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How the Amazon Supply Chain Strategy Works

It’s no secret that Amazon has revolutionized the entire online shopping experience with its user-friendly app, fast shipping times, the Amazon Prime membership, and easy checkout options. They even have their own delivery system. There are so many things to learn from Amazon’s supply chain strategy that can help anyone with a growing business.

This article will discuss Amazon’s:

  • Supply Chain
  • Supply & Demand
  • Distribution Strategy
  • Global Supply Chain

Table of Contents

Amazon Supply Chain 

The Amazon supply chain strategy is an excellent working system designed and built by Jeff Bezos and the Amazon staff. It’s one of the best learning curves for many retailers today. It’s very effective since Amazon has optimized each stage of the strategy, such as adding delivery networks, drones, and other hi-tech features to the whole pattern. Amazon also contains the whole logistics cycle.

Third-party sellers on Amazon have two great fulfillment options: Fulfillment by Merchant (FBM) and Fulfillment by Amazon (FBA)

Fulfillment by Merchant

When you choose FBM, you’re in charge of packing, shipping, customer service, returns, and all the other logistics, and you won’t have the option to sell on Prime.

Fulfillment by Amazon

When you choose FBA, Amazon will take care of all of the logistics (packing, shipping, customer service, etc.) and it allows you to sell on Amazon Prime, which is a major plus.

With these two options and the options that come with them, Amazon sets itself up as one of the most efficient retailers in the world.

 

  1. Send Inventory to Amazon
  2. They receive & store your inventory
  3. Once a customer orders one of your products, Amazon will handle it
  4. Amazon will handle the picking, packing, and the shipping
  5. Amazon provides the customer service

Below is an image that describes the Amazon Supply Chain:

 

Amazon Supply & Demand

If you have Amazon Retail Analytics (ARA) basic or premium, you have access to a fairly new tool that Amazon provides to help you gauge your inventory. The Probability Level Demand Forecast breaks it down into three parts for vendors to see the supply they’ll need to stock in order to meet their customers’ demands. These include:

P70: There’s a 70% (or less) chance Amazon will buy the level of demand shown and a 30% chance they’ll buy more.

P80: There’s an 80% (or less) chance Amazon will buy the level of demand shown and a 20% chance they’ll buy more.

P90: There’s a 90% (or less) chance Amazon will buy the level of demand shown and a 10% chance they’ll buy more.

Knowing these numbers and understanding the analytics can help you gauge your supply, demand, and growth.

Amazon Distribution Strategy 

Amazon’s groundbreaking distribution strategy is made up of four different components:

  • Manufacturing
  • Warehousing
  • Technology
  • Delivery

Amazon Supply Chain: Manufacturing

There are plenty of third-party sellers on Amazon. In fact, selling on Amazon is one of the best ways for businesses to get in front of new customers and ultimately grow their business. However, Amazon has found that a lot of the products that are sold on Amazon can be made for cheaper and turned around for a bigger profit.

Over the past few years, Amazon has been manufacturing more of its own products. Think of Amazon Home, Amazon Fashion, and even Amazon Fresh. Having their own product lines and branding gives them more control over the entire manufacturing and supply chain process, which puts them in a position to grow even more.

Amazon Supply Chain: Warehousing

When products are manufactured, whether it be by a third party seller or Amazon, they need somewhere to be stored and set for delivery. This is where Amazon’s warehousing strategy comes in. Because there are so many buyers from all over the world, Amazon builds warehouses close to big cities with high populations to ensure fast delivery. For people who live in less populated areas, Amazon has smaller warehouses to make sure those individuals get the same customer experience as the rest of their shoppers. 

A massive amount of products from faux house plants to cool tech gadgets are stored in these warehouses, and inventory in each is based on supply and demand. With an advanced organization strategy and robots to help out, each warehouse is efficient when it comes to picking and packing products for the fastest delivery possible. 

 

Amazon Supply Chain: Technology

The use of advanced technology is one of the biggest reasons the Amazon supply chain process is so successful. With robots helping to find the products ordered, pack them up to get ready for shipping, and assist in other inventory needs, the use of technology makes Amazon as a whole extremely efficient and cost-effective.

Amazon is always looking for new and innovative ways to be better, and as a result, their technology is always getting bigger and better. One example is Amazon Prime Air – while it’s not fully rolled out yet, this will revolutionize online shopping even more than Amazon already has. Once Amazon Prime Air launches, people who live near a drone warehouse will be able to receive their orders within 30 minutes of placing them.

Amazon Supply Chain: Delivery

There are so many different ways that Amazon provides delivery services, which is part of the reason they’re one of the best online retailers in the world. They have multi-day delivery, 2-day delivery, even same-day delivery in some areas, and soon, they’ll have drone delivery. But that’s not the only thing that sets them apart.

Amazon knows there are multiple ways to get a package from the warehouse to the doorstep, and they utilize their resources. More specifically, they use their own Amazon trucks, Fedex, and UPS to be as efficient as possible.

Global Supply Chain

Amazon isn’t just for people living in the United States. Sellers who want to branch out and offer their products to people around the globe can do so with Amazon and their international marketplaces. Here are all of the options divided by continent: 

International selling isn’t for everyone, but Amazon’s global supply chain opens up endless opportunities to grow and expand into different markets all around the world. Although customers overseas might not know about your brand yet, they’ll know what Amazon is and be more likely to purchase your products.

There is so much to learn from Amazon’s supply chain process, and if you’re looking to sell on Amazon, having this built-in system can be incredibly beneficial as you expand your business and brand.

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