📦 Amazon's Supply Chain Win

The whole world has been struggling with the supply chain crisis. But one company was prepared for this catastrophe.

The whole world is complaining about supply chain shortages. But strangely your Amazon parcels are arriving on time.

So, is the supply chain crisis overhyped? 

Absolutely not. 

Amazon's parcel punctuality right now is possible because of its foresight and years of logistical planning. Wondering what Amazon's secret is?

The Crisis In Question

The current supply chain crisis is a result of halted production, high shipping prices, shortage of containers and workers, and jam-packed ports (Here's our in-depth piece about this crisis). 

But Amazon was prepared. You see, for years the company has been trying to take the reins of its entire delivery system into its own hands. It has been hiring its own cargo ships, making its own containers, all so it could have better control on the supply chain. Why this obsessive need to control though?

Because Amazon's motive has always been providing lightning-fast deliveries. That’s what sets it apart. That’s what makes Amazon, Amazon. And the company decided it would do so by hook or by crook. 

Also, with the launch of Prime the company promised to provide same-day deliveries. To meet this promise, it had to take matters into its own hands.

Now, you're wondering why aren't all companies doing the same thing? Well, because it costs a lot of money and not everybody is capable or willing to spend such a huge amount when cheaper solutions are available. 

But Amazon has been spending an insane amount of money to control the supply chain. And before the pandemic hit, this seemed excessive to many. But who’s laughing to the banks now?

While other container ships are waiting for almost 45 days in ports in the US, Amazon's ships are in and out in just 2 days.

So, what exactly did Amazon do to take control of the supply chain?

The Years-Long Hustle

When Amazon started operations it relied on FedEx, UPS, and the USPS to deliver its packages. But soon the company began to grow bigger and bigger. And these delivery companies could not keep up with the bonkers amount of orders that Amazon was getting. So, Amazon decided to take matters into its own hands.

Since the last decade, it has been setting up not only its own delivery system but also its own shipping system. The company aims to handle the entire shipping and delivery process to make sure there is no scope for complaints from customers. So, in 2020, it spent $61 billion on shipping, up from $38 billion in 2019. And the company now ships 72% of its own packages.

What most other retailers do is ship their containers on massive freight ships that also carry products of other retailers. This move is generally cost-efficient because the freight ships take bulk orders. But the problem is that only a few ports are big enough to take these ships. And these ships are now jamming up the ports causing delays in deliveries.

Meanwhile, Amazon's tiny private ships can go to small ports, unload, and turn around quickly. It may be costly but it also makes Amazon the go-to shopping destination for millions of people around the world.

Now Amazon thought if they have made such an awesome service in-house, why not make some revenue out of it? Since 2017, the company has also been shipping goods for some third-party sellers and other manufacturers. This has made it one of the top five transportation companies in the Trans-Pacific. 

Furthermore, many other retailers are facing issues due to a shortage of containers. You see, the containers in which these ships transport goods belong to the ships themselves and not the customers. So, they need to be emptied on the ports and reloaded again for shipping. However, many of these containers are stuck in countries that import a lot of goods but don't export them. This had led to an imbalance and a shortage of containers. 

But Amazon has been prepared for this crisis as well. It has been manufacturing its own 53-foot containers in China. This allows for quick unloading at docks and also ensures Amazon always has a supply of containers, which now cost an exorbitant amount ($20,000 per container). It pays to be prepared and in this case, it pays a lot.

However, these measures were not enough for Amazon. In its need for speed, it has also hired and leased a fleet of cargo planes. What this essentially does is completely bypass the need to load and unload on log-jammed ports. Plus, flying also saves a lot of time.

Again, this option is not viable for most companies because it is bonkers expensive in the short run. Not only do planes cost more, but they also fit in less cargo, making the whole transportation venture unprofitable.

In fact, this transportation method is not even viable for Amazon. So, it only uses this fleet for products that are ultra-high in demand. It knows that people desperately want these items, for instance, the new PS5 or the new iPhone and they will be willing to pay an extra amount to get their hands on these products. 

This hustle and methodical planning has proven that Amazon is much more than just a retailer or an e-commerce platform. It is essentially a highly successful logistics company. And a major reason for Amazon's success is its access to user data. The company can now analyse and predict which products will be needed in which regions and in what quantity. So, it is prepared ahead of time.

But nobody can be completely immune to a large-scale global catastrophe. The shortage of semiconductors has caused delays in deliveries of some electronic products. Amazon has seen a 14% rise in out-of-stock items since January this year.

Plus, the company's third-party sellers are still dealing with the same problems as the rest of the world. This poses a major threat to Amazon's business as 22% of its revenue comes from third-party sellers. 

Many other major retailers are now also taking a cue from Amazon. But it will take them time to achieve the same level of efficiency as the e-commerce giant.

Having a long-term vision pays. While some expenses might feel very painful to bear in the short run, they might add a lot of value. That’s what Amazon did. And that’s what should be our takeaway. To build for the future. Thinking long-term. 

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