Amazon.com is an American commerce company based in Seattle, Washington. Their mission since 1995, when it launched, has been, “to be Earth’s most customer-centric company, where customers can find and discover anything they might want to buy online and endeavors to offer its customers with lowest possible prices” (Amazon.com). When the company first went public it only sold books. They received backlash and tough competition from bookselling giant Barnes & Noble (CNN Timeline 2019). Amazon.com required heavy investments in technology and marketing that were unfeasible at the time in 1997 but since then, Amazon.com expanded becoming a one stop shop where customers can find almost anything.
Most companies need successful supply chain management to create sustainable competitive advantages to achieve inventory reduction and delivery service improvement.
Amazon’s consumer-centric approach emphasizes frugality and works from the customer backwards, which is what makes it so successful (Innovation Enterprise 2015). It is a balance between cost of distributions and level of services from their efficient distribution centers, multi-tier inventory networks, and efficient transportation organization.
Because Amazon’s supply chain strategy and competitive strategy goals are in alignment, it is extremely successful. What gives Amazon this competitive advantage is the information systems that provide real time information with its supply chain. Amazon gains knowledge every time the ‘Place your order’ or Amazon ‘Dash’ button is clicked. They can follow buying habit trends and stock up when needed at peak flow times.
Each order is tracked along the process of the time you click ‘Place your order’ to the moment it is dropped on your doorstep.
Once the ‘Place your order’ is clicked, an employee in the Amazon warehouse where your item is will receive the order information and send that information to the Kiva robots. The Kiva robot with the product ordered will begin moving along the chessboard of QR codes (see image below) that organize the movement of all Kiva robots and will make its way to the employee.
A Kiva robot moving a rack at an Amazon fulfillment center (Getty 2015).
Once the Kiva robot meets the worker at the station, the items are picked off the Kiva robot shelves and items are labeled by the worker with the order information. It will eventually be packed, boxed, and shipped from the warehouse. The box then leaves the warehouse to plane, truck, or car. The Kiva robot technology has maximized Amazon’s efficiency within many warehouses, but the technology has not reached all warehouses. The $775million investment for the robots is actually cost saving because it improves warehouse efficiency,
Almost all products sold on Amazon come from other businesses. Amazon is the delivery service that stores and delivers their products. There are hundreds of Amazon warehouses and a growing number of distribution centers in cities locally. A decision to outsource part of its inventory mitigates risks and maximizes optimal service to customer. Outsourcing can be detrimental though if demand level is increasing (Josephson 2018). Products that are purchased frequently are kept in an Amazon warehouse while other products are kept in distributors inventory. It is better organized in this setup because Amazon can ship faster, or the distributor can ship to the customer. This is how Amazon caters to the customer’s need for fast shipping. Amazon is able to provide a vast selection of goods because of the extensive network outside its immediate warehousing.
Amazon.com’s 1.2 million-square foot fulfillment center in Phoenix, AZ in 2012 (AP 2012).
Amazon provides multiple options for deliveries at different costs for the customer. The customers’ delivery option for a product reflects how much they are willing to pay. Most Amazon customers subscribe to the Amazon Prime Membership. It provides unlimited free two-day shipping at a cost of $119/year or 12.99/mo. With the membership, members are also able to read kindle books, listen to music, and watch movies and tv for free. The recognition of consumers’ irrational hatred of delivery fees is how Amazon got to where it is today. This free delivery costs Amazon over $7billion on shipping every year.
(Amazon SEC Filings).
Amazon outsources UPS, Fedex, and other third-party shipping companies to make deliveries. The graph above shows the trend of increasing net shipping costs. The difference between what Amazon pays and charges for shipping is increasing. The bigger the number, the more Amazon loses from shipping costs.
One of the challenges of Amazon is making the decision of which warehouse or external partnership should be responsible for a customer order. It can be difficult finding a solution in an order where there are multiple items located in different places and it needs to be delivered in a single delivery. Kiva robots in warehouses make finding products quicker and more efficient for the process of delivery. It is difficult to gain efficiency in transportation because of the large number of small orders, but Amazon manages to supply customers even if they are at a loss.
Amazon introduced a shipping option that make the customer wait longer and in return receives a promotion for other Amazon products. This is actually for Amazon to achieve economy of scale which is lower the cost and the customer satisfaction is still met, but it only occurs on the customer terms when they choose that shipping option.
Amazon has established they have a successful supply chain by perfecting efficiency between the supplier and delivery to customer. The next step is focusing on becoming more sustainable. Amazon.com received a score of F just a few years ago in the rankings of CO2 emissions by the Carbon Disclosure Project (Gonz?lez 2016). Since then, Amazon has been working to reduce their carbon footprint. The Amazon initiative Shipment Zero aims to reach 50% of all shipments net zero carbon by 2030. The long-term goal is global infrastructure using 100% renewable energy. The biggest things to consider are financial filings, sustainability reports, energy use, carbon, waste, and clean air production.
The last mile is the greatest contributor to energy use, carbon and waste release. The last-mile is the last stage in the supply chain process describing the transportation planning to get products from transportation hubs to a final destination. Transportation hubs for Amazon packages reduces the cost of transportation in the last-mile delivery. Ordering online is can be less energy intensive than driving to and from a physical store to pick up an item because shipping takes advantage of economies of scale. Benefits decline quickly when delivery times get shorter and when customers don’t order items together. And on top of that, when a customer wants a product within one or two days, the carbon emissions increase substantially. And, as Amazon grows bigger, the more resources are needed to reach a greater audience. That means more loads and vehicles in the air and on highways which burden industry capacity. Insourcing the last-mile would keep business costs down, but the environmental impact would remain the same or increase.
It would be beneficial for Amazon to implement a “closed-loop” supply chain which maximizes resource value and lessens amounts of waste and use sustainable packaging. After putting these measures in motion, one great impact would come from Amazon sharing their sustainability goals and the company-wide carbon footprint. An article about the Shipment Zero vision states, “We believe that lower costs include lowering the costs to the environment we all live and work in every day” (Clark 2019). To continue this push for low costs, a sustainable supply chain is necessary. Amazon has easy access to specific data from “Dash” buttons which if tracked closely can predict a product rise and fall in demand, and from there Amazon can adjust their stocks economically. Warehouse location are chosen to maximize deliveries. New technology like drones, driverless cars, and remotely-piloted automobiles. Solar and wind farms and solar panels on top of Amazon rooftops to generate power through a renewable energy source.
Global Impact of Sustainability Measure
It’s important for Amazon to be transparent on these plans, as the size of its business means its impact to the environment, energy consumption and, ultimately climate change, is significant. And to be replicated, a model will be necessary for other large companies. If one company discloses information about their greenhouse gas emissions, it will hopefully lead to other companies disclosing that information for investors and consumers and maybe tighten up their behavior! A sustainable supply chain can make a positive impact to other businesses and environment. Environmental managers and chief sustainability officers are increasingly looking to their supply chains to conserve natural resources and reduce carbon emissions.
Amazon’s success relies on efficient supply chain management. For Amazon to continue to promise customers almost anything at the lowest cost and within a certain amount of time, sustainability is key. Addressing supply chain and actions to make change for a more sustainable future.
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