DC Velocity - January 2013

Annual Global Conference in October about Amazon’s hyperefficient fulfillment machine.

QThere’s been a lot of speculation about upcoming changes in Amazon’s fulfillment strategy. Can you tell me what’s ahead? Will same-day fulfillment be part of Amazon’s future?

A We have had some incredible growth over the years and continue to have that. We expanded the network substantially. There are 75 fulfillment centers (FCs) around the world. In the United States, we continue to expand as well. We target development of FCs based on a couple of things, but as with everything we do, it starts with the customer. So we begin by asking questions like: Where are the customers? What is customer demand? We love to have our fulfillment centers as close as possible to customers.

Our priority is around improving the experience of our Amazon Prime customers. [Subscribers to Prime service get free or low-cost shipping as well as other benefits for a flat annual fee.] Prime customers now have a suite of opportunities, ranging from free two-day and discounted one-day shipping to video, Kindle, and visual library benefits. Our goal is to make that Prime experience even better. We already do same-day in some places in the United States as the opportunity presents, but our focus is really on the Prime service today.

QWhat are the criteria for determining where you’re going to invest technology dollars? A It is really a simple function. What is the best hing for the customer? What is going to provide the most benefit to the customer by either enabling greater selection on the platform, through enabling a faster delivery, or being able to lower prices?

I’m always amazed at the selection that is on the site and how much customers buy across that full selection of product. We always get questions relative to why we carry the tail [items with relatively low demand] because the typical distribution model wants to get rid of the tail. Operators don’t like the tail. It is painful. It is highly variant—the cost to store it, what have you. But customers like the tail. It turns out selection is something people really care about, and so we leverage a great group of people in technology to find solutions to be able to deal with it.

QYou’ve spent a lot of money on technology, both software and hardware like Kiva’s order fulfillment robots [Kiva was acquired by Amazon in May 2012]. How does all this technology fit into your strategic business plans?

A We are super excited about the Kiva team. They are a great group of people and a great technology platform. Right now, we are still working through exactly how we want to deploy it across Amazon.

We really do essentially no third-party software solutions. We do everything in house because so much of what we do is very specialized and because all the decisions we make in technology are based on what we want to do for the customer.

QAmazon customers, like me, have come to expect next-day or second-day delivery as routine. What does it take in the design of both your DC operations and your logistics network to make that possible without breaking the bank?

A This goes back to the technology that you talked about. We are very focused on a couple of things. One, hiring and developing the best industry talent there is. We’ve had a long history of recruiting great people and great technologists, whether it be physical engineering, software engineering, or supply chain engineering types of folks. The other is the technology backbone that allows us to manage the inventory placement, order allocation, and facility design for the supply chain network.

QLet’s talk a little more about the technology. Your customers interface with some of your technology directly, but a lot of it is not visible to consumers. Tell me something about how you bring all that together.