Amazon uses its extensive logistics network as a competitive advantage by optimizing warehouse operations and inventory placement. It operates multiple warehouses located closer to customers, allowing for faster delivery times and lower shipping costs. Amazon further smooths warehouse workloads and optimizes picking paths by allowing some disorder in inventory placement. This network will be expanded across Europe to provide faster pan-European delivery and buying power.

1. How does Amazon uses its logistic to
build a competitive advantage?

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3. E-commerce Meetup – October 12th 3

4. Logistic costs
• Storage costs
• Cost of holding inventory
• Warehouse process costs
• Shipping costs
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5. Logistic costs
• Storage costs
• Cost of holding inventory
• Warehouse process costs
• Shipping costs
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This is a fixed cost
This cannot be actionned
by logistic

6. • Answer: Backlog. The more work you have to do,
the more you can optimize your work
• Question: What is the main driver of Warehouse
costs?
Warehouse process costs
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7. Warehouse process costs
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8. • Collating is the process that answers to the question:
« When should I schedule to process a customer order ?»
• 1st option: every 24h
• Pro: Huge backlog to optimize
• Cons: Delivery time increased by 24h-48h
• 2nd option: every hour
• Pro: No delay for delivery
• Cons: Not really optimized
Collating: Balancing fast delivery and
optimization
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9. • Collating is the process that answers to the question:
« When should I schedule to process a customer order ?»
• 1st option: every 24h
• 2nd option: every hour
• 3rd option: release just enough work to keep the
workers busy for 1h
• Pro: Small delay for delivery; Huge possiblities for
optimisation
• Cons: You need a really good algorithm behind → Difficult to
setup; if you don’t have the right work capacity , you will miss
delivery cutoff → Difficult to work with this system
Collating: Balancing fast delivery and
optimization
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10. Consequence of continuous collating
• Workload is smoothed; whereas orders are not
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0
20
40
60
80
100
120
0 2 4 6 8 10 12 14 16 18 20 22 24
Numbers of orders/min
Numbers of
orders/min

11. Consequence of continuous collating
• Workload is smoothed; whereas orders are not
• Best sellers have high inventory → Can be
optimized easily → Orders are released almost
instantly
• Best tradeoff between efficiency and continuous
work
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12. The advantage of disorders
• If a product is located in several locations, it will be
easier to find a more optimal path to pick it
• If all kinds of products are located everywhere, it
will be easier to find a more optimal path to pick
them
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13. Logistic costs
• Storage costs
• Cost of holding inventory
• Warehouse process costs
• Shipping costs
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This is a fixed cost
This cannot be actionned
by logistic

14. Decreasing Delivery time & Distance
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2006

15. Decreasing Delivery time & Distance
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2006 2011

16. Decreasing Delivery time & Distance
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2006 2011 2012

17. Decreasing Delivery time & Distance
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2006 2011 2012 2013

18. Decreasing Delivery time & Distance
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2006 2011 2012 2013 2017

19. Advantage of having multiple
warehouses
• Proximity to the Customer
• 1 WH: 250km average
• 5 WH: 100km average
→ Faster deliveries, lower costs
• More Sorting capabilities: number of possible
destinations X 5
• More flexibility: 2016, Orléans site closed because
of a flood → Other sites able to cover up with only
a minor impact for customers
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20. Disadvantage of having multiple
warehouses
• A customer orders two
rare products, A & B
• A is located only here;
• B is located only here
• Either we place each
product in each
warehouse;
• Or we pay two times
transportation costs
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21. Solution
• Or we establish daily
shuttles between each
warehouse
Cost: roughly 200€/truck
5 warehouses=20 arcs
Total: 4k€/day – 1,5M€/Y
• Placing each products in
each warehouses: 20M€/Y
• Or we pay two times
transportation costs: 3M€/Y
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22. Next step: EU network
• Scale it to EU level
→ All EU inventory is
available across EU
with 2-days delivery
• Use the same
network to buy at
EU level
→ Products bought at
EU level to lower
buying prices
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23. Placement optimization
• The shuttles are half empty 9 months over 12
• Use the empty space to reallocate inventory better:
• Define an ideal placement by category
• Reallocate products to match this ideal placement when
there are deviations
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24. Conclusion
• Why has this logistic become a competitive
advantage? Why are other companies not able to
reproduce the same?
• Need to be Big, and have a huge warehouse network
• Warehouse operations need to be extremely agile
• Need to be supported by a reliable IT, and by powerful
algorithms and systems
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25. Questions?
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