Amazon European Logistics Buildout | In Practise

Amazon European Logistics Buildout

Former VP, Amazon Logistics Europe

Learning outcomes

  • Evolution of Amazon's European versus US logistics network
  • How inbound is organized and adapted for FBA
  • Sorting and picking of both sortable and non-sortable products inside the warehouse
  • How vertical players could have an advantage over Amazon
  • Amazon's relationship and competition with carriers
  • Outlook on challenges for scaling Amazon and FBA
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Executive Bio

Philippe Hemard

Former VP, Amazon Logistics Europe

Philippe has spent over 25 years developing end-to-end logistics systems from vendors to customers, including 18 years at Amazon.com. He joined Amazon in France in 2000 as Distribution Centre General Manager, moving to Amazon.co.uk (Scotland) in 2004, to support business growth within the UK. Philippe then took up several senior leadership positions in European Operations at Amazon EU Headquarters in Luxembourg, culminating in the role of VP Amazon Logistics Europe from 2015-18. Before joining Amazon, Philippe worked for Danzas (now DHL) in France. Throughout his career he has worked on network modelling, procurement and buying processes, inventory management, fulfillment management, and transportation network management. Since March 2018 Philippe has run his own consultancy business, holds several board positions and teaches Supply Chain Management and Global Logistics Strategy at university. Read more

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Philippe, a pleasure to have you with us. Could you provide some context to when you joined Amazon in 2000 and the state of the network, in Europe?

Back in 2000, we had just started in France. France opened 29th August, 2000. There were only two countries open, which were UK and Germany, which were both opened in 1998. When I say opened, it’s not really open, because Amazon bought two companies – one in the UK and one in Germany – to start up their business in those countries. In France, one of the particularities was that they couldn’t buy anybody because there was nobody to buy and, therefore, they started from scratch. At that time, we were only selling four products. Books, obviously, CDs, DVDs and software and video games. Those were the only things sold on Amazon, at that time, which was the case, by the way, everywhere in the world; in the US, the UK and Germany too.

Therefore, there were three websites and there were three fulfilment centers. One in the UK, one in Germany and the one that we had just opened in France, when I joined. I’d been hired to oversee the logistics for France and I set up the first fulfilment center and the first distribution network.

What are the specific differences between the way that Europe is structured, versus the US, in terms of logistics and networks?

Not too many, if you consider each country as a country. If you compare France and the US and UK and Germany, there is not much difference. Originally, there was one website, one fulfilment center. Now in the US, in 2000, in the US, there were maybe three or four fulfilment centers. There was Seattle, one of the historic ones. There was one Reno, in Nevada and there was one in Delaware, that I visited, when I joined. There were maybe one or two others, but no more than that. There was no difference in the structure. Each of the websites had their own catalogue and had each of the websites had one – or in the case of the US, several – fulfilment centers. In Europe, it was one for one; one fulfilment center per website. The products in the fulfilment centers were sent to everyone ordering on the website they had chosen. For example, if you were French and you wanted to buy on amazon.co.uk, you were able to do it. You had to log on to amazon.co.uk and you would receive, from the UK, the product that you bought. That was the structure and it was the same in Germany and in France.

Each website was sending all around the world, by definition. They were able to ship everywhere, but you had to go onto the website that you were sourcing the product from.

How has the network evolved, in Europe?

In Europe, it took almost 10 years, but we morphed it from this one to one relationship between the fulfilment center and website to the European fulfilment network, where every product in Europe could be seen in every website in Europe and could be fulfilled from any fulfilment center, in Europe, more or less. Of course, there were some restrictions. For example, with an electronic product, with a UK plug, you cannot sell that to continental Europe and vice versa. Also, when the product is not allowed to be sold, because it is not compatible in that market. But globally, at the large scale, I would say that it is a unionized market, where products are sold anywhere in Europe and fulfilled to anywhere in Europe.

Obviously, it started from the country’s structure and there are still huge ties between the website and the country fulfilment center, because you want to get the product closer to the customer, where they are buying from. Therefore, most of the French products are still in France and the same in UK and Germany. Now, also in Europe, two additional websites have been opened, in 2008 and 2009, in Italy and Spain, where we grew again. Some other websites have been opened, not necessarily with fulfilment centers, but fulfilled from elsewhere. The most recent one is the Dutch one, amazon.nl, where there is no fulfilment center, yet, in the Netherlands and most of the products come from Germany.

Is it very important to have a .nl website or a specific country website, in Europe, to give Amazon an advantage?

The only advantage is the language. That’s one of the big differences. If you want to compare the US and Europe, although Amazon talk about the US and Europe as regions, for Amazon, Europe is still an aggregation of countries. One of the big differentiators, is the language. We cannot have one website for all and it’s the reason we have those different websites. Where the Netherlands has been a very big customer, particularly from amazon.co.uk and some of the amazon.de, as well, because there are both some English and some German speakers in the Netherlands, for a long time, we didn’t think it was necessary for them to have their own website.

But when you get to this last thing of having the website in your own language, that helps a lot and greatly improves the conversion and it’s opened to more people in the country. That’s the only reason. It’s the reason why Italy and Spain have their site and Amazon is working, more and more, to open other websites. The key element is the language.

Because of that language advantage on the website, for Amazon, do you think they have a much larger competitive advantage in Europe, as opposed to the US, due to the network? How do you compare Amazon’s potential lead, versus competitors in Europe and the US?

The US is still ahead of Europe, in terms of competitive advantage. In the US, Amazon is very well-advanced, in several aspects. Firstly, it started earlier; it started about three to five years earlier and even earlier compared to Italy and Spain. The language is becoming an issue, however, because it’s not possible for it to be all over Europe, instantaneously. Within the US, by default, you can sell it anywhere in the US as they speak English. You can also get the amazon.com website in Spanish, for the Spanish-speaking population in the US, which is pretty large, particularly in the south. But in Europe, you have to open those sites country by country. Of course, as long as people speak English, you can go on every website, because on most of the website, there is the option to translate into English. But if you want it in your native language Amazon, unfortunately, has to open one, which they have done and they continue to do. It’s the reason that Amazon is quite well-penetrated into every European country, but still, I believe the fact that they lack some of the languages, they are missing opportunities. The opportunity will be even bigger when they start to get every website in the proper language.

There is, I think, still a lag of penetration, all over, if you take the entire population of Europe and the penetration of Amazon into households; I would say it’s behind. There are some countries, in the east, particularly, which are not yet covered. Today, Amazon covers, pretty much, most of the countries in the west. The Nordics are not covered the same way, but 70% of the Nordics speak English and there is good penetration there. I’m sure that they will have more languages. There is currently no Portuguese or Greek. Therefore, those will be pretty large populations, good markets to expand into. They are in Turkey now, however, so they have done that for the 80 million Turkish.

Taking a step back and looking, specifically, at inbound and how inbound was structured, originally, with only the first-party inventory. How did you look at organizing that process?

Not particularly differently from how it is today. The process of the inbound has always been structured the same way. There is a purchase order and you receive this purchase order in whatever country they are in. The classical one is that an Amazon order gives you the time to be delivered and the address to be delivered to, with a purchase order. You fulfil the order; for most of Amazon, you still organize most of the transportation. Over time, that has moved a lot, in the US, for example. We took a lot of ownership of the inbound so we came and picked up from suppliers but, nowadays, it’s a balance. It’s happening in Europe, as well but, in Europe, the tendency is still, you deliver to the fulfilment center, to the address you have been given. When the product arrives, we reconcile and scan every single item against the purchase order and put it in the inventory.

Before that, you have to make an appointment for your truck, for your delivery and you deliver, we reconcile against the purchase order. We take everything we have ordered and we reject things that have not been ordered. Ultimately, we pay the invoice and the product is stored in the fulfilment center. That has not changed. It has always been like that. The way that we store the product has slightly changed, over time. Also, the way that the scanning takes place, there are some processes that have been developed with vendors, where we had good accuracy on delivery, for example. It was called a license plate receive. When the vendor already has a good level of logistical optimization, they are able to tell you that, in a box, they put the items, they are able to deliver the box with a license plate number and they are able to give you, by EDI, what the contents of each box is. That enables you to start scanning only one box and automatically receive the inventory that is in the box. This means that the vendor has a very good level of accuracy, as well.

We have vendors, like that, where we have had a long-term connection with them and they have very strong logistics, as well. They are able to provide those numbers, which help a lot, with putting them in the inventory, in our fulfilment center, by streamlining the process and avoiding having to scan every single item.

They have always been scanned once and you need to also think about the fact that it is very rare for Amazon to receive 20 pallets of the same product. There are some products where we do receive them like that, but the reality of Amazon is that of the very large catalogue, where have we have very few items per SKU, which means that you always receive a few pieces of each product. It’s rare that boxes are full of the same product.

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Amazon European Logistics Buildout

May 11, 2020

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