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 biggest 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 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.
Note: I had an interesting discussion with the company ForeQast Technologies Limited led by Founder and CEO Aida Ahmadzadegan-Shapiro. Aida has designed what I consider to be the most advanced route planning and optimization software available. Her use of quantum algorithms for solving routing and last-mile delivery is truly unique.
What’s next for Amazon? I believe Amazon is going to introduce the use of Amazon lockers specific for use by homeowners. I’ve stated many times that whoever “owns the porch owns retail.”
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.
Amazon’s regionalization strategy will allow the company to either lease and use their own Class 8 trucks (semi-trucks you see on the highway pulling trailers) or Amazon will mandate that their carrier partners use the trucks. Why? Because the trucks will drive much shorter distances in a regional vs. nationwide strategy.
Another benefit to Amazon using a regionalization strategy and increasing more delivery stations is that it will make it easier for Amazon to introduce and leverage drones for deliveries. Amazon still has a lot of work to do but the changes they’ve made to the network benefits the use of drones.
Why is Amazon doubling the number of their Same-Day delivery hubs to around 3,000 by 2030? Because consumers are beginning to ask, “Why can’t I get everything I order from Amazon the Same-Day? Why can’t Amazon deliver groceries to me in one hour?”
I can’t stress the point about the milkman model enough as it will truly create the most efficient and cost-effective network for Amazon. More Same-Day delivery stations means that Amazon can build loads maximizing delivery density; delivering 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.
I’ve stated this many times in the past and I’m stating it again. Amazon doesn’t have to build and open thousands of grocery stores. Amazon can create a new model for groceries that maximizes it’s Prime membership and .Com business and the milkman model is it.
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.
For example, companies have hired me as a consultant with the intent of having me, “just make our transportation network more efficient.” Bad idea.
Logistics are part of supply chains. The purpose of a supply chain is to do one thing – enable a company to grow. Focusing only on transportation will reduce costs but invariably will cause issues in other areas.
A much better strategy is 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 simulation.
A topic I speak a lot about is the importance of increasing velocity across the supply chain. Most people who work in logistics and supply chain are unfamiliar with the science of velocity or why it’s so important.
Amazon, however, understands velocity well hence the reason why Amazon isn’t just becoming faster at deliveries, they’re becoming faster at everything across their supply chain.