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Changing the Face of Retail, Hundred Million Customers at a Time

Retail industry has been overtaken by digital transformation. The explosive growth of e-commerce over the past decade has changed consumer behaviour rapidly. And one company, Amazon, is standing at the centre of this revolution.

By GW Prime

Amazon is the world’s largest online marketplace and the largest Internet company by revenue. It is easily one of the world’s most valuable companies in this day and age. How does the Seattle-based company emerge from an online bookstore to a $1 trillion e-commerce powerhouse? By investing 12% of its revenue in technology.

Amazon is at the forefront of digital retail business majorly due to its innovative supply chain strategies. The company deploys cutting-edge technologies in its extensive warehouse operations and multilevel inventory management; supported by an excellent logistics system. With these capabilities, Amazon operates an entire supply chain system that is the fastest and most efficient in the world.

Predictive ecosystem

Being predictive is key to creating resilient digital business ecosystem. By analysing its customers’ behavioural data, interest graphs, affinity scores, and others, Amazon is able to predict, suggest, and drive purchases on its platform. The same analytics is also used to keep its inventory informed.

Back in 2013, Amazon has filed a patent for an anticipatory package shipping system, which was designed to reduce delivery times by sending off items to selected geographical area even before the items are officially purchased. Based on machine learning prediction, the package will be shipped without completely specifying the delivery address at time of shipment, and while the package is in transit and purchase was made, the specific delivery address will be provided.

The system predicts precisely where, when, and how much of a particular stocked items to be made available at any of its fulfilment centres, so they are ready to ship when ordered.

Amazon places sensors across its stores to detect the products that shoppers buy as well as their interactions with the store layout. The in-store data is used to decide on product pricing, inventory management, and to create a customer-friendly store layouts.

Warehouse automation

Amazon runs 175 warehouses, also called fulfilment centres, worldwide. In 26 of them, robots and people work together to pick, sort, transport, and stow packages.

There are several types of robots “employed” at the fulfilment centres with specific job scope for each. One identifies and grabs totes from conveyor belts and stack them on pallets for shipping or stowing. The other lifts pallets of inventory to different levels in the centres or places them on drive units to be carried to their next destination. The drive unit itself is a robot that transports packages around facilities. Currently, Amazon has 100,000 drive units in locations around the globe.

Amazon’s fulfilment centre’s employee picking up items on top of robotics drive unit (Image credit: Amazon)

Using 2D barcodes on the fulfilment centres’ floors, the robots employ AI technologies to map out the most efficient route to bring the inventory pods needed by their human associates. Once the route is mapped out, the robot will then take the correct pod of inventory to the associate for items to be either stowed or picked.

Apart from the mobile robots, the company also deployed gesture recognition technology to identify when a worker has placed a package on a shelf, and automatic scanning technology of items that workers hold in their hands. Such automations will minimise the click-to-ship cycle time.

To date, Amazon is trialling the use of drones for warehouse management and AR-enabled eyewear to increase warehouse worker’s efficiency.

Winning the last-mile

As the company continues to grow, its logistics costs have skyrocketed. According to Statista, in 2018, the company’s fulfilment and shipping expenses amounted to $34 billion and $27.7 billion respectively, up from just over $1 billion each in 2007.

Image credit: statista

Amazon officially launched Amazon Logistics in the same year. It utilizes a host of third-party logistics partners, including walkers, bicyclists and motorcyclists, to complement existing delivery providers like UPS and FedEx.

Making use of location technology, its delivery scheduling and route planning system assigns the right package to the person and vehicle best-suited to deliver it on-time. The system calculates a delivery route which covers more orders in a single trip, allowing vehicles to carry packages at optimal capacity. The overall turnaround time is also optimised by choosing shorter routes and avoiding traffics.

Late deliveries are constantly analysed based on feedbacks and inputs from its delivery partners. By correlating delivery times and delays with variables such as building type, access type, and parking facilities, a new layer of delivery intelligence is created on top of location data.

Amazon has offered increasingly faster delivery options for a number of years through programs like one-day and same-day delivery, as well as one- or two-hour delivery with Prime Now. The efforts continue with introduction of Prime Air, a fully electric drones that can fly up to 15 miles and deliver packages under five pounds to customers in less than 30 minutes. The company is currently testing a new delivery system using autonomous delivery devices called Amazon Scout.

An image of Amazon Scout in front of Franklin Theatre (Image credit: Amazon)

Omnichannel strategy

Lying at the centre of Amazon’s customer ecosystem is the Amazon Prime. In order to make Prime a success, Amazon collects and connects its customer behaviour data, purchases data, and demographic data. The data is collected across devices and unified via accounts.

Prime subscribers are offered with a bunch of benefits. Through these benefits, Amazon is able to understand individual customer preferences, and with Machine Learning, improve recommendations for their next purchases. On top of this, customers are getting seamless experience across devices. This is fundamental to a successful omnichannel strategy.

Image credit: WSJ

In 2017, Amazon bought Whole Foods Market for just under $14 billion. Today, it is leveraging Whole Foods’ business intelligence as well as its locational proximity to create an omnichannel experience for their combined consumers. Whole Foods locations are adding up to the existing network of Amazon store locations, offering consumers more options for groceries pickups. At the same time, Whole Foods consumers are benefitting from Amazon’s extensive delivery management system.

Prime members can enjoy more flexible and seamless omnichannel shopping experience with the introduction of Amazon Fresh, a grocery delivery and pickup service; and the state-of-the-art cashier-less convenience store of the future that is Amazon Go.

Continued market dominance

From Machine Learning to computer vision to robotics, Amazon has led the way on many technological fronts. Its relentless focus on using data to drive decisions has put Amazon in its position as the world’s most valuable retailer today.

As the digital age continues, increasing amounts of data will become available to be captured and further leveraged. The success of Amazon demonstrates that data and customer retention are two interconnected components in a virtuous cycle. With improved customer experience, number of transactions will increase, therefore, generating more data. The data feeds into further improvements, attracting more customers, and the cycle shall continue.