22ND OCTOBER, 2021

Supply Chain Innovation: How Does Amazon Do It?

Jeff Bezos: Love him or loathe him, you must admit, he knows a thing or two about supply chains.

With the ability to ship parcels out to customers within hours of ordering, Amazon has been hailed as “one of the largest, most efficient, and state-of-the-art supply chain operations in the world.

Delivering an average of 20 packages per household, per year, it’s fair to say that Amazon has changed the face of retail with their bold, innovative, supply chain strategies.

With a team of 4,500 people solely dedicated to researching and developing Amazon’s supply chain, Amazon’s rate of supply chain innovation is unstoppable. To keep up, competitors must find new ways to speed up their product delivery times and better ways to manage their inventory, logistics and transportation methods.

Which is what this article is about. Join me as we find out what innovation within the supply chain is, why it’s crucial for businesses to invest in supply chain innovation and exactly how Amazon innovates its supply chain. 

What is innovation within the supply chain?

Innovation is the practical implementation of an idea that either results in an improved product, process or service, or it brings about the development of a completely new one. However, when it comes to supply chain innovation, 85% of supply chain leaders define innovation as a “process improvement.” So, innovation within the supply chain generally means thinking up new ways to improve how supply chains operate.

As the global marketplace continues to evolve, supply chain managers must think more innovatively and proactively to balance product flow and costs throughout a product’s life cycle.” – Supply Chain Game Changer

Supply chains support across most departments and functions within a company: From logistics and inventory to warehousing and accounts. Because of this, they’re often complex, multi-faceted processes that can easily collapse with too much change or pressure. This is why some companies avoid changing their supply chain operations. They’re so fixated on the risks and the costs associated with innovation, that they often shy away from it. 

This is where a scheme like the government-funded R&D tax relief incentive could help, though. They’re offering companies up to 33% off the costs associated with their innovative projects. It takes away some of the risk and pressure associated with applying a new idea to an existing supply chain process to improve it or inventing a completely new supply chain process altogether.

A self-service R&D tax portal like Tax Cloud can help you claim R&D tax credits that will help fund your supply chain innovations. Tax Cloud is supported by the R&D tax consultants over at Myriad Associates. The team of R&D specialists are on hand to guide you through the claims process, check your claim is error-free and make sure you get the maximum amount of tax relief possible. To find out more, call them on +353 1 566 2001 or send them a message.

But, the bottom line is this: The companies that are brave enough to embrace innovation will be rewarded with a continuous flow of new ideas to optimize supply chain operations. Once these ideas are implemented, they could create unlimited efficiencies, better customer relationships and unbeatable cost savings.

Examples of successful supply chain innovation (that aren’t from Amazon)

From streamlining fulfilment processes to speeding up logistics, the traditional supply chain is rapidly evolving into one that’s driven by technology.

Take on-demand warehousing, for instance. On-demand warehousing is an online solution that connects companies who need extra storage space to fulfil short-term needs with warehouses that have free space that they can monetize. Or take collaborative robots as another example. Cobots can optimize picking routes and ensure greater accuracy when packing orders, which improves warehouse productivity and efficiency.

Companies such as DHL have started using augmented reality to train their teams in various warehouse disciplines such as driving forklifts or loading goods. Others are using big data and analytics to predict machine malfunctions and transportation delays, which drive better, cost-effective decisions up and down the supply chain.

Why is it important for supply chains to be innovative?

Ultimately, if the industry is truly being disrupted, innovation needed to happen yesterday to stay ahead of competitors.” – Supply Chain Game Changer

In most industries, innovation gives companies the opportunity to get ahead of their competition. Innovation within the supply chain is no exception. In fact, supply chain innovation, as opposed to product or service innovation, is now considered a better, more sustainable way of achieving a strong competitive advantage. Launching novel new products and services takes a lot more resource, money and effort than iterating, improving or designing a new supply chain process does.

In a search for competitive differential advantage, many managers of world-class organizations around the globe have come to realize that differentiating on processes is more sustainable than differentiating on products.” - LinkedIn

Plus, improved supply chain efficiency will not only lower costs, but it will also improve customer relationships. Companies will be able to respond to fluctuations in demand quicker, deal with declining product lifecycles better and offer customers more delivery options.

How Amazon continuously innovates its supply chain

Amazon enjoys a cult following. It is a favourite choice for customers due to one crucial reason: quick and efficient supply chain management.” – The Balance Small Business

Since it launched 27 years ago, Amazon has been steadily growing by 20% year on year. One of the ways it’s achieved this steady growth is through constantly innovating its supply chain operations.

With a team of 4,500, solely dedicated to R&D, and a combination of sophisticated information technology, an extensive network of warehouses, multi-tier inventory management, and excellent transportation, Amazon has completely reshaped the supply chain.

Let’s look at some of the ways Amazon has used relentless supply chain innovation to change the face of retail (and it’s not all about technology either).

Supply chain innovation #1: Warehousing

Amazon has over 295 ‘fulfilment centres across the world. And it’s the location, size, number and layout of its warehouses that play a big part in Amazon’s supply chain success.

Each warehouse is typically split into five areas that make it as easy as possible to fulfil orders as quickly and efficiently as possible:

  • Area 1 is its library prime storage area that stores books and magazines.
  • Area 2 is its pallet prime storage area that stores high-demand, full-case products.
  • Area 3 is its case flow prime storage area that stores high-demand products picked in less-than-case quantities.
  • Area 4 is its reserve storage area that stores irregularly shaped and low-demand products.
  • Area 5 is its random storage area that stores smaller, moderate-demand items.

Supply chain innovation #2: Fulfilment

In some cases, you’re able to buy a product from Amazon and have it in your hands within the hour. How do they do that? They do it through a unique continuous fulfilment system. Amazon has different warehouses for different types of products and also for different customer delivery preferences such as prime delivery, one-day delivery, first-class delivery and free super-saver delivery. So, when a customer buys something online, depending on their location, the product they’ve bought and the delivery option they’ve selected, the order gets sent straight through to the appropriate warehouse, where it’s then processed, packed and then picked up by the delivery team within the required time.

Supply chain innovation #3: Transportation

Another reason why Amazon can fulfil its one-hour, or same-day orders is because they have their own logistics team. They understand that depending on third-party logistics to deliver these ‘urgent’ orders would lengthen product delivery time. So, Amazon uses its own delivery vehicles for same-day or one-hour delivery options.

Supply chain innovation #4: Robots

Alongside their innovative fulfilment and transportation strategies, Amazon has one of the best supply chain operations in the world because it has more than 45,000 warehouse cobots (collaborative robots). These robots pick and pack without any human intervention, they’re immune to human error, they can carry around 1.4 tonnes, and they can travel 1.3 metres per second.

Amazons relentless supply chain innovation is forcing its competitors to conduct R&D into their own supply chain operations to reduce product delivery time, cut costs through efficiency and build better relationships with their customers.

Barrie Dowsett, ACMA, GCMA
Author Barrie Dowsett, ACMA, GCMA CEO, Tax Cloud
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