Amazon Warehousing & Distribution Evolution for Sellers
When selling on Amazon, sellers quickly learn that fulfillment is more complex than just shipping individual products. There is an ecosystem that comprises costs, delivery speeds, and customer satisfaction. This is where Amazon Warehousing and Distribution comes in.
The majority of sellers however, do not see the big picture. AWD is now more than just fulfillment centers. With Multi-Channel Fulfillment and regional hubs, Amazon has been able to build a network system that greatly modifies logistics strategies. There is a clear pattern where sellers that I have monitored reformatted their inventory across the AWD networks to achieve daily reductions in delivery lags while also attaining markdowns in their storage expenses.
The AWD Evolution, the function of MCF and regional fulfillment networks and how sellers can use these to optimize their logistics and lower their dependencies will be discussed.
What is Amazon Warehousing and Distribution?
The network Amazon employs to manage, store and ship inventory is known as Amazon Warehousing and Distribution and this consists of:
Fulfillment Centers (FCs): these are large warehouses where products are stored and then later on shipped.
Multi-Channel Fulfillment (MCF): This function makes it possible for sellers to fulfill orders from other platforms such as Shopify or eBay using their Amazon inventory.
Regional Fulfillment Hubs: these are smaller centers that are placed nearer to areas of high demand to facilitate faster delivery.
This network aims to optimize the flow of inventory, minimize shipping duration, and accommodate effective logistic management. Users of AWD get the benefit of utilizing Amazon’s advanced fulfillment system without the costs associated with obtaining private fulfillment centers.
The Growth of AWD
Over the years, the fulfillment network of Amazon has undergone the following modifications:
1. Fulfillment Centers (FCs)
These large, automated warehouses constitute the first component of AWD. They are responsible for the storage, retrieval, packing, and shipping of products to customers.
Comment: In our experience, sellers often fail to recognize the true value and efficiency of the FCs. We attribute this to the intelligent positioning of these FCs in areas where demand is high, making them more likely to win the Buy Box. This also means quicker delivery.
Illustration: A seller of consumer electronic products no longer provided two-day shipping for his orders. This changed the game when he started storing his inventory in FCs close to large cities.
2. Multi-Channel Fulfillment (MCF)
MCF provides the ability for sellers to keep their products in Amazon FCs, while also permitting them to complete orders from other sales channels, such as:
– Shopify
– eBay
– Their dedicated e-commerce site
Illustration: During the peak sales period, a small beauty brand leveraged McF for quick delivery of her Shopify orders, as she did not have to worry about the storage and fulfillment of her orders since Amazon took care of it.
Upsides of MCF:
– Eased the complexity of logistics
– Uniformity in packaging and fulfillment across channels
– Less active management by the seller
3. Regional Fulfillment Networks
To keep pace with the increasing demand and decreased delivery times, Amazon built regional fulfillment centers. These centers lessen the distance packages must travel while increasing the reliability of delivery.
Example: A seller with Midwest customers stored inventory in a regional hub near Chicago. Delivery times dropped from five days to two days. Improved customer satisfaction.
Observation: Central FCs charge long-term storage fees, but the regional hubs allow sellers to forgo these fees and minimize the costs while still providing quick shipping.
How AWD Reshapes Logistics Costs
AWD helps sellers manage and reduce costs while increasing profitability.
Storage Costs: Different types of warehouses have different costs, and prices for large warehouses with long-term storage.
Shipping Costs: Regional hubs have a faster shipping rate, and shipping costs, than remote FCs.
Inventory Management: Distant FCs increase the risk of overstocking, and overstocking increases costs. The correct AWD networks minimization overage costs while providing stock.
Tip: Assess products periodically to have balanced storage and shipping costs, and to reduce excess overage.
Benefits of AWD for Sellers
Better and faster Delivery: Regional hubs ensure the products available to the customer reach them.
Greater and faster Delivery: Sellers who store inventory can use AWD without owning private warehousing.
Easier Delivery with Less Dependence on 3PLs: Amazon handles the picking, packing, shipping, and tracking for the sellers.
Fulfillment Multi-Channel: With MCF, fulfillment is simplified for Amazon and other platforms.
Fulfillment With Improved Buy Box: With quick fulfillment, sellers become highly competitive, and they can win the buy box.
Leveraging AWD Optimally
1. Improve Inventory Positioning
Employ Amazon’s placement technologies to send items to fulfillment centers located near areas experiencing high demand. This will cut delivery time and fulfillment costs.
Case in point: A home goods retailer shifted seasonal products to regional distribution centers located in high demand states, decreasing delivery times and bypassing peak season storage costs.
2. Utilize Multi-Channel Fulfillment
If you have a presence on multiple selling platforms, MCF can help streamline your operation. This is particularly beneficial as you avoid double inventory handling and can provide quicker delivery on all platforms.
Observation: Sellers implemented MCF and reported more seamless operations and fewer logistical setbacks during peak selling periods.
3. Keep a Close Eye on Your Expenses
Fees associated with storage, fulfillment, and even long-term storage tend to have a rolling fluctuation. You should keep an eye on your costs to ensure you’re managing your inventory storage in a cost-effective manner.
4. Execute a Thorough Demand
Analyzing sales trends will empower you to pinpoint which distribution centers should be supplied with which products. This is particularly beneficial for seasonal items.
Tip: Be careful to not overstock a distribution center that is far from demand, as this will lead to increased costs without decreasing shipping times.
5. Demand Predicting
Effective forecasting is essential to avoid over inventory and under inventory scenarios. AWD yields the highest operational efficiency when your stock is in accordance with customer demand.
Real-World Seller Examples
An Electronics Brand: Used MCF for Shopify sales, while FBA managed Amazon orders. Returns dropped due to Amazon handling the packing.
Furniture Seller: Used regional distribution centers to reduce delivery lead times to the East Coast from 4 days to 1–2 days which improved customer satisfaction.
Seasonal Product Seller: Transferred slow-moving inventory from central FCs to regional hubs and cut their storage costs by 30% while also improving the delivery speed.
Challenges of AWD
Complex Fee Structures: FBA, MCF, and regional hub fees are numerous and are often hard to follow.
Inventory Misallocation: Allocating excess inventory to locations with low sales can quickly become expensive.
Dependence on Amazon Systems: Sellers are heavily reliant on Amazon systems, which can be slow during busy times.
Policy Changes: Changes to fulfillment rules are ongoing and can be frequent.
Future of AWD
Amazon is heavily invested in automation, robotics, and AI directed inventory management systems. Sellers can expect:
More accurate inventory distribution across locations
More regional hubs being used to enable same or next day delivery
Better MCF integration to allow multi-channel fulfillment
Increased geographic coverage of AWD to include other countries
Early adopting sellers will be able to retain the biggest cost savings and competitive advantages.
FAQs
1. What is Amazon Warehousing & Distribution (AWD)?
AWD is Amazon’s network of fulfillment centers, regional hubs, and transport systems used to store and ship products.
2. What impact does AWD have on seller expenses?
The type of warehouse and its region determine costs of storage, fulfillment, and shipping. These costs are reduced through strategic placement of inventory.
3. What does Multi-Channel Fulfillment (MCF) mean?
MCF allows sellers to use Amazon’s inventory to fulfill orders from other platforms, such as Shopify or eBay.
4. Is there an improvement in delivery time due to regional hubs?
Certainly, reducing the distance in transit leads to faster deliveries and enhanced satisfaction from the customers.
5. Are there any advantages of AWD to smaller sellers?
Of course, AWD gives the smaller sellers the opportunity to scale their fulfillment without the need for private warehouses.
6. What is the best way to determine inventory distribution among the FC’s?
Examine sales of each region and position more of the inventory to those closer to the locations with larger sales to decrease time and costs of shipping.
7. What are typical challenges with AWD?
The common challenges are: complicated fees, inventory misallocation, changes in policy, and reliance on Amazon’s systems.
8. What is the method for calculating storage fees?
The fees charged vary by warehouse type, size, and weight of the stored items as well as how long the items are stored, with seasonal changes being a factor.
9. Is the rate of returns lower with AWD?
Yes. Tickets that were caused by shipping need are often returned and careful packing as well as faster deliveries from regional hubs prevents this.
10. What is the best method to estimate demand with AWD?
The best method is to combine historical sales information with seasonality trends and use Amazon’s inventory planning systems.
11. Is there an international fulfillment support provided by AWD?
Absolutely, Amazon has a worldwide fulfillment network which allows for efficient shipping across international borders.
12. Is managing subscription based sales within the capacity of MCF?
Recurring orders across various platforms can always be managed by MCF.
13. How frequently should the AWD strategies be evaluated?
Recommendations for reviewing adjustments are made quarterly for peak periods and changes in the market.
14. Is AWD limited to larger sellers?
No, small and medium sized sellers also gain from benefits of FBA, MCF, and regional hubs.
15. What do you consider the most important aspect of optimizing AWD to be?
Predictive accuracy, judicious distribution of inventories, and efficient utilization of resources for performance in cost parameters.
