Fulfillment by Amazon: leveraging automation in warehouses
Amazon has been successful in developing a sophisticated, high-tech network of fulfillment centers, which they make accessible to third party sellers
Amazon is one of the largest online retailers in the world, operating in several spaces. Besides selling goods and media directly to consumers through their website, they also provide a platform for other retailers to sell their products to consumers (more than 40% of the sales in their website come from third party sellers). They complement their offerings to consumers with Amazon Prime, their subscription based business model in which costumers pay a yearly fee to secure fast shipping on eligible items and have access to digital music, videos, among other media. Finally, they have their own electronics product line, which includes their e-reader Kindle, Amazon Echo, among others.
Amazon has had tremendous influence in e-commerce. They have changed the way people buy online, setting expectations on prices and quick delivery. In order to accomplish this, Amazon has invested in the latest technology available to create one on the most sophisticated logistics network worldwide. Through technology and innovation Amazon has made its more than 80 fulfillment centers highly automated, ensuring timely dispatch of their orders to consumers.
Fulfillment center’s locations in the US
Amazon’s warehouses
Amazon’s most modern warehouses have been designed around its robots to enable high levels of automation. These technologies can help increase productivity when combined with human labor. The shelves in these fulfillment centers move carried by robots, which rearrange the shelves in rows or bring them to Amazon’s employees, who pile them with products or take goods for packaging.
These robotic shelves have many advanta
ges: they allow more products in a smaller space, make stacking and picking more efficient as workers do not need to walk around the warehouse as products are automatically brought to them. Some of the fulfillment centers have Robo-Stow, a six-ton robotic arm that can move large amount of inventory, and vision systems that enable unloading and receipt of inventory in a short period of time. Amazon’s employees pack products for shipping aided by high-end computer systems. The robots Amazon uses in its fulfillment centers come from Kiva Systems, a company acquired by them in 2012.
Will robots replace humans on Amazon’s warehouses? In the future, Amazon will continue to look for ways to make its operations more efficient through automation in order to sustain this competitive advantage. Innovation and investing in new technologies is part of the company’s strategy. For now, collaboration between humans and machines is crucial, as the technology would not be effective without good employees in the warehouse.
One of the ways Amazon has been able to leverage its competitive advantage in superior operations is through their Fulfillment by Amazon (FBA) program, in which Amazon handles the back end operations of third party sellers, including storage, fulfillment, customer service and returns. It is an easy and simple model: sellers send their inventory to Amazon and Amazon takes care of the rest.
What do third party sellers gain with FBA?
– Faster delivery time: products fulfilled by Amazon are eligible for Amazon Prime’s free two day shipping, free shipping and others.
– Differentiation from other sellers: their products are differentiated as being Prime eligible enables customers to avoid shipping costs and they trust Amazon fulfillment and customer service.
– Leverage Amazon’s expertise: access to one of the most advanced fulfillment networks worldwide, which provides real time access to their inventory in which Amazon can also fulfill orders from other sales channels.
What does Amazon gain with FBA?
– Increase in revenues: Amazon charges a fee to sellers for storage space and for orders fulfilled.
– Growth of Amazon’s product offerings: Amazon is able to offer a wider variety of products to customers on its website avoiding inventory costs, especially slow-moving products.
– Growth of the Prime business: as FBA grows, so does the amount of products available for Prime, which incentives people to pay the yearly membership fee. Furthermore, Amazon’s sales also increase, as people with prime membership spend more money on Amazon than other users.
Sources
– http://www.amazon.com
– http://www.amazonfulfillmentcareers.com/amazon-fulfillment/locations/
– http://www.investopedia.com/articles/investing/061215/difference-between-amazon-and-alibabas-business-models.asp
– http://www.amazonfulfillmentcareers.com/
– http://services.amazon.com/
– http://www.businessinsider.com/amazon-sellers-fba-2015-5
– http://www.geekwire.com/2014/video-amazons-robot-future-arrived-new-distribution-centers/
– http://www.technologyreview.com/news/538601/inside-amazons-warehouse-human-robot-symbiosis/
– http://www.statista.com/statistics/259782/third-party-seller-share-of-amazon-platform/
– http://www.technologyreview.com/news/537801/help-wanted-robot-to-fulfill-amazon-orders/
– http://www.cnet.com/news/amazon-gets-kiva-robots-via-zappos-diapers-buys/
Thank you for sharing with us your thoughts on Amazon. I think that in the future Amazon will replace human labor with capital. Their approach of replacing has brought them greater flexibility and will definitely increase their throughput time. As the company continues to grow I think that increasing their operating efficiencies as you show us with automation will bring Amazon’s profitability up to speed.
Thank you for this post, it reminded me of the BYD Company case in which Japanese manufacturers of batteries were replacing labor with robot arms. In the case of Amazon, the robots must require a very big capital investment, but I think that it will give them a competitive advantage because of the high labor costs in the US and the fact that they can reduce variability and have more reliable processes this way. It will be interesting to see how their warehousing operations evolve in the next years.
E-commerce supply chains are the most challenging – clearly Amazon is investing heavily in automation to realize efficiency. It will be interesting to see how Amazon Prime plays out given the additional stress it adds to the distribution system.
Hi Xime,
I’m the admin for Open Knowledge. I just wanted to let you know that your post was linked in this Techcrunch article: https://techcrunch.com/2016/11/28/welcome-to-the-future-of-work/
I thought you might enjoy knowing!
Adrienne