My Executive


    Aug 21, 2013

    Amazon building smarter warehouses

    AMAZON.COM is stepping up a warehouse-building spree, signalling the urgency in getting products to customers more quickly amid rising competition from eBay and Wal-Mart Stores.

    Amazon's centre in Chattanooga in Tennessee, for instance, opened after about 10 months, compared with as many as two years for older warehouses. Boasting more space and technology that makes it easier to find items, the building is part of Amazon's almost US$13.9-billion (S$17.7-billion) spending binge on 50 new facilities since 2010.

    That is more than what the company spent on warehouses in its lifetime up to 2010, and took the total number of warehouses to 89 at the end of last year. It has announced five more in the United States this year.

    The warehouse strategy carries risk. Fulfilment has become Amazon's top operating expense, squeezing profit margins and contributing to a US$39-million loss at the Seattle-based company last year. Yet chief executive Jeff Bezos is under pressure to move more quickly as rivals devise faster ways to deliver products.

    At stake is leadership in the growing market for products that can be ordered online and then delivered to a customer's door or a nearby store within hours.

    eBay has rolled out same-day delivery in some cities, while Wal-Mart is increasingly moving its US$482 billion in estimated fiscal 2014 sales online. The retailer has over 4,700 stores across the US.

    Amazon said it is taking on 2,000 staff for customer service, including part-time and seasonal workers. Amazon executives said the costs are necessary amid a crowded e-commerce landscape.

    "As we get closer and closer to customers with fulfilment, we have seen growth," chief financial officer Tom Szkutak said.

    If Amazon can place fulfilment centres nearer to the top 20 US metropolitan areas, the company could reach 50 per cent of the US population via same-day delivery, compared with 15 per cent now, according to supply-chain consultants MWPVL International. That would require opening only another 12 warehouses beyond those built and announced, the firm said.

    Amazon's new centres would have multiple levels and dense rows of floor-to-ceiling shelves. The company has increased the height and square footage of the buildings, and is using more cubic space within each.

    "We now get about twice as many products in this building as we would have four or five years ago," said Mr Dave Clark, vice-president of worldwide operations and customer service.

    The company has about doubled the number of items it can ship weekly out of a centre like the one in Chattanooga. That is because it improved a process called sortation, or how efficiently it can combine multiple items of different dimensions, which may be at opposite ends of the warehouse, in a box of the correct size.

    This has become more automated in the past five years through internal software and "commodity-material-handling equipment" called Amazon Fulfilment Engines, Mr Clark said.

    The engines decide what a worker will pick next off a shelf, where that order will be routed to in the facility and where it will be combined with other items that eventually arrive as a single shipment to the customer.

    The company's fulfilment centres are set to change in other ways. The company last year acquired Kiva Systems, which owns robots that slide under products and move them around warehouses, something it has not built upon significantly.

    It is also adding refrigeration and a truck fleet to warehouses in Seattle and Los Angeles as it expands its grocery delivery service. That means next year's warehouse model might not look anything like this year's.

    "Every time we open a building, we take the lessons learnt, we redo the design and open next year's," Mr Clark said. "It's sort of like cars. We'll very quickly incorporate what we learnt this autumn from the 2013 buildings and launch the 2014 model."