Amazon knows that size and speed help keep up its profitability because the company can get products to consumers a lot faster than most.
In fact, former VP of supply chain and retail services at Amazon (now Shipium co-founder and CEO) Jason Murray once told Supply Chain Dive that, “Shipping speed is the growth driver in ecommerce. Prime submitted that as the No. 1 fact. You can do whatever you want with marketing, checkout, one-click (ordering), whatever it is — speed is what drives everything.”
As such, the company has announced its plans to further overhaul its delivery network in order to dispatch packages even faster, while lowering costs, according to reporting from The Wall Street Journal. The logistics makeover has already resulted in shorter delivery times, transformed inventory management, as well as altered the search results customers see on its flagship website, according to executives, analysts and sellers who list their items on Amazon.
However, back in the early 2010s, most things bought from Amazon.com were shipped using a third-party carrier until 2014 when Amazon began delivering packages itself with a service called “Fulfilled by Amazon,” according to the University of Washington (Supply Chain Transportation and Logistics Center). Fast forward to 2021, the company shipped an estimated 7.7 billion packages globally, based on its nearly $470 billion in sales.
Now, this new network model that has been rolled out in recent months represents one of the biggest shifts to Amazon’s system of shipping goods around the world, according to the WSJ article.
Perhaps Amazon learned some valuable lessons after its network (and costs) swelled during the pandemic as it tried to keep pace with fluctuating demands coupled with inventory issues. Thus, Amazon hired even faster and increased its warehouse space to keep up. According to the logistics consultant MWPVL International, Amazon operates more than 1,000 facilities throughout the U.S. alone. With the post-pandemic dust settling, the business is trying to cut the excess, while still remaining profitable.
Why? Because Amazon sees the connection between speed and growth: “When we offer faster speeds, customers are more likely to buy something,” said Udit Madan, Amazon’s vice president of transportation in the WSJ article. “They come back more often to shop with us.”
What’s more, in the last year, the ecommerce giant has created eight regions that are designed to work self-sufficiently and it wants to show consumers the products that are closest to their locations. This means that what consumers see when they search for products online will be slightly different: Items that are already located within a region might appear higher on results because they can get to customers faster, Madan said.
And the company is already seeing results: Amazon said about 76% of products being ordered now are from facilities within the consumers’ regions, compared with 62% one year ago. Other notable metrics include:
- 15% reduction in the distance items travel from fulfillment centers to consumers
- 12%+ decrease in “touches,” or how often a package is handled
- The pace of global shipping costs rising has started to slow, increasing by about 2% in the first quarter (compared with a 14% for the same period a year earlier)
Finally, Amazon also has tried to increase delivery speeds by expanding warehouses it calls same-day centers (primarily storing items that are in high demand like toiletries), which it has been opening throughout the country. However, it could expand to at least 150 same-day centers in the next several years, MWPVL International estimated.
While Amazon touts the success it has seen so far with the network overhaul investment, some merchants that sell on the website are still seeing some delivery delays; however, for sellers, it can be difficult to pinpoint the causes.
Amazon Chief Financial Officer Brian Olsavsky in a late April earnings call with investors said the company has been able to stabilize its operations and that it has better-balanced warehouse capacity and demand for products, but will it help to sort out delivery concerns for sellers? Only time will tell.
