Read the full interview HERE
We recently interviewed the Former Head of Logistics at Amazon, Europe who was responsible for building out the network from the early 2000's.
In the full interview we explore:
- Evolution of Amazon's European versus US logistics network
- How inbound is organized and has adapted for FBA
- Sorting and picking of both sortable and non-sortable products inside the warehouse
- How vertical players could have an advantage over Amazon
- Amazon's relationship and competition with carriers
- Outlook on challenges for scaling Amazon and FBA
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.
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.
It seems as if you really organize your warehouse, specifically for the category and you have some automated, Kiva-like systems to pick this stuff, at density, you can really compete with Amazon, inside the box, inside the warehouse, on efficiency, for your category?
Yes; I’m definitely convinced that there are people who may be more efficient, particularly when their product categories are very similar and the product types are very similar. I’m sure that you could be even more efficient than Amazon. Amazon is very efficient for the kind of structure of catalogue that they have. That’s the key. I don’t think of Amazon has the best fulfilment cost ever. I think some other people will have a better fulfilment cost. But nobody could reach it with the same catalogue and the offer they have; that’s the difference. Unfortunately, you cannot reproduce that. We started, at one point in Amazon, to do benchmarking in different countries, where we would benchmark activities, end to end. You start to find people who can compete with Amazon and, usually, the best competitors of Amazon are the ones that are specialists. It’s a choice, but you will never be the size of Amazon, if you are a specialist. To sell hundreds of millions of pet food, that’s not possible. But yes, you could be very efficient in doing so and become a very strong competitor.
Basically, in those benchmarking activities, originally, we were benchmarking against people who were doing the same as Amazon, such as online sellers. In those cases, we were usually more efficient than most of them, in every country. But then we started to benchmark with specialists, and decided to benchmark Zalando, for example, for shoes and apparel and, of course, that was tighter. For shoes and apparel, Zalando was pretty efficient, in just doing that. We developed some fulfilment centers that we focusing on those products because we discovered that they were rarely cross-selling. They were sometimes, but it was less important and it was better to optimize the warehouse. With those kind of things, I am definitely convinced that some people, being specialists, could reach better cost on their kind of product.
Read the full interview HERE