Amazon's Scale and Complexity

• 13 million orders per day clicked on Amazon.com
• Amazon's fulfillment system more complicated than UPS, FedEx, DHL
• Counter-intuitive approach: consumer simplicity through backend complexity
• Success driven by making consumer experience simple via behind-scenes complexity

Order Fulfillment Split

• 25% of US sales fulfilled directly by third-party sellers
  • Sellers ship directly through UPS, FedEx, postal service
  • Amazon has no involvement in fulfillment process
• 75% fulfilled directly by Amazon (focus of analysis)

Fulfillment Center Categories

Small Sortable

• Items <12x16x6 inches (30x40x15 cm)
• Weight <25 pounds (11 kg)
• Bread and butter of Amazon's business
• Highly automated operations possible

Large Sortable

• Larger than small sortable, up to 60 pounds (27 kg)
• Can be packaged together with other items
• Less automated than small sortable

Large Non-Sortable

• Heaviest items (e.g., 70-pound beanbag)
• Shipped individually, cannot be combined
• Least automated facilities
• Custom box creation for odd-sized items
• Some items go directly to XPO Logistics for delivery

Automation and Efficiency

Kiva Robots

• Revolutionized picker operations
• Previously: pickers walked 10-12 miles (16-19 km) per day
• Now: robots bring shelves to pickers
• Productivity increase: 300-400 items/hour vs 100 items/hour on foot
• Reduces human labor costs and criticism

Predictive Stocking

• Uses big data analytics to place items near likely buyers
• Example: ice scrapers stocked more in colder cities
• Faster delivery times correlate with colder climates for winter items
• Algorithms optimize product placement based on regional demand patterns

Regional Sortation Centers

• Packages from fulfillment centers sent to regional sortation centers
• Colorado example: two fulfillment centers (Aurora, Thornton) → single sortation center
• Massive facilities (~500,000 sq ft)
• Automated robots sort packages into shoots by zip code groupings
• Output: pallets of packages for similar destinations

Amazon Air Operations

Fleet Details

• Started 2015 with ~20 leased aircraft from Air Transport International
• Current fleet: ~70 aircraft (all leased)
• Recently purchased first 11 owned aircraft (767s from Delta, WestJet)
• Prime Air livery branding

Scheduling Philosophy

• Departs morning (4:54 AM) vs competitors' evening departures
• UPS/FedEx: overnight delivery focus, depart 9:40 PM
• Amazon: 2-day delivery focus allows morning departures
• More flexible timing reduces operational constraints

Cincinnati Hub Operations

• Shared facility with DHL Americas hub
• DHL operates midnight-8 AM (overnight)
• Amazon operates 8 AM-4 PM (daytime)
• Amazon building own larger facility at Cincinnati airport
• Only 20% of Amazon Air flights route through Cincinnati hub

Route Efficiency

• Florida coverage: Amazon serves 3 airports (Miami, Tampa, Lakeland) vs FedEx's 8+ destinations
• 8-hour drive radius from Lakeland covers entire Florida
• Direct flights possible due to 2-day delivery timeline
• Reduces loading/unloading to once vs twice for hub-and-spoke systems
• Lower costs through direct routing and reduced handling

Ground Transportation Routes

Local Delivery (Urban/Suburban)

• Denver area: 4 delivery stations
• Independent contractors/companies operate delivery vans
• Only case where Amazon handles package start-to-finish
• Slim majority of overall package volume

Regional Trucking

• Amazon-branded, independently operated trucks
• Example: Aspen area packages depart 1 AM, arrive local post office 5 AM
• Transferred to USPS for final delivery in less populous areas

USPS Partnership

• Used for smaller cities, towns, rural areas
• USPS charges ~$2 per package for last-mile delivery
• About half the cost of other delivery companies
• USPS services every US address, providing universal coverage
• Amazon transports to local post offices, USPS handles final delivery

UPS Backup

• ~20% of Amazon packages delivered by UPS
• Used for most rural, low-density areas
• Higher cost route, Amazon likely loses money on cheapest items
• Necessary for complete US coverage and speed requirements

Competitive Landscape

Target's Alternative Approach

• 1,900 stores across all US states as fulfillment centers
• Employees pick, pack, ship from store aisles
• 80% of orders fulfilled directly from stores
• Advantage: packages travel short distances, use cheap ground shipping
• Simpler system achieving similar delivery speeds

Walmart Adaptation

• Adopting direct-from-store fulfillment system
• Following Target's model

Amazon's Expansion Plans

• Expanding system within US
• Replicating in Europe (Leipzig air hub opened)
• First two European freight aircraft online November 2020
• Potential future: delivery-as-a-service to other companies
• Experts believe Amazon may compete directly with UPS/FedEx

Innovation vs Traditional Methods

• UPS/FedEx operations largely unchanged from decades ago
• Amazon uses 21st century techniques and technologies
• System only possible through modern innovations managing massive complexity
• Market dominance combined with innovation creates competitive threat
• Online becoming "new main street" for commerce