Amazon's Prime Now Supply Chain Management Trends and Issues

Amazon's Prime Now Supply Chain Management: A Customer-Centric Approach

Introduction

            In 2004, when Amazon was ten years old, its annual revenue was close to $7 billion. By 2018, this revenue had increased to $3 billion, becoming the fastest company in history to reach $100 billion in sales revenue in just under 20 years with a 20% annual growth rate (Leblanc, 2020). With the current growth rate, it is expected that the organization will reach $1 trillion in annual revenue by 2027. This tremendous growth has come following critical strategic decisions and reliance on technological innovation. The main competitors of the firm include Walmart, AliExpress, eBay, Flipkart, and Rakuten. Through proper strategic decisions, Amazon has managed to differentiate itself as the leading e-commerce brand in the world. According to Sharanya (2018), the core secret of Amazon's transformation from a mere online bookseller to the most dominant and formidable retail industry is its innovative and efficiency-oriented supply chain, the customer-centric supply chain management approach (figure 2, Appendix). The company's continuous and deliberate efforts to deliver products to customers in the shortest time possible are transforming the supply chain landscape and causing intense pressure on competitors currently playing catch up. Therefore, the current paper aims to explore Amazon's supply chain management and highlight key areas in which the organization is outdoing its competitors in the industry. Amazon business provides customers with two options: to purchase directly from Amazon or a third-party seller affiliated to or certified by Amazon. Amazon is the seller of record, owns the item, and fulfills all orders on purchases directly from the organization. In the second option, third parties are always the seller of record and own the items. Third parties have the option of fulfilling the orders themselves but can also rely on Amazon's growing distribution services. The paper provides a detailed analysis of the supply chain in Amazon, a discussion of current supply chain management trends and issues, with recommendations and conclusions.

Amazon Supply Chain and Operations

Today, more than half of Amazon's total units sold are from third parties. Third-party products are displayed alongside Amazon's product offerings on the Amazon website. This dual view allows customers to make purchase decisions based on prices, shipment options, and seller preferences without necessarily visiting many stores indicating convenience (Li, Wang, & Song, 2021). Where businesses are involved, one search on Amazon results in access to multiple sellers competing for the business, reducing the costs and complexities of procurement. Further, Amazon provides payment processing and advertising for third-party sellers.

            Amazon is solely focused on customer experience (figure 2). The innovations geared toward making delivery faster and more efficient feeds into the modern customer's need for convenience. Through machine learning and web data informatics, the organization's platforms can predict and provide purchase alternatives to its return customers. The recommendation's algorithm has simplified purchasing decisions and enhanced convenience for customers (Bharadwaj, 2019). This convenience is further strengthened by innovations and improvements along the supply chain. Since Amazon was established, it has lived a story in which customer experience has been the main plot. This can be highlighted by how the organization has transformed its supply chain, culminating in Amazon Now, the fastest delivery option that the organization provides its customers to stay ahead of competitors.

            Traditionally (figure 1, Appendix), a typical e-commerce platform supply chain involves the order fulfilled in a faraway fulfillment center, then shipped through the American Postal Services to the consumer. The launch of Amazon Prime in 2005 assured customers that they could receive their orders within two days of shipping. The introduction of the 2-days shipping was a game-changer for the organization, as highlighted by its growth and dominance. Based on figure 1, this was possible by replacing the 'faraway' fulfillment in the traditional supply chain with a new 'nearby fulfillment center' and a 'sortation center,' which brought Amazon's products closer to consumers, making it easy to ship to be realized within two days (figure 2). These two changes form part of Amazon's today's 250+ global fulfillment centers with a cumulative space of over 150 million square feet (Rodrigue, 2020). This development laid the foundation for Amazon Prime Now. In this delivery option, the organization could deliver orders within 1 hour, which has been amended to two hours. Within the scope of Prime Now, instead of having nearby fulfillment and sortation centers, the organization introduced city forefront stores and crowdsourced delivery, which allows customers to receive their orders in a record shortest time possible.

            As it will be realized, these improvements are motivated by a customer-centric approach to supply chain management. In this approach, organizations rely on customer experience improvement initiatives embedded within the process of shipping finished products from suppliers to customers. In the case of Amazon, its customer-centric strategy is centered on convenience for customers, from the purchasing decision process to quick delivery of the order.

Supply Chain Management Issues and Trends

            The previous section focused on the critical areas in which Amazon has since revolutionized the traditional supply chain for e-commerce organizations. However, it does not provide details on the key actions taken by the organization in addressing each of the important issues within the supply chain. These transformations have been motivated by three key reasons, which aim for effective management of supply chain system. These are staying ahead of the competition by making the purchase process easier, limiting the delivery time, and making the organization's online visibility formidable (Bharadwaj, 2019). Thus, the main focus is quick and efficient supply chain management. In the same manner, the supply chain transformation has focused on three core areas: delivery strategy (culminating in Amazon Now), outsourcing of inventory & insourcing logistics, and automation.

Delivery Strategy

            As already explained, the delivery strategy at Amazon has since evolved from its traditional methods. With an emphasis on efficiency without compromising product quality, Amazon is increasingly moving its products closer to potential buyers to limit delivery time (figure 2) (Sadq, Nuraddin, & Hama, 2018). Today, paying an online membership fee allows customers to receive purchases in under two hours in major global jurisdictions. This quick delivery is supported by the integration of sophisticated information technology, multi-tier inventory management, excellent transportation, and an extensive warehouse network.

Outsourcing of Inventory and Insourcing of Logistics

            Similar to warehouses, sellers on Amazon are also located in various places closer to customers. They, therefore, act like other forms of warehouses within proximity to customers from where the customers can receive their deliveries on time. Currently, over 82% of sales on Amazon are from these third-party sellers (Li, Wang, & Song, 2021). However, Amazon realized that allowing the fulfillment of orders by third parties can potentially slow down the organization's delivery speeds. Thus, the company has worked to establish a formidable in-house logistics system encompassing vans, trucks, containers, ships, and, most recently, chartered cargo flights.  

Automation

            Given the extensive space size of Amazon's warehouses, there was a need for more efficient and standardized processing and fulfillment of orders. Traditionally, employees have been responsible for this role. However, Ama...