Amazon (AMZN) cleared $25.6 billion in the fourth quarter of 2013. A lot of Christmas wishes were no doubt fulfilled, but that holiday season is likely going to be remembered more for the packages that didn’t ship on time. A surge of demand combined with some inclement weather to overwhelm the operations of Amazon’s largest shipping partner, UPS (UPS), and some customers didn’t receive their gifts by the holiday. It was the cardinal sin of online retailing, and the two companies had to offer apologies and refund shipping fees for disappointed customers.
Now the country’s largest online retailer seems determined not to let the same thing happen again.
Amazon has built 38 new fulfillment centers in North America over the past year and a half and an additional 15 “sortation centers,” a new category of smaller warehouses where packages from the fulfillment centers are sorted by Zip Code. The sortation centers allow Amazon to ship packages directly to customers, rather than to the busy hubs of carrier partners like UPS, FedEx (FDX), and the U.S. Postal Service, Amazon’s partner on Sunday delivery.
That’s according to a new analysis of Amazon’s ever-expanding supply chain by ChannelAdvisor, a North Carolina company that helps retailers manage their online sales. Scot Wingo, the chief executive of ChannelAdvisor, says the sortation centers help Amazon reduce its dependency on the major shippers and work around potential scenarios like the one that ruined Christmas for some customers last year.
“UPS was a single point of failure,” Wingo says. “Amazon was so married to them. Now if they get into a situation where five days into the holidays and UPS says ‘no mas,’ sortation gives them a lot more flexibility than they had last holiday to work around congestion.”
This is only one part of Amazon’s effort to get packages to customers more quickly and at a lower cost. “They are slowly but surely working on more direct delivery, using more shipping vendors, and making faster delivery possible,” Wingo says. “Another output of doing the sortation themselves could be getting them to next-day delivery” for members of its $99-a-year Amazon Prime service.
Amazon has also been deploying its own delivery trucks, particularly in Seattle, Los Angeles, and San Francisco, the three cities where it has so far rolled out its Amazon Fresh grocery service. Recent reports suggest that Amazon has also started hiring for an Amazon Fresh service in the New York City area, where it would compete with companies like FreshDirect.
The ChannelAdvisor analysis shows how and where Amazon is continuing its massive supply-chain expansion. ChannelAdvisor researchers combed tax and property records and news stories about regional job openings to pinpoint the exact location of Amazon’s many new fulfillment centers. A ChannelAdvisor map of North America shows Amazon’s expansion is largely concentrated on the coasts.
Meanwhile, internationally, Amazon’s growth seems to be concentrated in Eastern Europe and India, where Amazon has pledged to invest $2 billion, and where CEO Jeff Bezos is speaking this weekend, as a matter of fact. The company added two new FCs in Poland, one in China, one in South Korea, and apparently five are under development in India.
(Bloomberg Businessweek)
