Amazon launched in 2005 the concept of free two-day shipping “Amazon Prime”, one day shipping was expensive at that time. Now it’s the standard shipping speed for Amazon’s 100 million Prime members. In 2019, Amazon doubled the speed of prime shipping from two days to one. And the faster speed is now available on more than 10 million products.
Prime one day is basically going to keep up with the brick and mortar guys and be enhanced prime. Amazon has changed the game completely. So, what they excel at is getting an object from a creator to a consumer as flawlessly as they can and as quickly as they can. Amazon is changing people’s expectations, and they’re perpetually improving those expectations.
But behind every Amazon box, there are lots of people hustling and a lot of money spent to get it to you in just one day. Here’s what happens when you buy a prime eligible item on amazon.com.
- Amazon and their shipping cost
- Inside look at Amazon Fulfillment Center
- Last Mile Delivery with Amazon Flex
- How Amazon plan to leverage technology
- Amazon working conditions overall
Amazon and their shipping cost
Amazon spends 10s of billions on shipping every year, in just the last quarter of 2018 Amazon’s shipping costs jumped 23% reaching a record 9 billion. So why is it worth it?
Well, customers come to expect consistent fast delivery of anything on Earth from Amazon and their job is to continue to make that happen.
And Amazon set aside 800 million just in the second quarter of 2019. To start making one day shipping the norm.
Most of that investment is going towards the infrastructure and transportation costs associated with speeding up delivery to the millions of prime customers who are about to begin to experience one day is the new normal.
The difference with e commerce is the cost never end the pick Pack and Ship happens every time a unit is sent out.
To better control this process and its large cost Amazon is cutting down its reliance on ups and the US Postal Service and is investing heavily in its own logistics network. It now handles the shipping for over 26% of online orders. Amazon now has at least 50 airplanes 300 semi-trucks 20,000 delivery vans, and it operates ocean freight services between the US and China.
Amazon is looking to do it all. That shouldn’t be much of a surprise. The only thing that matters to Amazon is making sure the customer is happy and is paying for Prime every year or every month.
Other big retailers are also spending a lot to keep up with the fast shipping expectations Amazon has created. Walmart is rolled out a free next day shipping with orders of $35 and target offers free two-day shipping on orders over $35.
Amazon’s over 25 years old. The reality is that’s a really short time to be around to have become the number one player. Can anyone compete? Sure, people can compete. Can they sustainably compete is the harder question?
The journey of package takes to your door starts before you even place the order. Most items on Amazon are sold directly to you by a third party.
Jeff Bezos, in his letter to shareholders in April 2019. He said third party sales have grown from 3% of total merchandise sales in 1999 to 58% in 2018. Amazon charges those sellers a fee to list items on amazon.com starting around 15% of the item selling price.
Amazon also sells things directly. In some cases, Amazon buys inventory from a third party and then sells it to consumers. Other items are Amazon’s own brands such as Amazon basics, Amazon essentials, fashion lines like Lark and Ro and Alexa devices like the Amazon Echo.
All items sold directly by Amazon are already sitting in an Amazon warehouse waiting to be ordered and shipped. Most third-party items fulfilled by Amazon are also already waiting at an Amazon warehouse, while others are sent directly from the seller or to an Amazon warehouse once you hit that Place Order button. Amazon does not disclose the details of its inventory strategy.
Inside look at Amazon Fulfillment Center
After an item is ordered and ready at one of Amazon’s 175 fulfillment centers around the globe. It’s picked, packaged and shipped by some of its 250,000 warehouse workers, often with help from one of its 100,000 robots.
But the question is how much is automated versus how much is manual labor? And that sweet blending that figuring out how to have the least human touch points, while ensuring the best quality control is that perpetual conversation.
Here is a fulfillment center outside Seattle where 2000 workers prepared better packages on a couple million square feet of floor space. workers here showed us the process of getting an item from the shelves to a box,
All item that arrive from a reseller are handpicked manually by a worker (An Inbound Stower). They scan an item and make sure that that item is what matches what’s in their hand that’s on a screen. And then they stow it into a bin. There are also cameras here that take pictures of where their hands go of where they placed the items.
When you confirmed an order online, what happens is you have a person (A picker) that going to pick a product that will end up going down to the packing department and then they pack it out and send it to you.
Packers need prepare the right packaging for the product ordered, close it and place it on a line. Packers are using screens that are telling which type of packaging they have to use.
Amazon says it’s 100,000 robots inside the fulfillment centers helped make this whole process more efficient. In 2012, Amazon bought robotics company Kiva for 775 million, and started using robots in its fulfillment centers a couple years later.
Now, there’s driving robots that move inventory around robotic arms that lift boxes and pallets, and even a new robot that can package items and custom sized boxes.
Before robotics, picker use to spend a huge amount of time looking for products in a warehouse. Now they focus in a specific area to operate and it’s more convenient and efficient for everyone.
As technology continues to change how fulfillment centers function, Amazon announced in 2019 that it will spend 700 million to retrain a third of its us workforce by 2025, to move them to more advanced jobs.
After an order leaves the fulfillment center it must get across the country or world to another warehouse in your region. Some boxes are sent via one of the shipping giants. But Amazon is cutting costs by sending packages and at least 300 of its own semi-trucks. And now dozens of its own planes.
They have been building out an air network for several years now, that coupled with our partners networks. Amazon broke ground on a new $1.5 billion dollar air hub in Northern Kentucky in May 2019. It has capacity for 100 planes.
“One of the great things about customers all over the world.
They are divinely discontent. You give them the best service you can they love it, they always want a little bit more. We’re going to move prime from two day to one day. And this hub is a big part of that.”Jeff Bezos, CEO of Amazon
Last Mile Delivery with Amazon Flex
After an item arrives near your city, it waits in another warehouse for a delivery person to pick it up and take it that last mile to your door.
They have been building for over 20 years to support this network is eventually just constantly getting faster and they knew it would begin to migrate to a one-day service. The big difference for them is all about how they get product from their fulfillment center to that last mile location.
Last Mile is the most expensive part of the delivery process. Until an item arrives at a warehouse near your home it can be shipped in bulk. But then each package needs to be hand delivered to a different address, which takes a lot of people and a lot of time.
Amazon pays to outsource much of last mile delivery to carriers like UPS and USPS which charge a fee and those fees just went up. In January 2019, the post office increased its last mile shipping rate by nine to 12% depending on package size.
The more Amazon can keep last mile delivery in house the more Amazon can control these costs. To do that Amazon uses small business partners some delivery out of 20,000 Amazon vans, and in 2015 it launched Amazon flex
Amazon flex is available in about 50 US cities, anyone over 21 with a driver’s license auto insurance and at least a midsize sedan can sign up. After clearing a basic background check driver in areas with open spots can start picking up and delivering packages.
Drivers use the flex app to sign up for a block which ranges from three to six hours. Then they head to a warehouse where they find out how many boxes they’ve been assigned to deliver in that timeframe. Amazon advertises that drivers make 18 to 25 an hour and they’re responsible for their own vehicle costs like gas tolls and maintenance.
Amazon wouldn’t disclose how many drivers have signed up or what percentage of its last mile deliveries are made by flex drivers compared to its shipping partners. But it did tell us their last mile delivery programs are expanding.
They have built out these small businesses as a delivery service provider from one side and they made Amazon Flex which is they’re on demand crowdsource delivery piece. So, they need all of that to meet the various types of delivery they do in each of their geographies.
Amazon has one unusual approach to increase its number of small business partners helping with last mile. Amazon says it will contribute as much as $10,000 if full time employees want to leave the company and start their own package delivery services.
Early responses were great with over 16000 employees that wanted to change from working in a fulfillment center. It allows them to complement the capacity they have with their carrier partners.
How Amazon plan to leverage technology
Amazon is also looking at several high-tech solutions to streamline last mile delivery. In June 2019, Amazon announced its new autonomous delivery drone will be operating within months, and it has a one-year FAA permit to test them.
They are aiming to build fully electric drones that can fly up to 15 miles and deliver packages under five pounds to customers in under 30 minutes.
Amazon also has patents out for a giant flying warehouse and drones that can react to flailing hands and screaming voices. And it’s even testing a sidewalk robot called Scout to bring packages right to your door.
All these steps are an incredible challenge to pull off. In recent years, Amazon has faced an onslaught of negative press about working conditions at every step of the process.
Workforce feels they are disposable form workers in warehouse that complains regarding the risks they must take to keep up their KPIs in the green to plane pilots that actively seeking to work for someone else.
In April 2019, Amazon raised the minimum wage to $15. For all its 350,000 employees more than double the federal minimum wage of 725. In his annual letter to shareholders owner Jeff Bezos challenged other top retail companies to match this.
Workers that complaining believe Amazon expects them to keep up a fast, often unreasonable pace.
Despite safety rules and official guidelines, Amazon say they care about their employees and quality.
But workers don’t feel that way and must deal with matter of keeping up with the numbers, not allowing them to do some break and go to the bathroom in a giant building that could hurt their metrics.
Warehouse workers believe their productivity is closely tracked based on how often they scan a package. Workers claimed they can get written up if they don’t meet certain metrics. Amazon also has patents for a GPS enabled wristband that could track workers movements and brakes.
Workers can lose their jobs if they don’t work fast enough. At one warehouse in Baltimore, The Verge reported that Amazon terminated 300 full time associates in a one-year period between 2017 and 2018 for inefficiency.
Amazon said in a statement that the number of employee terminations have decreased over the last two years at our Baltimore facility as well as across North America.
Amazon working conditions overall
There have been several protests in the last few years around the world where Amazon workers have demanded better working conditions and orientation.
In the UK, ambulances were called to Amazon warehouses 600 times from 2015 to 2018. In April 2019, the National Council for Occupational Safety and Health identified Amazon as one of the dirty dozen companies, citing six deaths in seven months and 13 deaths since 2013.
But Amazon says that last year alone, it spent 55 million in safety improvements, fulfillment centers, and its employees got a million hours of safety training. As Amazon increases the shipping speed can they also increase conditions to be more fair, equitable and sustainable?
Amazon Air is another area where growth in the program has led to challenges. Amazon branded plans are flown by contract pilots from Atlas Air ABX and Southern air. These airlines negotiate contracts with the pilots. And some pilots already disclose to the press about working conditions that have deteriorated since their airlines started flying for Amazon.
“As a result of Amazon being such a large company, they can put a very strong pressure and drive down pilot’s wages and working conditions”Dan Wells, Airline Professional Association President – Atlas Air Pilot
In February 2019, an Amazon airplane operated by Atlas air crash near Houston killing all three pilots aboard. The cause of the crash is under investigation with initial National Transportation Safety Board findings showing the pilots may have lost control of the plane.
In interviews weeks before several Amazon air pilots said they thought an accident was inevitable. They cited low wages that made it difficult to attract experienced pilots training they considered shoddy fatigue and poor morale.
“All of our airline delivery providers must comply with the Amazon supplier code of conduct and Federal Aviation Administration regulations. We take seriously any allegation that a delivery provider is not meeting those requirements and expectations and review accordingly”.Amazon
Even for workers bringing packages that last mile to your door, safety is a concern. One reason Amazon doesn’t provide flex drivers with any branded clothing to identify them.
“Flex Drivers are welcome to wear the safety vests that we have available for them and the delivery stations while they’re on their route, which can help customers identify flex participants.”Amazon
Amazon is working to ease the burden on its delivery drivers and save money with high tech solutions like those drones and scout sidewalk robots. And its fulfillment centers are becoming more automated too.
But for now, Amazon still relies on people to bring us our packages and just one day and with expectations for rapid delivery only growing Amazon will need to continue innovating to make shipping even faster.