Amazon Prime’s same day deliveries – how do they do it?

by Andrew Bell

With an annual cost of $99 and video and music streaming services included as standard, Amazon Prime is proving to be one of the most ground breaking forces in the retail industry today. If a Prime member orders one or more of the 20 million eligible items before noon, they can expect to receive their items before 9PM that same day in most urban and suburban areas.

While the concept of same day delivery is not particularly new, Amazon is able to offer this delivery service for only $5.99 on all orders under $35, and free for orders above $35 with Prime membership. Below is a list of reasons why Amazon has been able offer this service so cheaply and on such a large range of items.

 

“Chaotic Storage”

iStock_000086475585_SmallAmazon’s approach to storage is bizarrely innovative, and has come to be referred to as ‘Chaotic Storage’. Instead of grouping items by type, all items are assigned a barcode and shelved according to that alone. The upshot is that a DVD being delivered might initially be shelved next to a flowerpot, above a desk tidy and beneath a laptop charger.

The strict adherence to barcode and not item type means that Amazon’s shelves can seem “chaotic”, but in fact they are more flexible and simpler to use. Indeed, with such an array of items in the same place, each item is made more distinct by its uniqueness, meaning that items can be located faster and more accurately, and the shelf can be immediately restocked with whichever item necessary. Instead of storing many of the same types of products together and creating confusion for warehouse workers, this “chaotic” approach is actually a brilliant way of reducing the scope for human error.

There are exceptions however; books tend to be shelved together for compactness, and bulky or perishable items tend to be stored separately from the majority of items for obvious reasons.

 

Multi-drop route planning and optimisation

While Amazon has been relatively tight-lipped on which route planning and optimisation solution they use, it has been reported that this solution is a fundamental aspect of their strategy. Route planning and optimisation software has allowed them to map out the routes that their delivery vans will take in advance in order to deliver their items in the fastest feasible time and in the most efficient and cost-effective way.

Good routing and scheduling solutions should deliver both route planning and optimisation, with Truckstops, for example, having been shown to deliver typical savings of 10 – 30% and can allow logistical operations to complete significantly more deliveries and collections with the same size of fleet.

 

“Last mile” delivery service

In 2014, trucks loaded with Amazon packages and driven by Amazon-supervised contractors were rolled out in key locations such as San Francisco, Los Angeles and New York. In the following two years, this model was extended worldwide, allowing Amazon to gain control of the crucial “last mile” of the supply chain process.

Traditionally items can be left in stasis for 12 hours or more during this step. Bridging the gap between regional post offices and customers’ doorsteps with dedicated fleets means that Amazon no longer needs to rely on large postal services and can deliver their specific items faster and more reliably through their own optimised multi-drop delivery routes. You can actually sign-up to be a “last mile” Amazon driver here.

 

Item restrictions

iStock_000083251595_SmallOne way of ensuring a more reliable service has been to restrict what is eligible for Prime same day delivery. In addition to same-day delivery being mostly restricted to urban and suburban areas, heavy and oversized items are not eligible for same-day delivery, so that more Amazon items can be pushed together with a lower likelihood of accident during preparation and transportation. Restrictions are also placed on when customers can expect same-day shipping – major holidays such as Christmas and Black Friday are exempt from this service due to the high demand these days tend to experience.

The topic of size and weight will continue to be a pivotal issue in logistics, with online retail services experimenting with the use of delivery drones, despite the series of associated legal and logistical difficulties. For more information on Amazon Air and the drone trials they are undertaking, click here.

 

Strategic pricing

An annual Amazon Prime membership is $99 in the US and £79 in the UK. There has been much debate about the value of the service; you would need to buy at least 14 items costing under $35 per year to be getting good value out of one-day delivery or 17 items in that same price range to be getting good value from same day delivery. This price modelling therefore encourages members to invest in the Amazon service more seriously by purchasing items at a rate of more than once per month.

Membership also comes with an unlimited music and video streaming service as standard however, meaning that Prime’s real value is in its ability to commit more customers to the Amazon ecosystem whilst encouraging them to buy more items. Indeed, this seems to have met with some success, with the average Prime member apparently spending “an astonishing” $1500 with Amazon per year.

 

Use of robotics

One of the most unique and futuristic logistical approaches Amazon has adopted has been in the use of warehouse robots. Indeed, Amazon actually acquired Kiva robotics in 2012, and currently utilises 15,000 of their automated warehouse robots. This captivating informative video on Amazon Robotics is really not to be missed, and represents one of the best industrial uses of M2M technologies today.

Remotely controlled through a central computer, these robots reduce the scope for human error, bringing a greater level of organisation and speed to the process of moving items from their warehouse shelves to their dispatch areas. Human intervention is still required of course, but for now the robots are able to bring shelves to warehouse workers instead of the other way around.

 

Conclusion

Amazon Prime continues to push the cardboard envelope on what consumers should expect from online retail. The organisation is currently in the process of rolling out Prime Now, a service promising to deliver your items in an hour or less. This is currently restricted to only a few thousand products and is not yet widely available however. As delivery times continue to become shorter and shorter, brick and mortar retail branches may gradually lose their “instant gratification” appeal, which will inevitably cause further development in the industry. In any case, it’s clear that Amazon has remained a driving force in retail, popularising and developing the e-commerce paradigm, shaking up the traditional brick and mortar model and shaping consumer expectations every step of the way.