The Evolution of Amazon's Logistics Operations in Europe

That’s the bigger picture in which logistics operations fit. Could we begin to relate this to Amazon’s operations and actually explore the practicalities and the real structure of a supply chain and logistics process, within the context of the evolution of Amazon’s business, over the years?

Absolutely. Amazon did start with a very narrow part of this end to end. Amazon started from, I buy a finished product, and I store it and when a customer orders it, online, I send it to the customer. They thought they were really at the very end of the chain. They had the buying of the product, the storage of the product and after, the fulfilment of the order. Now that’s a very simple model, where Amazon started, therefore, to own their own warehouse, the part of the supply chain they really needed to master, in this new way of fulfilling orders. When you compare e-commerce, or the Amazon supply chain, the e-commerce supply chain, you remove some steps. You don’t have wholesalers or distributors anymore, like the traditional retailers have and you don’t have a shop.

Therefore, Amazon has really stripped out, due to the model, all these small pieces, which were in the chain of distribution, in the supply chain and has created just a model where there were warehouses. The product was coming from the vendor and those products were going directly to the consumer, without touching any other part of the chain. Only the transportation, taking the product there. Amazon started to build from there, a network of warehouses. Amazon has always made it a priority to build their own warehouses. They didn’t want to give that to anyone.

There were two pieces that Amazon wanted to manage. Obviously, the website, which is the technology part of Amazon, all the features and how the website was set up. The second part was the distribution centers, which are called fulfilment centers, in Amazon’s world and which are the places where the products are received and sent to customers.

That was a very simple thing. Everywhere else they were using third party or a supplier, to fulfil their part. For example, they were buying their product from the brands directly, and the brands were delivering to them, to the fulfilment center. The products were stored by Amazon people, in the warehouse, all fulfilled, prepared and packed by Amazon people, and were handed over to carriers, directly, who were in charge of delivery to the customer.

Over time, Amazon stepped into those pieces, as well. As Amazon got bigger, it started to step into the space where they think they can bring a value, on top of what the other carrier was doing. Therefore, they started to do some of the inbound, for example. Amazon started to go and collect from vendors, from suppliers, because they thought that taking care of the transportation, to manage that chain even better, is where you should step into, to start to collect from the vendor directly, in order to manage and be in control of the lead time to get the product. Indeed, it helped them to get better inventory management.

After, and it took a while, but they started to step into the outbound piece of it, the outbound transportation. Instead of just delivering to the carrier, there were two things they did. First, they started to understand the carrier network and try to take a piece of that. Meaning that the first stage that they did, was in the US and was the sorting center. In the US, they went to what they call the middle man. Instead of giving the parcel to the carrier, from their own door, from Reno Fulfilment Centre in Nevada, for example, to fulfil in New York, based on the size they are, they can carry the parcel from Nevada to the area of New York and give to the final mile carrier, mostly frequently USPS in the US, or even UPS. For the US, they were basically cutting the rule and carrying the products themselves, to the area where it should be delivered.

In Europe, there is no zone and there was a country by country organization, which is still the case. It was more rare to have those products being on one side of Europe, for the other side a country has their own fulfilment network. Therefore, instead of doing that, we jumped directly to the last mile and Amazon started to get interested in, instead of just giving to the last mile carrier ultimately, just to go and deliver to the door. In 2011, 2012, we started to test doing our own delivery, to the customer’s door, to again, step into this last mile business.