a fraction of the packages.
It’s air-fleet of 50 is still relatively smallcompared to 251 of UPS or the 650 strong of FedEx.
At last, comes the time to deliver the packagefrom the nearest warehouse to the customer’s doorstep.
How hard can that be? Ironically, the last mile, as it’s called, is the costliest part of the entire journey, with estimates suggesting up to 53% of thetotal cost per package.
Shipping in bulk is always cheaper and asthe number of items reduce, the cost-per-item increases.
Then there’s geography.
In rural areas, two consecutive delivery stopscould be miles apart.
Cities, on the other hand, have less deviationbut more traffic.
The last mile issue affects all e-commercecompanies.
Just look at Walmart, which, despite havingstores less than 10 miles away from 90% of the US, is still spending billions tryingto figure efficient ways to ship products.
It’s latest attempt: make employees deliverpackages on their way home.
For the last mile, Amazon mostly relies on3rd-party logistics providers like UPS and FedExOutsourcing not only means higher rates but also not being able to control customer-experiencefor the last part of the journey.
But that’s going to change.
Amazon has been increasingly reducing dependencyon other carriers.
It’s leasing more planes, buying more trucksand baiting more students into its self-delivery program.
A quarter of all shipments are now handledby itself.
So to recap: the vendor ships the inventoryto a warehouse or warehouses.
From there the inventory is distributed amongother branches as needed.
A combination of their own freight systemand others is used to get the packages to the closest shipping hub and from there tothe customer’s house.
But amazon isn’t slowing down.
It’s 6 year old plan to start flying shipmentsin drones is almost ready.
Drone delivery if perfected could drasticallychange the last mile economics, especially in those areas discussed previously.
And let’s not forget the environmental benefitscompared to traditional modes of transport.
As of 2019, fulfillment centers have over100, 000 robots working 24/7, with more being added every year.
With advancing development in automation, the next 10 years could be very different for supply chains.
Soon, one-day shipping will no longer be aprivilege, but a standard, which all businesses will strive to maintain.