Interview Transcript

Is there any advantage that a vertical specific competitor could have against Amazon, in terms of sorting and managing inventory, in a fulfilment center? For example, pet food comes to mind, where you have Zooplus in Germany, or Chewy in the US, where they sell online pet food. Can a company or vertical like that, have an advantage over Amazon, due to the designs and organization of the warehouse or fulfilment center?

I’m sure they are. One of the things I didn’t mention, which was very key is that, historically, companies like Amazon, some things are stored randomly, for three months. There is no order. You don’t find a certain product there; it’s random. The only constraint that you have is fresh products, which needs temperature control and not necessarily fresh or frozen, but even some of the food, which is dry food, but needs a certain temperature, not in excess of 30 degrees. Hazardous material needs to be in a certain area in the warehouse, created for products that are inflammable, which have to be stored separately. The rest is entirely random, within the warehouse. Of course, the fact of narrowing your product will improve, for example, your density in picking. In Amazon, you can buy a toothbrush, a book, your pet food. You will do that one time and the next time you will order something completely different. Therefore, the randomness of the storing comes out there, because there is no algorithm that you can manage what products are going to be sorted together. If you have a narrow range, with fewer items, the connections of things that sell together are going to get better. Secondly, size wise, you may also have a more standardized product size. In pet food, for example, you have the big bags and you have all the tins and that’s it. The boxes are pretty standardized. In that case, if you have a more standardized product range, you may be better optimized in your fulfilment, there is no doubt about that. Indeed, if you have less SKU, particularly, which is one of the key elements, as well. In the large fulfilment centers, there are more than a million different SKU. There are not that many manufacturers, or even vendors, who are not distributors or retailers, who are managing more than 50,000 or 70,000 SKU.

How does Amazon manage between 1P and third-party inventory, in the fulfilment centers?

Third-party is FBA inventory. There is no 3P inventory at Amazon. There is not any difference. As I said, I described the process of inbound, but inside, it’s completely mixed. There is no difference in treatment between items. We know which is which, because one will have the specific label that I mentioned before. But there is no difference inside. They are stored side by side, in the same bins, sometimes. They are picked in the same round, for 1P and 3P. Sometimes they go in the same package, to a customer that has ordered one of each. There is absolutely no difference in treatment.

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