Amazon is both a tech company and a retailer. It is considered as one of the most valuable tech companies and one of the largest electronic commerce retailers in the world. The company has provided a blueprint for capitalizing on technologies and continuous innovative pursuits to build and improve the competitive advantage of its retail business. Its technological inclination is central to its business strategy and has also been demonstrated in its supply chain. The specific supply chain strategy of Amazon has allowed its e-commerce platform to service hundreds of millions of customers in North America and the rest of the world.
Key Principles in the Supply Chain Strategy of Amazon: How the Supply Chain of the Company Powers its Retail Empire and How Its Strategy Revolutionizes Supply Chain Management
The supply chain strategy of Amazon hinges on five core principles. These are customer obsession to promote customer satisfaction, development and utilization of technologies and other innovations, data-driven decision-making, partnerships with value-adding businesses, and commitment toward sustainable operations. These have guided the company to build one of the most efficient and customer-focused supply chains in the world. Nevertheless, to implement these principles, Amazon has adopted the following tactics in its supply chain strategy:
1. Data Analytics For Supply Chain Optimization
Amazon collects and processes data to guide various decisions related to the management of its supply chain to ensure that it is as operational effective and cost-efficient as possible. For example, to forecast demand for products, it references historical sales data, customer behavior data, and other data about market trends. This ensures that the company has the right amount of inventory in the right place at the right time.
The specific inventory management, warehouse management, and transportation planning requirements of the company are also dependent on data analytics. This involves tracking inventory levels and determining slow-moving items to reduce inventory costs. The company also uses data to optimize its warehouse layouts and internal product movements, determine the most efficient routes for shipping products, and predict weather patterns.
Nevertheless, when it comes to data analytics, part of the supply chain strategy of Amazon is to use various techniques and technologies. It uses big data analytics and cloud computing infrastructure to process and analyze large amounts of data quickly and efficiently. The company has also invested in machine learning capabilities to automate certain data-critical tasks such as demand forecasting and inventory management.
2. Process Automation Through Artificial Intelligence
Remember that the company automates certain data-critical tasks using machine learning and other artificial intelligence tools and technologies. It is important to highlight the fact that Amazon has a specific artificial intelligence strategy. It has specifically procured, developed, and deployed AI algorithms and AI models to support its business requirements. This AI strategy has also been integrated into its supply chain strategy.
Nevertheless, aside from automating data analytics in the areas of demand prediction, inventory management, and transportation planning, the company has used natural language processing or NLP and large language models or LLMs for customer service and procurement automation. It has deployed a chatbot to handle simple inquiries and has dedicated software for determining suppliers, negotiating prices, and tracking orders.
The company also operates the Amazon Robotics subsidiary that manufactures mobile robotic fulfillment systems. Robots are an integral part of its warehouse operations. These machines help in picking and packing processes and in automating its entire storage and retrieval systems. Amazon is also developing and deploying experimental autonomous drones and self-driving trucks as part of its transportation or distribution system.
3. Vertical Integration and Forward Integration
Integration is another critical element of the supply chain strategy of Amazon. The company has a specific vertical integration strategy aimed at streamlining its operations by taking direct ownership of various value-adding processes in its supply chain. It also has a specific forward integration strategy that centers on expanding its business interests and other business activities that would add further value to its entire operations.
For example, when it comes to supply chain management, the company has approached vertical integration by owning warehouses and transportation networks. This gives it more control over how products are stored and shipped. Amazon specifically owns the non-vessel-owning common carrier Amazon Maritime, the delivery service platform Amazon Logistics, and the shipping and forwarding business Beijing Century Joyo Courier Services.
The company has continued to expand its interests and activities to explore new markets and add further value to its existing businesses. Hence, when it comes to its supply chain, some of its initiatives are part of its forward integration strategy. It has ventured into numerous acquisitions to build capabilities further. Remember that it owns the Amazon Robotics subsidiary and has also made investments in cargo carriers and logistics companies.
4. Strategic and Optimized Fulfillment Operations
Understanding further how the supply chain of Amazon works requires understanding its two most critical elements. These are the Amazon Fulfilment Center and the Amazon Delivery Feet. It is important to reiterate the fact that vertical integration and horizontal integration strategies have equipped the company with relevant resources and capabilities needed to have better control over its entire electronic commerce retail operations.
The company has more than 175 fulfillment operating centers around the world. It strategically places and builds additional centers in selected geographic markets based on historical demand and forecasted growth of market presence. Areas with high sales volume like California and Texas have more fulfillment centers and warehouses. Expanding its network of fulfillment operations helps it deliver its promise of a short delivery period.
Amazon also has a strong fleet of delivery vehicles. To be specific, to cater to all of its customers in geographic markets, it has operated its own fleet and has partnered with other transportation companies. It utilizes various transportation assets. These include cargo vessels and cargo aircraft, large trucks, utility vans, motorbikes, and even drones. Amazon Logistics has also helped in building and supporting smaller transportation companies.
5. Mandated Amazon Supply Chain Standards
A corporate social responsibility program has also been integrated into the supply chain strategy of Amazon. This program is founded on the principles of sustainability. The company has developed the Amazon Supply Chain Standards that compel its business partners and its supply chain operations to follow strict guidelines aimed at promoting and advancing further sustainable operations that produce win-win outcomes.
Take note that the sustainable practices of the company have helped in cost reduction and operational efficiency. Practices such as investing in renewable energy and waste management specifically help in reducing costs by minimizing waste, using less energy, and reducing emissions. Other practices aimed at reducing externalities help in making its operations more efficient through the streamlining of processes.
Amazon mandates its business partners ranging from its suppliers and platform sellers to follow its standards to help them better business owners and operators. The specific set of ethical standards it has set has helped its suppliers avoid legal issues that can undermine their operations. The same standards also help to ensure that its partners attract the best workers, build effective workforces, and adopt best business practices.
