Virtualizing Fulfillment Operations – Physical Clouds allow Amazon to Scale

Thanks to my friends at the POMS Supply Chain College, I visited Amazon’s Fulfillment Center (Fernley NV) this week. It is an amazing operation shipping 100,000 items on a routine day and over 400,000/day during peak holiday season. While not the most automated facility I have seen, the Fernley Center has embraced a level of lean that would make Toyota proud (maybe even envious after Toyota’s recent problems). Kaizen activities increased productivity by 15% last year and they are on target to hit their goal of 24% this year. Everywhere you look, you see 5S practiced (everything neatly in its place). White boards in team meeting areas show active root cause analysis and 5 Whys are the lingo among line workers. Technology aids ensure complete orders using poka-yokes like automated scales that check the weight of each box and compare them against the known weight of the items in the order. And a sophisticated IT system releases and routes orders to ensure that picking operations are carefully timed to meet the schedule of outgoing trucks and the delivery specification of customers. A level up in the fulfillment process, algorithms running in Settle determine the best fulfillment center to handle any given order based on inventory availability, service requirements, and transportation cost.

I think one of the most interesting elements of Amazon’s fulfillment network is its ability to scale during peak holiday seasons. Besides scaling each of its fulfillment centers through labor and shift adjustments, Amazon also relies on cloud fulfillment capacity in its suppliers. Setting up fulfillment operations at supplier distribution centers allows Amazon to ship directly from those locations during crunch periods. These virtual fulfillment operations are enabled through a set of Amazon fulfillment tools including IT, hardware, and processes that bring fulfillment operations to life for short periods – much like retailers such as Toys “R” Us use pop-up stores in vacant mall store fronts. The concept gives new meaning to cloud services – both virtual and physical.

Tags: Cloud Computing