What Really Happens Inside Amazon’s Fulfillment Center?

What Really Happens Inside Amazon’s Fulfillment Center?
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Founded in 1994 in Seattle, Amazon originally intended to brand itself as a cloud computing company. Today, the tech giant has steadily grown to become one of the largest online retailers in the world.

Currently, Amazon has established 90 huge fulfillment centers globally, employing tens of thousands of workers.

Amazon’s Fulfillment Centers

Fulfillment by Amazon, or FBA, is a service provided by Amazon that makes products sold by online businesses more accessible to their customers. Not only does it provide world-class fulfillment, fast shipping, and superb customer service, but it also helps business owners scale their operations so they can spend more time focusing on other aspects of their company.

To access Amazon’s FBA network, business owners simply need to send their inventory to Amazon’s FBA’s centers. Since FBA’s are located all over the world, this means the product is always a short distance away from potential customers and can be packaged appropriately, and then shipped and delivered promptly after the order is placed.

Amazon businesses that use FBA are also eligible for Amazon Prime, as well as Free Super Saver Shipping. This option means more customers can take advantage of the no-cost two-day shipping as part of their Amazon Prime membership perks.

The efficiency of FBA is evident as more than two million third-party vendors have chosen to use Amazon to help with their sales. Together, they account for about 40% of the items sold on Amazon each year, amounting to more than a billion items worth billions of dollars.

Robots at Work

In 2012, Amazon acquired Kiva Systems as part of the company’s quest to automate their two-day shipment process and make inventory management more efficient.

In 2014, Amazon started using robots in its warehouses and had 15,000 robots operating inside its warehouses by the end of that year. This number has grown steadily, at a rate of about 15,000 robots per year.

Amazon started using robots because each “click to ship” cycle took around an hour to fulfill by employees, as warehouse staff had to manually search through the stacks to find the product before packing and shipping it off. This can take a half hour or even much longer.

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However, with the introduction of robots, the time for fulfillment has been shortened to only 15 minutes!

Robots have another advantage, as they take up less space compared to human employees. This space consumption is an important cost-cutting feature because Amazon can modify its warehouse designs to have more shelf space and smaller isles.

Learning from FBA Centers

In 2015, Amazon successfully delivered one billion shipments to customers in over 185 countries. The popularity of online shopping on Amazon can be partly attributed to the company’s goals of delivering to their customers the products they want within the shortest possible time.

If you want to run an efficient operation as part of your business, there are several things you can learn from Amazon to ensure your business stays on top of the game.

Communicate Efficiently

As with running any business, communication is key to help the business sustain and grow. This growth means streamlining the lines of communication so the message can be passed down directly from the top.

Amazon has perfected their communication process by sending orders directly to handheld scanners operated by warehouse employees. These scanners identify the exact location of the item and allow it to be sent down from Amazon’s conveyor system promptly.

Keeping the Pace

Another tip from Amazon is to keep up with the pace of the orders. In fact, one of Amazon’s warehouses in Kentucky has a processing rate of 426 orders per second! This high processing rate can be largely attributed to Amazon having mastered the art of warehouse efficiency.

Amazon can maintain its high processing rates with the help of an algorithm that determined the right size box for the order. The item is moved by a conveyor belt to workers who then pack and seal the item into the pre-determined size box. Amazon requires employees treat each package like someone’s Christmas present to ensure the highest quality of customer service.

Amazon’s Competitors

As of May 2017, Amazon has held its spot as the largest online retailer by revenue in the United States. It has a market capitalization of $453 billion USD and reported a total revenue of $134 billion over the 2016 fiscal year. However, the company does have its share of competitors attempting to eat away at Amazon’s client base.

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Amazon’s media business competes with eBay and Netflix. Other competitors include Apple iTunes and Google’s Play Store.

In the general merchandise market, Amazon has competitors in the form of brick and mortar stores such as Walmart, Best Buy, Target, Sears, and Staples.

One of them, Walmart, has also launched an impressive online shopping channel through its website that offers to price match Amazon’s products.

Some online-only stores that compete with Amazon include Alibaba Group, Overstock.com, Wayfair Inc., and Zulily.

Covering Shipping Costs

Amazon has introduced a Prime membership program where members can get free shipping and rapid delivery on all orders by paying a membership fee of $99 per year.

It offers free shipping features because the costs are being covered by merchants instead of the consumer. Chances are, for all products that have free shipping, the price of shipping costs have been calculated into the fees for these products. Also, merchants who participate in the FBA program pay significant fees to participate. These fees include handling, storage, and packaging charges paid to Amazon.

However, this does not mean Amazon is profiting off this free-shipping model. In fact, Amazon incurs a net loss of around 5% out of its net sales from shipping costs. For example, in 2016 Amazon made about $29 billion in sales but spent $1.5 billion on shipping costs, but, because of the large scale of Amazon’s operations, the company could absorb this cost easily and has since expanded the number of Prime membership offerings as well as reduced the delivery times.

In fact, items can now be delivered in as little as two hours to many parts of the country via Amazon’s Prime app.

Final Thoughts

Since 1994, Amazon has worked to grow from a small tech start-up to a massive online merchandising giant. It has expanded across the entire world with 90 fulfillment centers across the globe.

These centers have become the epitome of efficiency by streamlining communications and utilizing robots to fulfill orders every day.