How Amazon's Super-Complex Shipping System Works?

 About 13 million times per day, someone click the order button on Some days later, all, or at least almost all of those 13 million orders arrive at their destination. But what happens in between? How does Amazon get a package to you? Well, it depends… a lot. In fact, Amazon’s fulfillment system, thei shipping system, is more complicated and convoluted than that of almost any logistics company. It’s far more complicated than that of UPS or FedEx, or DHL, or any other major delivery company. In a counterintuitive way, this complicate and convoluted fulfillment system is a crucial component of the secret sauce that’s drivin Amazon’s success. They’re striving to make the consumer experience simple through behind-the-scenes complexity.

 So, back to the question: how does an Amazo package get to you, and the answer, it depends. It depends first on who’s fulfilling th package—Amazon or the seller. About one fourth of sales in the US are fulfille directly by the seller, as most productson Amazon are listed there by a third-party which can send packages directly through UPS, FedEx, the postal service, or another consume delivery company if they choose. Amazon has nothing to do with the fulfillmen of those orders, and the process looks largely the same as with any other e-commerce company. What’s different is how the other thre quarters of Amazon packages in the US get to you—the ones that are fulfilled directl by Amazon. The path that these take depends first o how big the package is. You see, Amazon’s fulfillment centers ar more-or-less split into three categories: small sortable, large sortable, and larg non-sortable. That first category, small sortable, represent the bread and butter of Amazon’s business. These are items that are less than 12 by 1 by 6 inches or 30 by 40 by 15 centimeters in size, and about 25 pounds or 11 kilogram in weight. The next category, large sortable, is basicall anything larger than this up to a weight of about 60 pounds or 27 kilograms. Now, the reason for the split between larg and small is because the fulfillment operations of smaller items is much easier to automate—the can fit on conveyor belts and automated robots and other tools that lower the company's relianc on humans. For example, Amazon uses a robot called th Kiva which fundamentally changed the way the job of the company’s pickers, the peopl who find and grab an item out of storage, worked. Previously, pickers would walk some 10 t 12 miles or 16 to 19 kilometers a day through cavernous rows of shelves.

 Now, at least in their most advanced fulfillmen centers, a robot picks up an entire mobile shelf, on which a required product is located and transports it to the picker, who picks it. Essentially, rather than the picker goin to the shelf, the shelf goes to the picker. With these robots, one person can pick thre to four hundred items an hour rather than the one hundred or so that was possible o foot. Of course, fewer humans in the mix is goo for Amazon, given the amount of criticism it receives for its treatment of workers and also because humans, even low-paid ones, are expensive. The fulfillment process for larger items though, is just tougher to automate cheaply, so the company chooses to segment the tw processes out, and runs a far more manual and distinct fulfillment system for larger items. However, in most, but not all cases, the fulfillmen centers for large and small items are under the same roof, even if they’re operate completely independently. Of course, the ideal scenario for Amazon woul be to have every single item they sell in every single warehouse, but that’s not realistic. Therefore, they use predictive modeling t try to put items closest to those who are likely to buy them. The US is far from homogeneous, so deman for different products varies from place place.


For example, in Miami, people probably aren’ looking to buy many ice scrapers for theircars.Meanwhile, in Fargo, North Dakota,demanfor this item is almost certainly quite high.It’s therefore no wonder why that, if yolook at the data, the colder the city, the faster you can get an ice scraper on Amazon. That is Amazon’s predictive stocking a work. While most examples of this system are fa more nuanced and far less intuitive, the concept is simple: their algorithms put products closes to the consumers most likely to buy them—something only possible at this scale thanks to moder big-data analytics. Of course, there’s then that third categor of products—large non-sortable. The distinction here is because Amazon like to aggregate products together into as few packages as possible—unsurprisingly, fewe packages equals lower costs. So, both the sortable categories include anythin that could possibly be packaged together in a single box. The largest items—say a 70 pound beanbag for example—are shipped from the large non-sortable fulfillment centers. These facilities are even less automated tha the large-sortable ones, and even include workers who create custom boxes for odd-size items.

 In Colorado, for example, this is a completel separate facility, located in Aurora, from the sortable fulfillment center in Thornton. Now, some large items will go directly int the system of a third-party provider, typically XPO Logistics, which would deliver these bulk items to their final destination, while others will continue on in Amazon’s system. The portion of large non-sortable items no sent to a third party logistics provider, plus all the large and small sortable package would next be sent to a regional sortation center. In Colorado, those two fulfillment center send their packages to a single sortation center, located just minutes away from th Aurora fulfillment center. This is a massive facility, almost half  million square feet in size, with robots running around, dropping packages into different chutes which each represent a different grouping of zip codes. Now, not all the sortation centers are quit so automated, but each outputs the same thing—pallets of packages going to roughly the same place. What happens next, though, once again, depends. A package heading to Miami, for example, woul end up on a pallet with other packages for Miami, which itself would end up on a truc carrying pallets for Tampa, North Carolina, Houston, Baltimore, New York City, Connecticu and a few other cities and states to the east. This truck would then drive the 15 minute to a waiting 767 cargo plane at Denver International Airport branded in “Prime Air” livery.

 Now, Amazon Air started in 2015 with its leas of about 20 aircraft from Air Transport International and has since grown to almost 70 aircraft—al leased from other airlines. However, the company recently announced th purchase of their first 11 aircraft—also 767, bought from Delta and WestJet—meanin they’ll soon both own and operate their own aircraft. Those eastbound pallets would all be loade around 4:00 am, before the aircraft’s scheduled departure time of 4:54 am. Now, anyone familiar with UPS or FedEx’ operations will know why this departure time is strange. If UPS was transporting this package to Miami at least at its fastest speed, it would have departed on an aircraft the previous nigh at 9:40 pm, been flown to Louisville, sorted through the company’s hub, then flown t Miami, arriving at 5:50 am. FedEx would have done roughly the same, jus through Memphis instead. That’s because FedEx, UPS, and most othe major delivery companies are oriented towards overnight delivery—they make a big chun of their money charging big rates to take a package from one part of the US one da and deliver it to another the next day.

 Amazon, meanwhile, built their Prime bran off of the promise of two-day delivery—ordering a package on a Monday and getting it on  Wednesday, for example. While they’ve since strayed from the rigidnes of that system, the fastest shipping they’ll offer for an item not stocked at a local fulfillmen center is two days, meaning they don’t have to worry about being able to get a packag from Denver to Miami overnight. That’s why UPS and FedEx’s planes tak off in the evening, while Amazon’s leave in the morning. So, that means it’s about 9:00 am by th time that Amazon Air plane from Denver gets to Cincinnati airport each day. Through the morning hours, a dozen or so aircraf land in Cincinnati, and this timing gives the company a major advantage. Cincinnati airport is also home to DHL’ main Americas hub, but DHL, like FedEx and UPS, conducts its operations primarily overnigh starting at around midnight, when dozens of their aircraft from all around the world lan and unload. Over the next few hours, packages and pallet are sorted and loaded onto other aircraft, which all tend to take off by 8:00 am. That means DHL only really uses their facilit during the overnight hours, so Amazon leases it for daytime use. While Amazon is building their own, large facility at Cincinnati airport, this partnership gave them a huge head-start. So, each day, between 8:00 am and 4:00 pm Amazon’s there, turning their planes around, and sorting pallets from where they come from like Denver, to where they need to go, like Miami. That Miami flight takes off each weekday a 2:15 pm, and then it lands in Florida just before 5:00 pm eastern time.

Now, not every Amazon Air itinerary look like this. In fact, while UPS and FedEx route almos all of their flights through their Louisville and Memphis super-hubs, or through some o their secondary hubs across the country, only 20% of Amazon Air’s flights go through the in Cincinnati hub. That’s because, with the orientation toward two-day delivery versus one, they just have more time. The more time means that, in order to servic the entirety of Florida, Amazon only needs to fly to three destinations—Miami, Tampa and and Lakeland. That’s because Amazon’s flights to thes airports typically land by 5:00 pm, meaning there’s a whole twelve hours before package have to be at the local delivery center for the final destination. The entirety of Florida is within an eight-hou drive of Lakeland, meaning Amazon can deliver to all of Florida by only serving effectivel one, but in practice three airports. Meanwhile, FedEx, for example, flies fro Memphis to Fort Lauderdale, Fort Myers, Jacksonville, Tallahassee, Tampa, and Palm Beach, then from Fort Lauderdale, it operates feeder flights on smaller aircraft to Key West and Marathon. So, in summary, in order to serve all of Florida this is what FedEx has to do and this is what Amazon has to do.

The required number of destinations for ful coverage is greatly reduced by orienting for two-day delivery, and this also means tha Amazon doesn’t have to route every flight via one main hub. Because they operate to far fewer destinations it’s much easier for Amazon to fill a plane from California, for example, exclusivel with packages destined for Florida, since while a given UPS or FedEx flight carrie packages from or to just one city, a given Amazon Air flight likely carries package from or to a whole state or region. Therefore, Amazon Air has flights from al these airports to Lakeland, meaning that, hile a package from Denver would have t route via Cincinnati, one from Los Angeles r Dallas or Chicago could fly direct. With a full hub-and-spoke strategy, like tha of UPS or FedEx, a package would have to be loaded vedio and unloaded from aircraft twice, an sometimes more, while Amazon Air’s nonstop flights only require loading and unloadin once, which reduces cost, and can fly packages direct, which also reduces cost. This is how Amazon can transport package by air more efficiently than UPS or FedEx. The airplane, however, is just one of fiv routes that an Amazon package could take onwards from the Denver sortation center. For those that are to be delivered locally in the Denver area, they’ll be driven to one of four delivery stations for Denver. There, they’ll be loaded into smaller deliver vans, operated by independent companies or individuals contracted by Amazon, which wil take the packages to their final destinations. This is the one and only case in which a Amazo package is handled by Amazon logistics from start to finish, and it’s generall how their packages are delivered within major urban and suburban areas. Only a slim majority of their overall packag volume is delivered this way, though, as when you leave major urban areas, things get  bit more complicated. Now, a package heading outside the Denve area with a later delivery date, or with a destination within the greater Rockies region would end up on an Amazon-branded, but independently operated semi-truck. For example, packages to the Aspen area, abou a three to four hour drive into the mountains, leave at around 1:00 am each night. Early in the morning, however, at around 5:0 am, they arrive at the local post office and from there, they’re fully transferred int the United States Postal Service system for final delivery. You see, in less populous areas, like th mountains of Colorado, it just doesn’t make sense for Amazon to operate their own last-mil delivery. They need a certain amount of scale for tha to b cheaper than the alternative, and, at least right now, that scale is only possibl in major metro areas. Therefore, they need alternatives for smalle cities, towns, and rural areas, and that alternative is more often than not the USPS. That’s because the postal service charge very low rates for last-mile delivery, assuming Amazon transports the packages to the loca post office themselves. While exact numbers aren’t publicly known estimates indicate the USPS charges Amazon about $2 per package for last-mile delivery—abou half of what other delivery companies would for the same service. After all, the USPS services every addres in America, so wherever Amazon needs to deliver, the USPS is going there anyways. That’s why for smaller places that stil have a decent volume of packages, like mid-sized towns and cities, USPS delivery is often th cheapest option for Amazon. But then there’s that next step down—th most rural places in America. Everything that can’t be cheaply delivere by Amazon or the USPS, typically because they’re destined for low-density areas where you couldn’ even fill a truck to send to the local post office, or because of capacity or speed reasons is sent through UPS. Right now, it’s believed that about 20 o Amazon’s packages end up delivered by UPS. In Colorado, a package destined for the mos rural areas, like the western edge of San Miguel County, for example, would take thi route. It would cost Amazon far more, and they’ likely end up losing money on the cheapest items, but it’s what’s required for the to be able to service every address in the US quickly. No matter which of these routes a packag takes, the end result is, at least hopefully, the same—UPS, the USPS, or Amazon itsel drops off a package at its final destination, after a few days of travel across the US. It’s a very simple process from a consume perspective, but the behind the scenes is incredibly complex. The complexity is what’s needed, thoug for a business who’s whole value proposition is to get anything to your door quickly an cheaply. The core of Amazon, their competitive advantage is now logistics, to the point where many experts believe that the company will star offering delivery as a service to other companies in the coming years. They believe that they’ve perfected thei system enough that they’re going to take on UPS and FedEx. Of course, Amazon still has competitors, which are going after the company as aggressively as ever. Target, for example, has been able to buil a delivery system with similar speed through completely different means—ones that ar far simpler. They’ve essentially turned each of thei 1,900 stores across every US state into a fulfillment center.

Post a Comment