How to Develop a Supply Chain Management Like Amazon: Tech-Driven Approach

| 7 min read

Amazon founder Jeff Bezos was recognized as the richest man on the planet in 2018, with his assets reaching the colossal $150 billion. All due to the renowned marketplace of his making. But which factors, in particular, made Amazon so sweepingly successful? We believe that the proper approach to logistics and definition of supply chain requirements played major roles in the matter. Let’s figure this out in more detail and see how you can ultimately improve your supply chain.

 

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When a company poses a question as to how to start developing a successful supply management strategy, Amazon comes to mind at once. 

The thing is, vendors operating through Amazon have one major goal in the long run - to establish and sell products that bring the most profit. The means of shipping and storing these products is a primary responsibility of the Fulfillment by Amazon (FBA) service, which provides the right to use the whole Amazon infrastructure.   

Fulfilled by Amazon is, basically, a note in the certain vendor’s product card, which indicates that the vendor is allowed to employ Amazon storage capabilities and let their customers get items shipped through the authentic Amazon delivery service. In turn, customers get their purchases as fast as possible without even paying for the shipping sometimes (FBA provides free shipment for purchases that start at $35).

 

FBA is a paid service for a seller on Amazon that allows them to store items for sale in automated Amazon storages. The company takes up all responsibility for preserving, marking, transporting, and conducting operations related to return and refund on its own. 

The FBA mark boosts the trust of potential customers and allows to earn more money by selling goods. If you wish to stay client-oriented and present your company as ultra-reliable and super-transparent, you should definitely look in the direction of this service.

 

The supply chain strategy development scheme in terms of FBA is quite simple.

Any vendor that has an Amazon profile can order products from any preferred supplier, wherever they may be based geographically. If a vendor participates in the Fulfillment by Amazon program, the product will be delivered straight to the Amazon storage (you just need to ask them to mark your goods with special FBA Labeled Inventory stickers). 

The workflow in Amazon storing facilities is perfected - practically all the processes are automated, robots predominate over human labor resources (in future, Amazon is planning to minimize human involvement as much as possible), and the loss of a product just cannot happen there. At that, despite the huge dimensions of these storing spaces, special markers allow finding particular products without any issues and delays. A vendor only needs to check the number of goods in storage and timely replenish it. 

And these aren’t all the advantages FBA-covered vendors get. They also get additional services like:

  • combination of multiple orders within one shipment;
  • purchase return;
  • two-day shipping (relevant for most products), etc.


All in all, developing a successful supply management strategy, Amazon was able to direct the attention of all its customers towards the shipping speed that doesn’t affect the quality of all other services (the goods are stored in most optimal conditions, it isn’t lost along the way, couriers work by strict schedule, etc.).

 

In fact, developing a successful supply management strategy, creators of the FBA were directed by the major wish to provide a number of advantages for vendors, such as:

  • vendors don’t have to interact with end consumers directly - FBA is responsible for storing, shipping, and returning;
  • vendors’ customers get to use Super Saving Shipping - free delivery for orders starting at $35; 
  • foreign customers can select cheaper shipping to their country;
  • vendors get to use Fulfillment by Amazon mark even in their online stores or on other marketplaces once they purchase it;
  • they also get access to the most financially reliable TA on Amazon - Amazon Prime users (only FBA-certified vendors get to sell to them).

 

Let’s figure out how you can establish an effective supply chain that would be able to at least come close to Amazon’s solution’s success. 

Invest in automation

You shouldn’t neglect the galore of automation advantages the 21st century readily offers. Amazon, however, took a step further than most other companies in this matter, having purchased Kiva Systems - a storage robots manufacturer - back in 2012. By the end of 2014, Amazon was already employing about 15,000 Kiva robots throughout its 10 storages. A year later, it was 30,000 robots operating in 13 company storages. 

According to practice, robots that handle orders transportation in storages are five times as efficient as manual workers - operations that a human could handle in an hour took 15 minutes for robots. 

Technically, every other Kiva robot is a square automated construction on wheels that moves with the speed of up 7,5 km per hour and can transfer loads that weigh up to 280 kg. 

Think what you can outsource

The whole scope of tasks related to the reorganization of the supply chain strategy shouldn’t necessarily be fully handled by your dedicated team. This especially goes for the aspects related to the implementation, deployment, and further technical support of software and hardware. 

Due to the rapid growth of everything involved with IT, company workers focused on the production of mass consumption items may find it quite difficult to follow all the tech trends. If you assign a portion of tasks to third-party supply chain professionals, you can save your experts’ time, make their work easier and less painful, and even boost the quality of your integrated supply chain

Turn to tried shipping services

You should keep in mind that apart from robotization of all and everything, Amazon’s supply chain management strategy also describes well-adjusted relationships with such world-renowned delivery services, as FedEx and UPS. These are companies that ship goods practically throughout the whole planet and are known as ones of the most reliable services globally. This allowed Amazon to optimize the client-orientedness of its own services and boost customer satisfaction rates. Consider cooperating with leaders in the shipping niche during your supply chain strategy development.

Provide centralized management for each local storage

Instead of supporting equitable relationships with local goods suppliers, Amazon goes by a completely different route and employs an integrated supply chain. Such an approach to supply chain strategy development allows to implement innovative tech solutions and update analytical data much more efficient and faster. 

Moreover, it provides optimal conditions for forming a single centralized storage management system that boosts the accessibility of company service in any region they should cover. 

Deploy a global supply chain management system

Last but not least, try to initially plan out developing a supply chain which would be able to cover the global network of suppliers and storages at once, without excessive adaptations. See, even if you have sufficient corporate physical resources, sooner or later the moment of further scaling will come. 

Your task is to provide all the customers without exception with the equally satisfying level of service. In turn, making a decision to develop and implement a global software-hardware product will help you automatically get rid of issues related to the gathering of analytical data and creation of an optimal supply chain strategy (which are usually quite abundant during scaling).

 

If you plan out your supply chain routines and employ the chain strategy development similarly to Amazon, here’s what you can ultimately get:

  • Reduction of logistics expenditures. This goes first and foremost for your chain strategy development. You need to minimize those expenses related to the oversupplied or undersupplied goods or raw materials for manufacture. Transportation expenses will be reduced as well if you go ‘the Amazon way’;
  • Lowered impact of the human factor. As you have already understood, Amazon FBA features practically total automation. In turn, developing a supply chain like Amazon’s, you minimize the human involvement in logistic processes and, as such, improve your supply chain by eliminating the human factor-caused risks (inattentiveness, conflicts, tardiness, etc.). 
  • Good scaling susceptibility. Thanks to the unique structure and initial globalization, a supply chain management strategy established by the principles similar to the Amazon’s supply chain management plan described by FBA can be scaled easily: locations of storage capacities and routes in between them are planned so that they can be added with local regions from the get-go;
  • Smooth management of reaction to sudden customer demand spikes. Such situations are unpredictable in the conditions of absolutely any type of market. All you can do here is try and make supply chain strategy development utterly affordable. In turn, a supply chain management SCM implemented by Amazon is considered as the most reasonable to use in terms of pricing.  

Summary

As you can see, the success of Amazon and its supply chain management plan enclosed in FBA isn’t really a phenomenon, but quite an explainable situation backed by hard teamwork of thousands of highly-qualified employees. With that being said, you probably shouldn’t try and reinvent the bicycle, striving to repeat each and every step Jeff Bezos took in his own time.

Artelogic will help you develop a supply chain for your business powered by analytical software and automation solutions provided by the seasoned supply chain professionals. We have in-depth expertise in the field of custom software development. Our supply chain management professionals can create a turn-key solution that would demonstrate positive dynamics for your whole business literally from the get-go.

 

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