Amazon’s World-Class Supply Chain: What Makes It Special?

Today we’ll unpack Amazon’s supply chain to see how it works. Perhaps we can learn Jeff Bezos’ secret recipe for success?

We humans love the culinary idea of a “secret sauce.” The air of mystery combined with delicious flavor piques our senses. There’s no accounting for taste, but I think we all enjoy discussing secret sauces.

So often, the secret ingredient is ordinary. For example, my grandma put sugar on her famous house salad. And McDonald’s puts Thousand Island dressing on the Big Mac. And yet, the magic is in the combination of ordinary elements. The genius of any recipe is apparent when, as Aristotle said, “the whole is greater than the sum of its parts.”

The Ingredients in Amazon’s Secret Sauce

As we’ll discuss today, Amazon clearly has combined some powerful ingredients into a world-class supply chain business. In general, Amazon’s supply chain is widely considered the best among all the major companies in the world. As such, it’s worth looking at the key ingredients of Amazon’s supply chain. But we’ll do so in a way that investigates how the Amazon ingredients form a winning recipe.

But really, we’re looking for Amazon’s secret sauce. Come and get it!

Amazon’s Supply Chain Is the Eye of the Storm

For starters, in the post-pandemic era, most of the global supply chain has fumbled through a series of crises and storms. Port bottlenecks. Horrendous on-time delivery metrics. Labor issues. COVID-related challenges. Literal storms. Meanwhile, e-commerce has utterly boomed to such an extent that one could argue it’s a symptom, the cause, and the cure for our post-pandemic supply chain maladies. And at the center of it all is Amazon.

Indeed, compared to other supply chain companies, Amazon appears to reside in the calm eye of the storm. By many metrics, Amazon is wildly successful. The company has a valuation well over $1 trillion. Founder Jeff Bezos flies Blue Origin rocket ships into space as a side hustle. And he rubs shoulders with the world’s elite.

Amazon’s Supply Chain Power Stack

In many ways, the Amazon empire keeps getting more impressive. To discuss the value proposition of Amazon’s features and benefits sounds quaint. Amazon’s supply chain is a power stack. Several of its business segments are easily segment leaders in their own right. Here are a few:

• The Amazon.com e-commerce platform
• The AWS Cloud
• Amazon’s global supply chain infrastructure of warehouses, distribution centers, and fulfillment centers
• The company’s asset-based supply chain, including its stake in Rivian’s electric delivery vans
• Amazon Prime memberships (which circles us back to Amazon.com)

Honest question: could the world function anymore without Amazon’s supply chain? Taken holistically, Amazon’s resume features a skill stack that looks less like a business and more like the Avengers.

Amazon’s Supply Chain Origin Story

Everyone knows Amazon’s origin story as an online bookseller. But now, people place an estimated 13 million orders on Amazon.com every day. (Can you imagine the multiverse where all those orders were books? We’re very well-read in that world.) And what do we buy? Everything and anything you’d expect from the greatest bazaar history has ever known.

Amazon’s supply chain doesn’t ask questions. Once Amazon accepts your payment method, your order shoots through the company’s software system. It’s fulfilled at the nearest distribution center to your home. And your order goes to your preferred location. Usually with no shipping charges. The next day, or within a few days, that box with your name on it arrives on your doorstep.

In short, Amazon’s supply chain makes every day feel like Christmas morning. Is that relentless focus on customer experience the secret sauce?

Amazon’s Customer-Centric Approach

Speaking of holidays, let’s unpack Amazon’s handling of the Christmas retail season. The holiday rush is always a busy time for the supply chain industry. To meet the demands of their customers, businesses must begin planning for the holidays far in advance.

Amazon begins planning for the holidays starting in January. John Felton, SVP of Amazon Global Delivery Services, described Amazon’s asset-based strategy as a major way to prepare ahead of the holiday crunch: “We’ve added airplanes, we’ve added trailers, we’ve added trucks, we’ve added vans.”

Beyond those assets, Amazon hires seasonal workers to help manage the holiday surge. In 2021, Amazon hired 150,000 seasonal workers to handle the push. But the labor market is highly competitive. So in order to attract warehouse workers, Amazon offered an $18-per-hour average wage and a $3,000 sign-on bonus. Is that a level of sauce your company can match?

Amazon’s Approach to Labor

Obviously, seasonal jobs are one thing. But Amazon is seemingly always talking about adding more jobs. According to reports, the company planned 165,000 new corporate, tech, fulfillment, and transportation jobs in 2021. That’s on top of the 450,000 jobs Amazon already added during the pandemic.

Labor has been a huge issue during the supply chain crisis. Many CEOs often say, “Our most valuable resource is our people.” Never has it felt more true. Seemingly everyone I talk to who runs a business bemoans the challenge of hiring—and keeping—employees.

That said, Amazon tackled that problem by dedicating more money to those valuable resources. The company spends about $3 per hour more than the industry average. That said, organized labor has entered the conversation for Amazon. Working conditions at Amazon warehouses have been in the news before. And if labor unions form in places like Alabama and New York, it could certainly change things for Amazon.

Amazon’s Vertical Integration

As alluded to earlier, Amazon has a few more assets on the ledger than most companies. Beyond people, Amazon’s assets include airplanes. Containers. Trucks. Trailers. Electric delivery vans. Their proprietary smiley-face boxes.

In short, Amazon has created its own supply chain over the years. These assets allow Amazon to limit its exposure and control its own destiny. In other words, the Amazon model is vertical integration.

Amazon’s Transportation Assets

Many of the goods sold on Amazon’s e-commerce platform originate in Asia. As such, Amazon met with the same bottlenecks at West Coast ports as anyone. But to combat those bottlenecks, Amazon has chartered its own container ships. In addition, Amazon owns a fleet of containers. And to combat the bottlenecks at American ports entirely, Amazon has taken to the skies.

Airfreight has traditionally been the costliest form of shipment. But when West Coast ports have Amazon containers that are bottlenecked in, the cost justification for air freight becomes palatable. Especially if you own your own planes. The Amazon Prime Air fleet reportedly includes 85 planes. Amazon also has a 20 percent stake in ATSG, an air cargo carrier.

In essence, to call Amazon an asset-based carrier would be an understatement. How long can you go on the highway without seeing a truck with an Amazon logo fly by?

Amazon’s Stake in Rivian

For the final mile, Amazon limits dependence on competitors like UPS, FedEx, and USPS by owning a monstrous fleet of delivery vans. In the past, many of these vans were manufactured by Dodge, Mercedes, and Ford. But that could be changing soon.

With an eye on a more sustainable future, Amazon partnered with electric vehicle manufacturer Rivian. The joint effort hopes to produce a fleet of all-electric delivery vans for Amazon’s supply chain. Electric vehicles are more efficient than diesel or gas engines. This is especially true in the idling situations common to delivery vans.

Amazon Automated Trucks

Amazon also purchased a 5.2 percent stake in Aurora Innovations. Aurora is a self-driving vehicle technology company. The idea of driverless cars has met backlash from the trucking industry. But at the same time, the supply chain industry is also constantly talking about a driver shortage.

Then again, driverless tech is also being championed by Bezos’ fellow spaceflight hobbyist, Elon Musk. And if Musk’s track record of success with Tesla and SpaceX is an indicator, driverless electric Amazon trucks will soon deliver our packages.

AWS Cloud Computing Services

Obviously, driverless vehicles run on software. This is one example of the AWS Cloud affecting the supply chain. Massive volumes of raw data come from a variety of camera, lidar, and radar sensors mounted to driverless vehicles. Processing this data in high resolution leads to better analysis by engineers, better tests, and better products.

Torc is another company working on autonomous trucking. According to an interview on evobsession.com, “Torc will leverage AWS managed services such as Amazon Elastic Kubernetes Service (Amazon EKS) for running simulation software at scale, Amazon Managed Streaming for Apache Kafka (Amazon MSK), Amazon Managed Workflows for Apache Airflow (MWAA), and Amazon Simple Storage Service (Amazon S3) Intelligent-Tiering to efficiently manage test data and support regulatory compliance.”

How to Start Being Like Amazon? Start With Digitization

My takeaway from a deep dive into Amazon is simple. It’s all about integration and de-siloing. Any business, in any industry, would be better if it tried to be like Amazon. I know all of our customers would certainly appreciate it. But Amazon’s secret sauce in my opinion is CapEx—capital expenditure.

Therefore, if you want to emulate Amazon, reinvest in your business. Keep adding capabilities. Increase efficiency. Harness the tools of technology. Improve customer experience.

What’s the first step toward being like Amazon? Digitization. Digitize your documents. Get off paper. The simple step of digitization positions you for the integrations and everything else that’s coming next. Start the paperless journey by researching a digitization expert like Vector.

This post was written by Brian Deines. Brian believes that every day is a referendum on a brand’s relevance, and he’s excited to bring that kind of thinking to the world of modern manufacturing and logistics. He deploys a full-stack of business development, sales, and marketing tools built through years of work in the logistics, packaging, and tier-1 part supply industries serving a customer base comprised of Fortune 1000 OEMs.