LOGISTICS AND SUPPLY CHAIN MANAGEMENT

MINI PROJECT

DECENTRALIZATION OF WAREHOUSE FOR AMAZON

GROUP MEMBERS

20PBA116 Allan Edward G J

20PBA129 Gladson D B

20PBA133 Moses Infant Raj X

20PBA136 Sandeep Adaikalaraj L

20PBA144 Jeffrin Marshall J R

ABSTRACT

In this Mini Project paper we will be seeing how Decentralization of warehousing boosts
Amazons sales. To deliver products quickly and safely without damages. In this paper the
concepts of Logistic and Supply chain are used along with warehousing . Further in this project
paper you would get to know the possibilities of having decentralized warehousing system for
Amazon.
INTRODUCTION

Amazon is an American multinational technology company which focuses on e-

commerce, cloud computing, digital streaming, and artificial intelligence. It is one
of the Big Five companies in the U.S. information technology industry, along with
Alphabet (Google), Apple, Meta (Facebook), and Microsoft. The company has
been referred to as "one of the most influential economic and cultural forces in the
world", as well as the world's most valuable brand.

Jeff Bezos founded Amazon from his garage in 1994. It started as an online
marketplace for books but expanded to sell electronics, software, video games,
apparel, furniture, food, toys, and jewelry. In 2015, Amazon surpassed Walmart as
the most valuable retailer in the United States by market capitalization. In August
2017, Amazon acquired Whole Foods Market for US$13.4 billion, which
substantially increased its footprint as a physical retailer. In 2018, its two-day
delivery service, Amazon Prime, surpassed 100 million subscribers worldwide.

Amazon is known for its disruption of well-established industries through

technological innovation and mass scale. It is the world's largest online
marketplace, AI assistant provider, live-streaming platform and cloud computing
platform as measured by revenue and market capitalization. Amazon is the largest
Internet Company by revenue in the world. It is the second-largest private
employer in the United States and one of the world's most valuable companies. As
of 2020, Amazon has the highest global brand valuation.
Amazon uses many different transportation services to deliver packages. Amazon-
branded services include

Amazon Air, a cargo airline for bulk transport, with last mile delivery handled
either by Amazon Flex, Amazon Logistics, or the United States Postal Service.

Amazon Flex, a smartphone app that enables individuals to act as independent

contractors, delivering packages to customers from personal vehicles without
uniforms. Deliveries include one or two hour Prime Now, same or next day
Amazon Fresh groceries, and standard Amazon.com orders, in addition to orders
from local stores that contract with Amazon.

Amazon Logistics, in which Amazon contracts with small businesses (which it

calls "Delivery Service Partners") to perform deliveries to customers. Each
business has a fleet of approximately 20–40 Amazon-branded vans, and employees
of the contractors wear Amazon uniforms. As of December 2020, it operates in the
United States, Canada, Italy, Germany, Spain, and the United Kingdom.

Amazon Prime Air is an experimental drone delivery service.

Amazon directly employs people to work at its warehouses, bulk distribution

centers, staffed "Amazon Hub Locker+" locations, and delivery stations where
drivers pick up packages. As of December 2020, it is not hiring delivery drivers as
employees.

Rakuten Intelligence estimated that in 2020 in the United States, the proportion of
last-mile deliveries was 56% by Amazon's directly contracted services (mostly in
urban areas), 30% by the United States Postal Service (mostly in rural areas), and
14% by UPS. In April 2021, Amazon reported to investors it had increased its in-
house delivery capacity by 50% in the last 12 months
DECENTRALIZATION

Decentralization is the process by which the activities of an organization,

particularly those regarding planning and decision making are distributed or
delegated away from a central, authoritative location or group.

The decentralized inventory system is used by shippers with customers spread

throughout a large area. They use smaller, regionally-based facilities to expedite
the process of shipping products to their customers.

By having multiple locations, one can be able to ship products to these larger metro
areas quicker, cheaper, and with improved service. Additionally, these local
distribution centers can also serve as customer pick-up locations. This adds another
growing customer request to the multi-channel marketing machine.

COMPARING CENTRALIZED AND DECENTRALIZED INVENTORY

Centralized inventory

Centralized inventory means everything a merchant sells is stored in the same

location. This simplifies things on a number of levels. First, anything produced or
manufactured goes to the same place and ships out from there. This simplifies
shipping rate and speed calculation. For centralized inventory, there are three
major considerations:

Shipping: When you’re shipping everything from the same location, you quickly
learn how to optimize operations. On the plus side, you’ll have foolproof lead time,
transit day and rating data to ensure accuracy in customer pricing. The down side,
however, is that with just one location, you’re stuck with slow shipping speeds to
many customers.
Costs: With a centralized warehouse, merchants only need to pay operating costs
for a single location. This might include rent, utilities, wages for skilled workers,
surcharges and other expenses. Consolidating these expenses to a single place can
also increase margins on high-value items, making it an ideal option for oversized
product sellers.

Customer service: Centralized inventory can potentially help or hurt your customer
service. While you are providing customers with a single source of truth and
centralized service location, you also sacrifice the agility to ship items to them
quickly if they are outside your region. With centralized inventory, you’re putting
all your eggs in one basket. A shoe retailer, for example, might hold all inventory
in a single location to simplify operations and keep things tidy. With a single
warehouse in New York, everything ships from the same place.

Pros of centralized inventory:

• Lower operating costs thanks to a single location

• More control over warehouse processes and personnel
• Potentially higher margins

Cons of centralized inventory:

• Slow shipping speeds to some customers

• Liability of all inventory in one location
• Lack of agility and adaptability to serve customers

Decentralized inventory

Decentralized inventory means you have distributed your inventory across multiple
locations. Retail giants like Amazon typically rely on these multi-channel
distribution processes. There are also many benefits to this system. Merchants can
reach customers in more locations in less time when products are located in
warehouses closer to them. It also mitigates the risk of holding all inventory in one
place, in the unlikely event of mismanagement of catastrophe. Let’s check back on
those three considerations:

Shipping: Fulfilling orders from multiple locations means faster shipping speeds
and happier customers. Customers expect speedy shipping and easy returns and
exchanges. With multiple locations, merchants can deliver this and lessen
frustration with slow transit.

Costs: With inventory across multiple locations, merchants have to consider

storage and management costs of each warehouse. Expenses like rent and utilities
may be significantly increased. Of course, the expectation relies on the savings
incurred through shorter-distance shipping, thanks to multiple locations.

Customer Service: The sooner an order is delivered, the more satisfied the
customer. The closer an order is shipped from, the sooner it will arrive, and the
happier customers will be. With multiple locations, merchants should consider the
need to manage operations and personnel in several places, a task which can be
challenging without the right tools in place.

Pros of decentralized inventory:

• Faster shipping speeds to more customers

• Less risk with distributed inventory
• Increased customer satisfaction

Cons of decentralized inventory:

• Margins on certain products may be reduced

 • Costs of multiple locations
• Higher transportation costs

How Can a Decentralized Inventory Help Your Ecommerce Business Grow?

For ecommerce businesses on the rise, decentralized inventory may be a

worthwhile investment. With smaller, regional facilities, they can get products into
customers’ hands, sooner.

Additionally, depending on the location of warehouses, these locations may be able

to serve as a pickup spot for customers as well, an option growing-in-demand by
the day.

1. Reduced shipping costs

When you add even a single warehouse location for your products, you instantly
double your distribution opportunities. Depending on the strategic location of your
warehouses, you may be able to seriously cut down on transit times and shipping
costs thanks to closer proximity to more customers. When warehouses are located
closer to delivery locations, shipping costs go down.

2. Reach a wider customer base

Much like the benefits you get from reduced shipping costs, having more locations
can increase your reach to customers spread across a larger area. A customer
interested in a pair of shoes from our trusty shoe retailer is much more likely to
order if their purchase will be delivered in just a few days. If that retailer had just
one location, shipping might take a few weeks, giving customers a reason to shop
elsewhere. Expanding your footprint will expand your potential customer base,
earning you more business.

3. Manages warehouse risk

Remember the analogy about putting all our eggs in one basket? Managing risk is
the central reason for that egg distribution. One example that illustrates this in
action is the case of two banana suppliers that were hit hard by Hurricane Mitch in
the 90s. With more than 80% of the region’s banana crop washed away, both
companies faced major obstacles with distribution. Dole lost 70% of its crop,
ultimately reducing revenue by 4% overall. Chiquita, its competitor, held inventory
and had relationships with multiple suppliers. Thanks to this preparation, the
company increased its revenue by 4%. While this is a somewhat dramatic display
of the difference in strategies, it’s a lesson to apply to businesses everywhere, that
putting all our eggs – or bananas – in one basket is risky. With inventory across
multiple warehouses, retailers are less likely to suffer a total loss because of
mismanagement or catastrophe.

4. Faster local deliveries

Especially in the age of curbside pickup and same-day delivery, having multiple
warehouses increases a local customer’s ability to pick up orders themselves, or
give them access to same-day delivery. With these options in place, customers can
potentially buy and receive items on the same day. With just one warehouse, you
only give customers in one area the chance for immediate pickup. Distributed
warehousing, however, puts your products closer to more customers.
A DECENTRALIZED AMAZON: THE FUTURE OF RETAIL BECOMES
A REALITY

Many retailers are closing at a rapid rate for range of reasons, and while some of
these factors are related to other external forces, real estate trends, shifting
consumer preferences, etc., they all tend to share one basic foundation: low
conversions as a result of struggling to understand and engage with their customers
meaningfully.

In today’s retail ecosystem:

• Retailer data exists in fragmented legacy systems

• Only 7% of retailers can recognize their shoppers across channels
• 3 out of 100 online shoppers actually make a purchase
• 1 out of 10 in-store shoppers actually make a purchase
• Average return rates are at a whopping 40% (65% in season)
• Retailers experience frequent and debilitating database hacks
• Jeff Bezos is coming to eat everyone’s lunch!

The debate between centralized and decentralized inventory is as old as Supply

Chain Management itself. It focuses on the pros/cons of holding inventory in one
large central warehouse (centralized inventory) versus multiple smaller warehouses
(decentralized inventory). Typically, cost modeling will show a central warehouse
reduces overall inventory levels, working capital costs and warehouse costs versus
decentralized warehouses. However, a centralized model leads to higher transport
costs because of the greater distance to the customer base. The “right” number of
warehouses to serve the market becomes a trade-off between warehouse costs and
transport costs, but critically customer service needs to be considered. If it takes 3
days to process and deliver an order from the central warehouse to the customer
but the customer needs delivery in 2 days, then one central warehouse will be
insufficient.

The importance of customer service when designing an optimum warehouse

network is clear. The big trend in recent years has been towards reduced lead
times, the so called, Amazon Effect, with rapidly evolving customer delivery
expectations, from a few days, to next day, to same day and now to 2-hour
delivery! The Amazon Effect is forcing retail and other e-commerce companies to
hold inventory in smaller warehouses closer to the customer, as the only way to
guarantee meeting these service standards.

CONCLUSION

For ecommerce merchants, handling inventory is an everyday challenge that’s only

getting more competitive. Those who take steps now to implement a smart
inventory strategy will be the ones who continue to thrive. It’s important to
understand the pros and cons of this style of management, and whether it’s right
for your business. With the right tools, people and strategies in place, decentralized
industry can prepare your business for future success, while making for happier
customers and lessening risk.