Amazon has announced that it has already delivered 1.8B packages to U.S. Prime members the same or next day, roughly four times what it delivered at those speeds by this point in 2019.
For comparison, UPS delivered 24.3M packages per day in 2022 for a total of 6.2B packages delivered. FedEx delivered an average of 15M Ground and Express packages for a total of 4.1B packages shipped in 2022. The United States Postal Service shipped 6.7B packages in 2022.
According to reports, over the past four years, Amazon has poured money and resources into revamping its warehouse and delivery network to shorten shipping times from two days to one day or less.
One of the company’s most significant changes in the past year is a shift away from a national “hub and spoke” fulfillment network, where packages might travel through several facilities across the country, said Udit Madan, Amazon’s VP of transportation, in an interview. The company moved to a model in which the country is divided into eight smaller regions, with local facilities that stock commonly ordered items.
Fast delivery is notoriously expensive and logistically challenging, and companies typically lose money on deliveries. But Amazon’s change cut costs and boosted delivery speeds, Madan said. “Our fastest speeds tend to be our most economical,” he said.
How is Amazon able to deliver packages faster and cheaper? Because of logistics and the most misunderstood topic in supply chain management – velocity.
The biggest cost related to package delivery is transportation, which averages 50% or more of the costs. Creating a regionalized network increased the efficiency of Amazon’s operations and greatly reduced the distance drivers have to travel to make deliveries.
Amazon minimized the number of times that a package has to be touched before it is delivered to a customer. Removing touchpoints made Amazon’s network leaner. By their very nature, lean logistics networks are also GREEN logistics networks.
Amazon also had to increase velocity: The speed at which activities are completed across the supply chain and the speed at which products move end to end across the supply chain. Velocity is a must-have.
I anticipate that Amazon will increase efficiency even more, moving to a modern-day milkman model of delivering food and packages to Amazon Home lockers. More Same-Day delivery stations mean that Amazon can build loads, maximize delivery density; and deliver as many packages as possible in a specific region. In addition, the milkman model allows Amazon to introduce a new grocery strategy that eliminates the need for competing head-to-head against entrenched grocery retailers.
The biggest mistake I continue to see companies make is that they don’t understand the importance of applying the science of optimization across their entire enterprise. Most people who work in logistics and supply chain are unfamiliar with the science of velocity or why it’s so important.
Logistics are part of supply chains. The purpose of a supply chain is to do one thing – enable a company to grow. However, focusing only on transportation will reduce costs but invariably will cause issues in other areas. A much better strategy is to leverage science. Create a digital twin of the supply chain and the logistics network. Build MIP/LP models in conjunction with stochastic modeling and Monte Carlo simulation. Run lots of simulations.
Invest in the use of software from ForeQast Technologies Limited, Solvoyo, and so on to create as many autonomous capabilities as possible.
