• Advertise
  • Contact Us
  • About Us
  • Supplier Directory
  • Login
  • Subscribe
  • Logout
  • My Profile

  • CORONAVIRUS
  • LOGISTICS
    • Air Cargo
    • All Logistics
    • Express/Small Shipments
    • Facility Location Planning
    • Freight Forwarding/Customs Brokerage
    • Global Gateways
    • Global Logistics
    • Last Mile Delivery
    • Logistics Outsourcing
    • LTL/Truckload Services
    • Ocean Transportation
    • Rail & Intermodal
    • Reverse Logistics
    • Service Parts Management
    • Transportation & Distribution
  • TECHNOLOGY
    • All Technology
    • Artificial Intelligence
    • Cloud & On-Demand Systems
    • Data Management
    • ERP & Enterprise Systems
    • Forecasting & Demand Planning
    • Global Trade Management
    • Inventory Planning/ Optimization
    • Product Lifecycle Management
    • Sales & Operations Planning
    • SC Finance & Revenue Management
    • SC Planning & Optimization
    • Sourcing/Procurement/SRM
    • Supply Chain Visibility
    • Transportation Management
  • GENERAL SCM
    • Business Strategy Alignment
    • Education & Professional Development
    • Global Supply Chain Management
    • Global Trade & Economics
    • HR & Labor Management
    • Quality & Metrics
    • Regulation & Compliance
    • SC Security & Risk Mgmt
    • Sustainability & Corporate Social Responsibility
  • WAREHOUSING
    • All Warehouse Services
    • Conveyors & Sortation
    • Lift Trucks & AGVs
    • Order Fulfillment
    • Packaging
    • RFID, Barcode, Mobility & Voice
    • Robotics
    • Warehouse Management Systems
  • INDUSTRIES
    • Aerospace & Defense
    • Apparel
    • Automotive
    • Chemicals & Energy
    • Consumer Packaged Goods
    • E-Commerce/Omni-Channel
    • Food & Beverage
    • Healthcare
    • High-Tech/Electronics
    • Industrial Manufacturing
    • Pharmaceutical/Biotech
    • Retail
  • REGIONS
    • Asia Pacific
    • Canada
    • China
    • Europe
    • Latin America
    • Middle East/Africa
    • North America
  • THINK TANK
  • PODCASTS
  • VIDEOS
  • WHITEPAPERS
Home » Amazon Tests Cheap Warehouses to Make Holiday Shopping Snafu-Free

Amazon Tests Cheap Warehouses to Make Holiday Shopping Snafu-Free

Amazon Tests Cheap Warehouses to Make Holiday Shopping Snafu-Free
Source: Bloomberg
December 11, 2019
Bloomberg

Amazon.com Inc. is gearing up for the online holiday shopping season by fine-tuning its sprawling delivery network to ensure orders get to customers on time. To that end, the company is testing a new inventory storage service to help meet holiday demand and its next-day shipping pledge without overcrowding its warehouses or running out of products.

The new service, Amazon Storage and Replenishment, lets its merchants stage inventory close to Amazon’s delivery operation so products can be quickly replenished, according to documents reviewed by Bloomberg. Amazon is trying out the program in Ontario, California, about 20 miles from its closest facilities and has plans to expand the program to other locations around the country, according to the documents.

Having spent billions of dollars building a sophisticated network of highly automated warehouses that use robots, conveyor belts and thousands of people to quickly pack and ship products, the company is now turning to a decidedly 20th-Century innovation: cheap warehouse space.

Amazon has capacity challenges during the holidays. It shares warehouse space with merchants that sell their products on its marketplace, and the company has already jacked up its storage fees during peak season to discourage those partners from cluttering facilities with too many products. But that presents the risk of merchants being overly cautious and Amazon losing sales when items run out. It can also frustrate Amazon’s merchant partners when they get stuck with a big bill to stow products that aren't selling. The new service seeks to solve both problems: declutter expensive facilities while having backup inventory close by.

“Amazon is trying to figure out how to provide a logistics service merchants will pay for and not end up with warehouses full of items no one is buying,” says Juozas Kaziukenas, founder of New York e-commerce research firm Marketplace Pulse. “Many sellers are inexperienced in handling this and lose serious money on fees.”

The service is the latest effort by Amazon to reach further up the supply chain to control the flow of goods from factories where products are made to customers' homes. By taking more control of logistics, Amazon feels it is less susceptible to the costly delivery snafus it faced in the U.S. in 2013 and two years later in the U.K.

Amazon is becoming less of an online retailer and more of a platform and delivery pipeline for online commerce. More than half of all goods sold on the company’s site come from independent merchants who pay commissions on each sale. Amazon keeps examining every leg of the supply chain for ways to make buying something online as fast and affordable as a quick trip to the store.

Amazon declined to comment.

For Amazon, every holiday represents a race to find new capacity. U.S. shoppers will spend $135 billion online in November and December, representing 13.4% of all holiday sales, up from 12.3% a year ago, according to EMarketer. The shopping season is also shorter this year with six fewer days between Thanksgiving and Christmas than last year.

Amazon invited merchants who use Fulfillment By Amazon, its logistics service, to try the new storage and replenishment program this year. For now, the service prohibits shoes and apparel, perishables and hazardous materials.

Most attention on Amazon's logistics ambitions to date have focused on the “last mile” delivery of packages to customers' homes. Amazon has historically used United Parcel Service, the U.S. Postal Service and FedEx to make deliveries. But it has been expanding its capabilities by creating a network of independent service partners who start their own businesses and hire drivers dedicated to making Amazon deliveries. Amazon also has an Uber-type program called Flex that lets independent contractors make Amazon deliveries in their own vehicles.

The new storage experiment shows Amazon trying to control the “middle mile,” a critical stage of logistics connecting factories and ports with stores and shoppers’ homes. As Amazon and other retailers seek to shorten delivery times, the middle mile has to be reconfigured with more inventory stored closer to shoppers. Two-day delivery to most of the U.S. population can be achieved with only four shipping hubs while next-day delivery to the same group requires about 16 hubs, according to logistics experts.

Amazon’s push for next-day delivery is costing more than the company expected, tempering the expectations of investors who had become accustomed to Amazon delivering bigger profits. The cheap storage experiment is a way for Amazon to make the most of its existing facilities while it continues to invest in next-day delivery, said Michael Levine, analyst at Pivotal Research Group.

“Amazon has not done a big fulfillment center buildout in 18 months,” he says. “This feels like another way to solve the same capacity problem.”

The ultimate goal is a future where buying something online is as fast and affordable as a quick jaunt to the store — even during the holiday season rush.

RELATED CONTENT

RELATED VIDEOS

Logistics Technology Inventory Planning/ Optimization All Warehouse Services Order Fulfillment E-Commerce/Omni-Channel
KEYWORDS E-Commerce/Omni-Channel Inventory Planning/Optimization order fulfillment
  • Related Articles

    Amazon's Plan to Avoid Delivery Delays This Holiday Shopping Season

    Warehouses Are Hot Property in India, Thanks to Online Shopping Boom

    Amazon Plans to Put 1,000 Warehouses in Suburban Neighborhoods

  • Related Events

    The Big Picture: What It Takes to Make Last-Mile Delivery Work

Bloomberg

As Retail Sales Improved, Inventories Rose Less in February Than Expected

More from this author

Wake up to Coronavirus Updates and the latest Supply Chain News!

Subscribe to our Daily Newsletter

Timely, incisive articles delivered directly to your inbox.

Popular Stories

  • Coronavirus-watch-Armada

    Virus Update: Amazon Offers Help With Distribution; NYC Delays Vaccinations After Moderna Shortage

    Coronavirus
  • AT&T

    How the Pandemic Has Altered AT&T’s Global Sourcing Strategy

    Coronavirus
  • container port

    New Global Visibility App Sees Delays Before They Happen

    Logistics
  • Can Employers Require Employees to Get the COVID-19 Vaccine? Part 1

    Watch: Can Employers Require Employees to Get the COVID-19 Vaccine? Part 1

    Coronavirus
  • U.S. Vaccine Rollout Hindered by Faulty Coordination, Messaging

    WHO Fumes at Western Drugmakers As China Fills Vaccine Void

    Coronavirus

Digital Edition

Scb home issue 27

2020 Supply Chain Innovator of the Year

VIEW THE LATEST ISSUE

Case Studies

  • LSP Saves Customer $1.5 Million a Year With MPO Global Inbound Management

  • Auto Supplier Wows Key Client Using riskmethods Supply Chain Savvy

  • Integrating Shipping and Compliance Saves Conglomerate Millions

  • How a Consumer Goods Giant Upped Its On-Time Delivery Performance

  • LSP Wows Global Client, Quickly Advances to Become End-to-End Provider

Visit Our Sponsors

6 River Systems ArcBest Armada
aThingz BluJay Burris Logistics
DSC Logistics DCSA (Digital Container Shipping Association) DHL Resilience360
Genpact GEP Honeywell Intelligrated
Infor Logility Magnitude Software
MPO Old Dominion Oliver Wight
OpenSky Ports America Purolator
QAD Precision Red Classic Riskmethods
TGW Systems Transportation Insights Watson Land Company
Westfalia Technologies Workjam Yang Ming
  • More From SCB
    • Featured Content
    • Video Library
    • Think Tank Blog
    • SupplyChainBrain Podcast
    • Whitepapers
    • Webinars
  • Digital Offerings
    • Digital Issue
    • Subscribe
    • Manage Your Subscription
    • Newsletters
  • Resources
    • Events Calendar
    • SCB's Great Supply Chain Partners
    • Supplier Directory
    • Case Study Showcase
    • Supply Chain Innovation Awards
    • 100 Great Partners Form
  • SCB Corporate
    • Advertise on SCB.COM
    • About Us
    • Privacy Policy
    • Contact Us
    • Data Sharing Opt-Out

All content copyright © 2016 - 2018 Keller International Publishing Corp All rights reserved. No reproduction, transmission or display is permitted without the written permissions of Keller International Publishing Corp

Design, CMS, Hosting & Web Development :: ePublishing