By Emilio Quellmalz


Before Amazon even delivered its first package, its founder and CEO Jeff Bezos had a clear objective that has driven the company till this day. In an interview made on July 1999, Jeff Bezos said: “If there is one thing Amazon.com is about, is obsessive attention to the customer experience, end to end. What matters to me is that we provide the best customer service.”

Amazon’s customer-obsessive philosophy has played a key role in helping the e-commerce giant become who they are today. Their business strategy focused on the long term, more specifically, on gaining market leadership. Amazon executives wanted the firm to be peoples’ go-to place when it came to online shopping. Jeff Bezos has said in one of Amazon’s annual report that: “We will continue to make investment decisions in light of long-term market leadership considerations rather than short-term profitability considerations.” In other words, they did not care about making a profit in the short-term. Instead, their focus relied upon their net sales and consistently increasing its revenues. Amazon has come a long way since 1994, but their objectives and strategic plans remain consistent throughout.

In a 2012 interview conducted by Jeff Bezos and Amazon’s vice president Werner Vogels, Jeff Bezos shares a personal anecdote regarding his experience at a Kaizen training session with a Japanese consultant from the Toyota School of Kaizen. Bezos goes on to say: “He didn’t call himself a consultant, he called himself an insultant. He was teaching us some of these Toyota techniques, and he was very fiery. He was very emotive. He would shout at us in Japanese. … On about day four, he saw me a little way away, sweeping up some dust in the fulfillment center. He came up to me and said, ‘Mr. Bezos! I am all in favor of a clean fulfillment center, but tell me: why do you sweep? Why do you not instead eliminate the source of dirt?’” This was the beginning of an unparalleled partnership between lean manufacturing techniques and Amazon’s relentless pursuit of customer satisfaction.   

Inside one of Amazon warehouse, where customers' orders are efficiently and effectively packaged
Inside one of Amazon’s multiple warehouses around the US

Automation Strategies Implemented By Amazon To Reduce Waste

Amazon delivers more than 2.5 billion packages per year and is considered to be the world’s largest online marketplace. In order to manage such a complex and extensive channel of distribution, operational excellence is a must. One of the strategies that has paved the way for Amazon is Six Sigma –a disciplined methodology that uses data and statistical analysis to improve a company’s operational performance by identifying and eliminating defects (Joseph Chen: Ph.D., Major Industrial Engineering/Minor Electrical Engineering). Marc Onetto, Amazon’s former head of global operations, goes on to explain that, from a Six Sigma perspective, humans are considered to be at about a 3-Sigma level. In other words, they perform a task with about 92.7% efficiency and 7% defects.

Here is where jidoka (automation with a human touch) comes in. Autonomation helps human beings perform tasks in a defect-free and safe way by only automating the basic, repetitive, low-value steps on a process. To facilitate these operations, Amazon has done an exquisite job finding the right synergy between humans and robots: a very flexible human being assisted by a machine that brings the process up from 3-Sigma to 6-Sigma, minimizing the room for error.

There are two different types of robots that Amazon has incorporated to its warehouses to smoothen the flow and improve the efficiency of their facilities. First, the Robo-Stow, a six-ton robotic arm that lifts pallets of items 24 feet on to a second platform. Second, the “Drives”, machines that are designed in-house by Amazon Robotics LLC, formerly Kiva Systems LLC. These robots can lift up to 3,000 pounds and they facilitate the movement of storage units filled with merchandise. For instance, when a worker needs a specific item for an order, the computer system locates the product and automatically dispatches the robot-mounted shelf to the employee. What makes these robotic acquisitions so practical is that they eliminate non-value-added tasks from the fulfillment process such as walking, while at the same time speeding up the fulfillment process. After all, Lean Manufacturing abides by a value-added philosophy, by which all elements of cost that do not add to the value of the end product are eliminated.

The implementation of robots is only one of the ways that Amazon improved the material flow within its facilities. They have also implemented other lean time-saving tools that generate value such as gravity slides and motorized conveyor belts. Furthermore, all the materials flow towards the shipping end of the plant, there is no backtracking, nor is there cross-traffic. A very peculiar strategy Amazon implemented is an adaptation of Just-in-Time inventory called “Print on Demand”. Since the book industry is so broad, it’s really hard to know which books customers will want to purchase even through forecasting. Marc Onetto states that “in the United States, 40% of all printed books are never read, 40% of waste. Of course, in the lean world this is totally crazy.” What Amazon does to eliminate muda (waste – an expense that does not help produce value, and therefore, the customer wouldn’t pay for) is: as soon as the physical copy of the book is ordered, it gets printed, packaged and 4 hours later, the book is shipped.

A distribution and fulfillment center at one of Amazon's multiple warehouses viewed from a high point
A distribution and fulfillment center at one of Amazon’s multiple warehouses

Lean Principles Implemented By Amazon To Better Serve Customers

Amazon has also implemented within its operations the Lean Principle of Kaizen – continuous improvement by seeking out root causes of waste and inefficiency. Amazon’s implementation of kaizen emerged after Amazon struggled to manage merchants who failed to comply with the e-commerce’s high standards. In one particular occasion, one of these merchants sent a package that contained shampoo bottles that were all broken. After this incident, Amazon decided to implement a three-strikes packing process using their fulfillment services. The first time a problem arises, Amazon will re-explain the packing rules. The second time, merchants are given a warning, and the third time, Amazon cuts ties with merchant. This helps Amazon ensure excellent customer satisfaction levels.

The e-commerce giant did not limit the application of lean manufacturing techniques to its fulfillment centers. Amazon has also applied lean manufacturing with the purpose of improving communications between customer service agents and those employees performing the packaging and shipping at the fulfillment centers. The miscommunication between departments was spotted by Jeff Bezos during one of his customer training sessions, which all senior executives are required to go through twice every other year.

In one particular call, as soon as Amazon pulled up the order, an experienced customer service agent leaned over and whispered “she’s gonna want to return that table (she just ordered).” The customer indeed wanted to do so because the top of the table was scratched as a result of poor packaging. After the return procedure was finalized, Jeff Bezos asked the agent how did he know the customer was going to return the table. The response he got was: “Oh, that table always gets returned.”

Amazon, then, solved the recurrent issues between the customer service department and the fulfillment centers by encouraging customer service agents to pull a product off of the Amazon website if it has a repetitive defect. Doing so stops all sales and shipments before the issue spreads to more customers. This method eliminates tens of thousands of defects per year and also empowers frontline Amazon workers by giving them the authority and autonomy to stop defective products from being shipped. According to Marc Onetto, 98% of the time, the cord is pulled for a real defect.

The solution was in fact inspired by the Toyota’s idea of an Andon Cord. In Toyota’s automobile production facility, every factory worker had access to this cord, which they could pull and stop the whole automobile manufacturing line. Doing so was considered crazy by competitors because stopping that line can become really expensive. Therefore, they did everything possible to keep that line running. Toyota, however, empowered its employees to stop the whole line by pulling the cord every time there was a defect, no matter how small. This approach allowed them to eliminate the defects closer and closer to the source. Doing so, saved money because the further a defect travels downstream, the more expensive it becomes to fix. In an interview in 2012 with Warner Vogels, Jeff Bezos said, “in our fulfillment centers we are always seeking to keep defects from moving downstream.”

An Amazon Prime package focused-photograph at one of Amazon's warehouses
Amazon Prime packages

Room For Improvement:

Amazon has already optimized its facilities numerous times using “{lean manufacturing techniques. Still, there are a couple of improvements Amazon could implement become more efficient in delivering value to its customers. For instance, Amazon spends a ton of money in extremely large facilities, and most of it is used to store products. It’s important to add the fact that the large amount of distribution center space Amazon possesses around the country allows them to have products close to customers and therefore, ship product in a timely manner.

This got me thinking, what if they had a minimized group of elite suppliers with whom to perform a Just-in-Time inventory relationship? This strategy will only work if implemented with committed vendors who have showed unfailing performance. It should not be implemented with suppliers who haven’t proven themselves to be trustworthy. I believe this would be a more cost-effective way to manage the products coming in and avoiding all the expenses that come with maintaining an inventory and save space in the facility. However, implementing a JIT Inventory may lead to stockouts and therefore, might be a huge risk for Amazon. If one of the trustworthy suppliers fails to deliver, it might damage their well-earned reputation.

Another extremely challenging strategy to implement that will for sure improve Amazon’s productivity would be to automate their facilities even further. After looking more into this idea, I realized that a fully-automated warehouse is one of Amazon’s goals, but it’s at least 10 years off. According to the MIT Newsletter, Amazon has actually installed “carton rapping machines” near Seattle, Frankfurt, Milan, Amsterdam and Manchester. These boxes are able to build, seal and label 600 and 700 boxes per hour, which is about five-times faster than a person. According to Reuters, if Amazon puts two of each of these machines in each of its 55 fulfillment centers in the United States, it would lead to over 1,300 job cuts. As a result, Amazon will have more fixed cost expenses rather than variable costs, which in the long run, will help Amazon cut down on expenses.

Amazon’s core mission is to offer the customer exactly what they expect and need. They’ve implemented Lean Manufacturing to their facilities beautifully, blending machines and employees under the same roof. Amazon has proven to understand the concept of lean: every little act is worth it if you are reducing waste, adding value and, continuously improving.

Amazon has a bright future ahead and will continue to dominate the e-commerce market by maximizing its operational efficiency and, as a result, keep delighting customers with exemplary customer service.

Amazon's powerful warehouses showing its packages, processes, and distribution

Bibliography:

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