On Black Friday this holiday season, e-commerce behemoth Amazon.com had 29 million visitors, according to a report in Forbes magazine. On Cyber Monday, Amazon led all other e-commerce businesses. While overall e-commerce sales enjoyed a healthy 17-percent jump over 2011 Cyber-Monday levels, Amazon's sales for the day climbed 42 percent, according to Businessweek.
Those millions of visits mean millions of orders, and getting those orders out the door for delivery to customers as soon as the next day—or in some cases, the same day—is an enormous undertaking for the company's fulfillment operations. Add rapid growth to the mix, and the challenge becomes mind-boggling. Yet it's one that the company meets thousands of times a day.
Overseeing that vast fulfillment operation is Dave Clark, vice president of global customer fulfillment for the online retailing giant. He is responsible for the company's supply chain, transportation, and fulfillment networks in North America, Japan, and Europe.
Clark, who holds an M.B.A. from the University of Tennessee and a B.A. from Auburn University, has been with Amazon through most of its growth. He joined the company in 1999, four years after its founding and two years after it went public, at a time when it was rapidly expanding the number of fulfillment centers it operates. Since then, he has held several key roles at Amazon, including general manager of a fulfillment center in Pennsylvania and regional director of operations. He was promoted to his current position in January 2012.
Editorial Director Peter Bradley talked with Clark at the Council of Supply Chain Management Professionals' Annual Global Conference in October about Amazon's hyperefficient fulfillment machine.
Q: There's been a lot of speculation about upcoming changes in Amazon's fulfillment strategy. Can you tell me what's ahead? Will same-day fulfillment be part of Amazon's future?
A: We have had some incredible growth over the years and continue to have that. We expanded the network substantially. There are 75 fulfillment centers (FCs) around the world. In the United States, we continue to expand as well. We target development of FCs based on a couple of things, but as with everything we do, it starts with the customer. So we begin by asking questions like: Where are the customers? What is customer demand? We love to have our fulfillment centers as close as possible to customers.
Our priority is around improving the experience of our Amazon Prime customers. [Subscribers to Prime service get free or low-cost shipping as well as other benefits for a flat annual fee.] Prime customers now have a suite of opportunities, ranging from free two-day and discounted one-day shipping to video, Kindle, and visual library benefits. Our goal is to make that Prime experience even better. We already do same-day in some places in the United States as the opportunity presents, but our focus is really on the Prime service today.
Q: You've spent a lot of money on technology, both software and hardware like Kiva's order fulfillment robots [Kiva was acquired by Amazon in May 2012]. How does all this technology fit into your strategic business plans?
A: We are super excited about the Kiva team. They are a great group of people and a great technology platform. Right now, we are still working through exactly how we want to deploy it across Amazon.
We really do essentially no third-party software solutions. We do everything in house because so much of what we do is very specialized and because all the decisions we make in technology are based on what we want to do for the customer.
Q: What are the criteria for determining where you're going to invest technology dollars?
A: It is really a simple function. What is the best thing for the customer? What is going to provide the most benefit to the customer by either enabling greater selection on the platform, through enabling a faster delivery, or being able to lower prices?
I'm always amazed at the selection that is on the site and how much customers buy across that full selection of product. We always get questions relative to why we carry the tail [items with relatively low demand] because the typical distribution model wants to get rid of the tail. Operators don't like the tail. It is painful. It is highly variant—the cost to store it, what have you. But customers like the tail. It turns out selection is something people really care about, and so we leverage a great group of people in technology to find solutions to be able to deal with it.
Q: Amazon customers, like me, have come to expect next-day or second-day delivery as routine. What does it take in the design of both your DC operations and your logistics network to make that possible without breaking the bank?
A: This goes back to the technology that you talked about. We are very focused on a couple of things. One, hiring and developing the best industry talent there is. We've had a long history of recruiting great people and great technologists, whether it be physical engineering, software engineering, or supply chain engineering types of folks. The other is the technology backbone that allows us to manage the inventory placement, order allocation, and facility design for the supply chain network.
Q: Let's talk a little more about the technology. Your customers interface with some of your technology directly, but a lot of it is not visible to consumers. Tell me something about how you bring all that together.
A: They all have to work together, right? It is again part of why we do everything ourselves in house, because if you are trying to optimize for the customer and not each discrete portion of the operation, then everything has to be able to fit together. The system is looking at your order vs. the thousands of other orders placed around the same time or currently in the system and saying, OK, what is the best way to optimize this pool of orders and distribute it across a nationwide network? And to do it at the lowest cost that meets the standard of speed we need to achieve? Every step of the process, we're constantly running another optimization around the best place to allocate that order and the best transportation method to allocate that order and the best package type to allocate that order.
Technology is so ingrained in the way we think about solving problems and the way we think about creating innovations for customers that we really don't have an IT department. What we have are technology teams embedded in business teams, so they really work as one unit. Every team is thinking about innovation on a regular basis and how to leverage technology for innovation.
Q: Interesting. If it ain't broke, fix it anyway.
A: If it ain't broke, it's probably just because you don't know it's broken.
Q: You've had an insider's view of many of the things that have enabled Amazon's growth. What are some of the major elements that make for a successful supply chain?
A: There are two big things I would point to. One is hiring and developing the best. In fact, that's one of our core principles at Amazon—hiring and developing the best talent. We have done it for a long time and continue to do it because getting the right analytic and leadership firepower in your leadership team is critical to being successful.
The second part is integrating technology into the daily life of all the teams. There is no team that I know of in operations that isn't in some way connected to technology or embedded with technology teams. I think these are two things that I've seen over my time at Amazon that have really allowed us to be successful.