How Does Amazon Deliver Stuff So Fast?

How do online retailers actually make those products magically appear on our doorsteps?

It's a combination of advances in logistics, the art and science of planning transportation to achieve maximum efficiency and reliability, and adept research that enables companies to predict consumers' purchases in advance, according to Tinglong Dai. He's a professor at Johns Hopkins University's Carey Business School and an expert in operations management, a discipline devoted to making businesses more efficient.

Dai says that researchers and experts at universities have been working with major companies for years, helping them to speed up their supply chains and shorten their delivery time.

"It's not that difficult to deliver products quickly, per se," Dai explains. "The target is always to deliver stuff quickly but also in a low-cost manner. You can always send something from point A to point B quickly, but it just might be very expensive."

"Basically, you have to figure out a trade-off among responsiveness, cost and quality," Dai continues.

That means shipping products as cheaply as possible, but while also ensuring that there's a variety of stuff for consumers to pick from, and that they can customize their order and make it slightly different from, say, their neighbor down the street.

Operations management researchers in academia have been working with companies for years, trying to speed up offense to try to reduce delivery time.

"The reason Amazon has dominated the American retail sector is probably the fulfillment center idea," Dai says. "Centrally managed fulfillment centers allow Amazon to centralize its supply chain and respond to the market quickly." It works so effectively that other retailers all over the world have imitated Amazon's centers, he says.

Here's how they work, according to Amazon. Whenever a customer purchases an item online, a complex process kicks into gear:

Amazon doesn't disclose the number of fulfillment centers on its website, and the company didn't respond to an email request for information. But Sellgo.com, an unaffiliated website that provides tools and data to Amazon sellers, estimated in 2021 that the e-commerce giant had 185 of them across the world, including more than 100 in the U.S.

Here's why the fulfillment centers matter. Centralization is the key. A big-box retailer like Walmart might have hundreds of stores, and a warehouse for every store or two or three stores. Amazon, in contrast, until recently didn't have any physical stores at all, and now has just a few.

Instead, Dai says, Amazon began with just one single fulfillment center in the Seattle area to maintain its supply of merchandise and gradually expanded. So today, a single fulfillment center fills the needs of an entire region, which could be a state or two states.

Having these big, centralized warehouses is a huge advantage, because it enables Amazon to stock enough products to meet the needs of a variety of different customers quickly. Compared to a business like Walmart that relies upon physical stores, Amazon is better able to deal with uncertainty and fluctuations in demand.

Dai, who enjoys reading books, uses this example. At any given moment, there might be two or three people interested in buying Leo Tolstoy's 1869 novel "War and Peace." An online retailer can make sure it keeps three to four copies in stock, to meet that demand.

But a physical retailer can't do that. A customer who goes into a store looking for "War and Peace" may not be able to buy it. "Nobody is going to [buy] something that isn't on the shelf," he notes.

But instead of having to wait for the bookstore to order a copy of "War and Peace," or worse yet, settle for a James Patterson novel that's in stock, an e-commerce consumer can just go ahead and order the Tolstoy novel that he or she wants. Having a centralized system enables an e-commerce retailer to get products to customers quickly, because it can maintain a big supply of products, which means that compared to a physical store, it's likely to have the stuff you want, and can ship it right away.

That's just the first step, though. With centralization "you can manage the uncertainty and fluctuation in demand," Dai continues, "but you have to deal with delivery time, right? Because it takes a long time to ship something from the West Coast to the East Coast." So over time, he says, Amazon figured out the trade-off between centralization and proximity and began building more fulfillment centers closer to its customers.

But even if it has a ton of regional fulfillment centers, an e-commerce retailer still has to have them already filled with the stuff that people order. How does a retailer like Amazon know that?

They use demand forecasting, which means they figure out how many of various items customers want.

Companies employ scores of data scientists to do such forecasting — not just across the U.S, but in different states and metropolitan areas, according to Dai. Their research involves pouring over demographic data and housing income, and using artificial intelligence and machine learning to make their predictions.

If you've shopped at a physical store, you know it can be frustrating to pick out a product that's on display, and then have to wait while a salesperson searches for it among the stacks of boxes in the stockroom. E-commerce warehouses strive to avoid that logjam — and speed up deliveries — by having acutely accurate inventory information, Dai says.

"Whenever inventory is low, they automatically replenish the inventory by sending an order," he explains. The systems have centralized optimization engines, which decide how to dispatch inventory to different fulfilment centers.

Positioning products in the warehouse according to demand, rather than category, is another trick that speeds things up. Amazon warehouses, for instance, don't have toy sections, or food sections or even book sections, Dai says. "Basically, when stuff comes in, they put it on a shelf, and they scan the barcode for that shelf, so they know exactly where the product is," he explains. That, coupled with making the most frequently ordered stuff the most accessible, enables warehouse workers to find products in a hurry and get them onto trucks.

"They have pretty much perfected the algorithms so that any time an item is coming into the fulfillment center, this gate, it will tell [workers] where to put the item right now," Dai says.

According to Dai, e-commerce retailers also use another technique called cross-docking, originally pioneered by Walmart, for getting goods out of big trucks and directly into smaller vans for delivery.

"The idea of cross-docking is to reduce the need for warehousing as much as possible," Dai says. "Basically, you have outgoing trucks that pick up from incoming trucks, without having to deal with shelving, and sorting and warehousing operations."

It's a game of scheduling, coordinating and transporting.

"They try to coordinate the timing, so that when trucks arrive to deliver the goods, you have [other] trucks ready to pick it up."

Next-day delivery works pretty well these days, but with consumers growing accustomed to it, online retailers increasingly are offering same-day delivery for some items. A 2021 forecast by ResearchAndMarkets.com predicted that the same-day delivery market would grow at a compound rate of more than 20 percent between 2021 and 2025.

Amazon is working to meet that demand, too. July 15 it announced it was adding same-day drone deliveries to customers in College Station, Texas. This came just a month after it said customers in Lockeford, California, would become the first to receive one-hour deliveries via Amazon Prime air drone. Walmart started its drone delivery service in Arkansas in November 2021 and said in May 2022 that it will expand to six more states by the end of the year.