Three years ago, my colleague Steve Banker wrote an article about the Amazon supply chain, asking if it was the most innovative in the world. In the article, he wrote about Amazon Relay, the acquisition of Whole Foods, Amazon the carrier, and the expansion of its warehousing capabilities. As the world is in year two of the Covid pandemic, and the supply chain landscape has changed, it is time to revisit Amazon’s supply chain and see how it has changed and how prepared it is for the future.
Amazon continues to grow and adapt with the changing world. And the company’s operations and technology have evolved over the last three years, with a focus on its trucking, warehousing, and air capabilities. How do each of these drive the Amazon supply chain?
Over the last few years, Amazon has continued to expand its private fleet of long haul and last mile delivery trucks. The end goal is to reduce or eliminate its reliance on UPS, FedEx, and the USPS to make deliveries, thus becoming more profitable while controlling the customer experience.
While Amazon has rolled out its own digital freight matching marketplace named Amazon Freight, the company is always looking at new opportunities in this area. One way is to build its own pool of drivers, and to do this, the company is reportedly building an incubator for startup trucking companies. Essentially Amazon is recruiting hundreds of people to start trucking companies and only drive for Amazon. The incubator will provide business training and loans for entrepreneurs to start their own trucking companies.
According to sources, the incubator is not about tackling the challenges of today’s capacity crunch. Instead, the program is about looking at the future and where that demand will be, and how Amazon can take control of it with an in-house solution.
Amazon is also investing in the future of its trucks by exploring more sustainable fuels. The coronavirus pandemic helped push e-commerce to new levels; but as e-commerce sales soared, so too did heavy duty trucking on the roads to get goods to their final destination. And that increased congestion and pollution. Amazon is looking ahead at reducing carbon emissions in its fleet by upgrading to natural gas class 8 trucks. The company has ordered more than 700 compressed natural gas class 6 and class 8 trucks so far, as it looks to introduce new sustainable solutions for freight transportation. Amazon is working on testing a number of new vehicle types including electric, CNG, and others. The engines, supplied by a joint venture between Cummins Inc and Vancouver-based Westport Fuel Systems Inc, are to be used for Amazon’s heavy-duty trucks that run from warehouses to distribution centers.
Amazon has never shied away from making controversial decisions, and the latest technology the company is developing for its trucks fits squarely in this category. Last month, Amazon announced that it plans to equip its branded delivery vans with cameras powered by artificial intelligence. The cameras, which will always be on, are being promoted as an effort to improve driver safety. However, many workers and privacy advocates are concerned about drivers being continuously subjected to surveillance and data gathering.
The cameras, which run on Netradyne’s Driveri platform, are intended to improve safety for drivers and the community they are making deliveries in. Each camera system has four HD lenses to sense road conditions, driver speed, and collision detection technology. And while the cameras will be rolling at all times, Amazon has said that footage will only be uploaded if the driver triggers one of 16 actions, such as running a stop sign or speeding.
Amazon has spent years cultivating its logistics network to move items around the world as fast and as cost efficiently as possible. Part of speeding up delivery is to make sure that not just large cities have fulfillment centers in place. Amazon is building out a network of delivery stations in an effort to “blanket the suburbs.” The delivery stations are the final link in Amazon’s supply chain that begins with its large regional fulfillment centers. The delivery stations are smaller terminals that will receive Amazon goods and ship them out to end consumers. The company plans to open 1,000 parcel delivery stations in the near future.
This model is not just about speeding up deliveries in the US, however. At the beginning of the year, Amazon announced plans to open five new facilities in Quebec to speed up its delivery process. The company will add two sorting centers and its first three delivery stations in the province. Overall, the new facilities will create about 1,000 new jobs. The sorting centers will be located in Coteau-du-Lac and Longueuil, while the delivery stations will be located in Laval and Lachine.
The Covid pandemic has certainly been a boon to Amazon’s business. However, not all warehouse employees have been happy with the working conditions. This was especially true at the beginning of the pandemic when social distancing guidelines were first put into place. As a result, Amazon launched cameras and software within its warehouses to detect if and when an employee was violating social distancing rules. This type of software is still a work in progress as more people are vaccinated and guidelines are ever changing.
One of the biggest fears of warehouse workers is that full-scale automation will put them out of work. However, as most companies will say, and Amazon is no exception, robots and cobots are there to make things easier for employees. Amazon continues to invest in robots for its facilities, helping to remove menial and time-consuming tasks from workers so they can focus on other tasks. As things stand, Amazon sees fully automated shipping warehouses as a decade or so away. While Amazon will continue to invest in robots, they are also investing in their human counterparts.
Amazon Prime Air
For the last four years, Amazon has been aggressively investing in its air capabilities. What was formerly known as Amazon Prime Air, Amazon Air is a cargo airline operating exclusively to transport Amazon packages. The company has been acquiring jets to build out its fleet as it also awaits the completion of its air hub at Cincinnati/Northern Kentucky International Airport. As of this writing, Amazon’s fleet consisted of 22 Boeing 737-800’s and 55 Boeing 767-300ER’s, with another 9 aircraft on order. Amazon has also spent $131 million to acquire about 13.5 million shares of Air Transport Services Group (ATSG).
Cargo planes are not the only piece of Amazon’s aerial plans for the future. Drones are a big part of the future of Amazon, something Jeff Bezos has been touting for the last seven-plus years. In September of last year, Amazon took a big leap forward in its quest to use the autonomous flying vehicles as part of its home delivery strategy. The Federal Aviation Administration (FAA) designated Amazon Prime Air an “air carrier,” which allowed Amazon to begin its first commercial deliveries in the US under a trial program. There are still a number of regulatory hurdles that Amazon must clear before it begins making home deliveries, but this is clearly a step in the right direction for drone usage. Amazon joined Wing, the Alphabet Inc. subsidiary, and UPS as companies that have gotten FAA approval to operate under the federal regulations governing charter operators and small airlines.
And Amazon clearly sees drones as a big part of its future, based the amount of research and development it is putting into its drone program, especially in Europe. According to a story published last week, Amazon has doubled the number of staff employed by its Cambridge-based Prime Air team, where the company is developing its drone delivery service. This brings the total number of staff to nearly sixty in Cambridge; Amazon also has research tech hubs in London and Edinburgh. Amazon said last summer it was aiming to begin launching the drone service ‘within months’, announcing that the aircraft could travel up to fifteen miles and deliver packages under five pounds to customers in less than thirty minutes.
The Amazon supply chain continues to be one of, if not the most, innovative in the world. The company is investing in its trucking capabilities to reduce its reliance on other carriers. Amazon is also continuing to expand its warehouse technology and capabilities to make picking, packing, and shipping orders more efficient. And it is heavily investing in taking to the skies, with an emphasis on cargo planes and drones. It will be interesting to see where the Amazon supply chain goes from here.