Why Amazon.com is doing such a good job

dinsdag 25 april 2017

Clearly Amazon is an innovation pioneer in logistics with using Amazon Robotics (Kiva) for a goods-to-man concept, hosting the yearly Amazon Picking Challenge and investing and patenting future solutions like the Drone from Zeppelin Delivery. 

I’ve had the pleasure of visiting Amazon’s Fulfilment Center (FC) named CGN1 near Koblenz, Germany. This trip was hosted by the association for logistics management (www.vlm.nl) from the Netherlands. In the past, I’ve been involved with the implementation of the Returns Center in Prague (PRG1), Czech Republic and therefore this visit made the circle complete.
In the next few paragraphs I’ll be explaining the logistics concept of the FC by describing the product characteristics, storage type and key takeaways from the visit.  

Safety First!
While entering the premises of Amazon it is clear that traffic between personnel and trucks are separated. Employees park their car in a separate parking and use an elevated walkway to the entry of the building.  Inside the building only the ground floor have areas where people and EPT are crossing in a limited way. From first floor up there are only people offering a safe environment to work. 

Product Characteristics
Size does matter, Amazon makes a clear cut in the type of product which is eligible for its FC. This decision is based on the product dimensions exceeding the tote dimensions (600mm x 400mm x 400mm) or weighing more than 15 kilograms. Products that fit inside the tote are Sortable (or Conveyable), others are Non-Sortable (Non-Conveyable or NONCON)

NONCON items are stored in separate fulfilment centers, like STR1 in Pforzheim. Most important to note is that the customer will not notice this as orders are consolidated before shipping to avoid split delivery and therefore making the customer happy. 

Logistics Concept
Amazon’s logistics concept is Batch Picking with Sort-to-Order. This means that all products from a number of orders are picked in one or multiple totes over different pick zones and are afterwards sorted to the specific customer order.

There are two different flows; Single-Piece-Orders (SPO) and Multi-Piece-Orders (MPO). SPO are picked in a separate batch because these products don’t require sorting and can go straight to packing. 

Storage Type
Most products are stored in a 4-story picking tower divided into 8 zones. In the picking tower are mostly shelf racks with a few pallet locations at the end of the aisle for the voluminous products (for example products which only fit once in a tote). Each location can have up to 6 different products and 1 product can have multiple pick locations. This is called “Chaotic Storage”.  The reason for this concept is that fast and slow movers are stored together increasing the filling degree of the storage locations which makes it possible to store a lot of different SKUs in a very dense area.

Due to the peak season, not all zones are utilized throughout the year and in case all zones are full there is also additional space for floor locations. This is of course less efficient as picking in the picking tower. 

Key Takeaways from Amazon. 
Logistics Concept
So why is this a winning concept? The batch-pick and sort-to-order solution allows Amazon to pick a large number of orders on a very efficient way in a small matter of time. Besides that, the concept is extremely flexible to quickly scale up and down to anticipate on the demand. In the B2C market you cannot 100% forecast what you are going to be doing in the next week so you need to anticipate on a daily basis to meet your promised delivery date. 

Amazon has built its own WMS and in my opinion this is one of the most crucial points that creates the competitive advantage compared to other E-Tailers. The way processes are set up, monitored, steered, the way batches are created and tracked and offering 100% traceability where a product is within the FC makes the life of associates easy. 

Distributed Order Management
As Amazon has multiple fulfilment centers over Europe, it doesn’t mean that you will be delivered from the FC nearest to you. Amazon closely monitors its inventory levels and available capacity at the fulfilment centers. For example, due to a bank holiday in Germany the Fulfilment Center can have limited capacity. This could mean it can be better to pick an order from another fulfilment center and through linehaul and crossdocking this order will go into the local distribution network. But once again, the customer will not notice this. 

No replenishments
For most companies who use static locations for their articles, when the inventory gets below a certain min-level, this triggers a replenishment flow. In case of Amazon, there is none. All products which enter the facility are stored directly into a pick location. 

Buffer Management
Amazon has visible (and probably invisible) buffer areas to disconnect the processes. This way, if a certain process is lacking or overachieving site leadership can anticipate to keep the overall process smooth. 

Amazon has incorporated some smart techniques to visualize potential “problems”. Some examples are: 
- Visual Management. Color coded inbound sheets to show which day a shipment came in. This is to monitor the 48hrs dock-to-stock KPI. 
- Andon lights. All packing stations have a “traffic-light” which can be put to red when there is a problem. This alerts a “problem solver” to act while the associate can move on to the next order.
- 5S. “There is a place for everything and everything has its place”. It is clearly marked where what should be placed. This keeps the operation clear and clean. 

Robotics Future
Amazon already has sites in the UK and Poland with Amazon Robotics. This means that Automated Guided Vehicles (AGV) will transport shelves to inbound and outbound stations.  What is the difference compared the fulfilment centers in Germany? Here are some thoughts: 

Inbound: Instead of placing the products in totes, associates will get assignments to place products in the shelf cabinets. 

Storage: The need for a 4-story pick tower wouldn’t be the best solution as vertical transportation of the AGV and shelf cabinet could be a challenge. More likely you will see the storage area on 1 floor. 
Outbound: Associates won’t have to walk so much anymore as the robots are bringing the products to them (Goods-to-Man concept). Associates will pick the items from the shelf cabinet and I see two possibilities here: 
1. Either they place each item in the “Rebin Trolley on customer order level” -> Pick-to-Order
2. The associate places all items into a tote. The tote will then be sorted as is today. -> Batch-Picking

Outbound: With the Amazon Picking Challenge it will be a matter of time when the first robot will be introduced to pick the items from the shelve instead of an associate. In my opinion, this does not mean that associates will lose their jobs. I believe that with the same amount of people you can do more. As Amazon is still growing with double digits each year, the demand for human workforce will definitely not decrease. 

The difficulty with mechanized solutions is that most likely it is not outlined on the required peak capacity. For the peak season, Amazon will definitely need manual workforce to cover the demand. If Amazon will create this hybrid model within a mechanized FC is a question. It could be that a new FC will be 100% mechanized and if the demand exceeds the capacity of the Robotics FC it will be facilitated by other existing fulfilment centers.