Page 375 - Introduction to Electronic Commerce and Social Commerce

362 11 Electronic Commerce Payment Systems and Order Fulfillment

Specialization of Distribution Centers While all of these serve key roles, the ones with proba-
bly the greatest impact have been the (26) Sortation
Yet, that’s only part of the story. The real optimization comes Centers. These have not only helped Amazon to accom-
from the division of labor and specialization of the various plish their goal of same-day delivery, but, more impor-
centers, especially their new “sortation” centers. For a detailed tantly, they have also enabled Amazon to substantially
discussion of the changes, see Wulfraat (2014, 2016). reduced their reliance on UPS and FedEx transportation
Today, the facilities include: and gain control over their shipping and delivery. Unlike
off-line retailers who have their own carriers and fleets,
• Fulfillment Centers differentiated by the size of the prod- Amazon has had to utilize UPS, FedEx, and other third-
ucts being packaged party carriers. During peak selling seasons (e.g., the winter
• Replenishment Centers for receiving incoming goods holidays) this means that they have to vie with other retail-
from vendors ers for UPS and FedEx services. The Sortation Centers
• Customer Return Centers obviously dedicated to returns have cut much of that reliance by substituting USPS deliv-
• Sortation Centers receiving pallets of packages from ery. The cost reductions have been massive and there is no
Fulfillment Centers, then aggregating and sorting the pal- competition with other retailers. There is little doubt that
lets by zip code so they can be distributed to the USPS they are laying the ground work for their own fleet—not
facility handling the associated zip codes. The USPS is only on the ground but also in the air.
the one who delivers the packages the “last mile” The success of Amazon’s supply chain has been amazing.
• Delivery Stations, which are mid-sized centers, networked They have been a first mover on a number of supply chain
together with smaller Amazon Fresh and Pantry sites to fronts, especially in the EC world, and continue to do so (see
handle same-day home delivery in urban areas of grocer- Section 11.10). This past year, not only did they become the
ies and general merchandise fastest company to reach $100 billion in annual sales, but
• Speciality Sites for dealing with smaller packages of text- they were recognized (by their peers) as #1 on the Gartner
books, clothing, jewelry, and shoes (2015) rankings of the Top 25 supply chain companies. They
• Prime Now and Flex Hubs that are smaller facilities for han- are also packaging this success in a program called Fulfillment
dling a limited number of high demand items (especially for by Amazon. In their words, “You sell it, we ship it.” Amazon
Prime customers) to be delivered in 1–2 h in urban areas has created one of the most advanced fulfillment networks in
the world, and your business can benefit from our expertise.
With Fulfillment by Amazon (FBA), you store your products
The Results in Amazon’s fulfillment centers, and we pick, pack, ship, and
provide customer service for these products. Best of all, FBA
Table 11.2 provides some sense of the distribution of the cen- can help you scale your business and reach more customers.”
ters across the various types, as well as the size of the various Toward this end they have recently taken a large minority
facilities. Overall, there are around 290 facilities occupying stake in Atlas Air who has the largest fleet of 747 freighter
over 110 million square feet. The majority of these (160) are aircraft.
Fulfillment Centers taking up the majority of the square foot- Sources: Del Rey (2013), Wulfraat (2014 and 2016, and
age (around 100 million). the Amazon Annual Report 2015 at services.amazon.com/

Table 11.2. Amazon distribution center network fulfillment-by-amazon/how-it-works.htm (accessed May
2016).
Type Active SqFt (M) Future FSqFt (M)
US Fulfillment 76 59.9 17 12.7 Questions
Sortation 26 7.1 3 0.8
1. What were the drivers of the centralized warehousing?
Prime Now 43 0.7 0 0
Delivery/sort 16 1.3 0 0 2. Amazon.com is using third-party companies for delivery.
Can you guess why?
Subtotal 161 69.0 20 13.5
RoW Fulfillment 83 41.4 6 5 3. Can Amazon.com use RFID in its warehouses? If yes,
Prime Now 23 0.1 1 0.1 where and when? If no, why not?
Delivery/sort 24 1.6 0 0 4. Find how Amazon.com handles returned merchandise.
Subtotal 131 43.1 7 5.1 5. Draw Amazon.com’s supply chain for books.
Global Total 292 112.1 27 18.6 6. Where do you think there are intelligent (software) agents
Source: Based on data from Wuulfraat (2016) in Amazon.com’s order fulfillment/logistics?