Saturday, February 15, 2014

Amazon Has Shipped Your Goods Before You Buy it!

Rather than classic boring supply chain cases introduction, today I decided to talk something more interesting about the Amazon's innovation not only in sales but salo in the way it attempt to take advantage of its large supply chain network - Amazon will be able to shipped the goods you would like to purchase in advance.

In 2012, a patern known as "Method and System for Anticipatory Package Shipping" was filed by Amazon. The idea behind this patent is that based on its huge amount of shopping habits and revelant data, an algorithm-based system is able to be developed and trim the delivery time by precise forecasting, as it is described in the patent "to the destination geographical area without completetly sepcifying the delivery address at time of shipment". If it is actually implemented, the products will be shipped conceivably before your order is placed.

But how it acutally work? Based on Amazon's huge database, any revelant Amazon customers' activities such as time on site, items/brands preference, duration/frequency of views, links clicked and hovered over, shopping cart activities and wish lists will be extracted, in combination with real-world information including physical address, monthly spent, shoppinng feedback and marketing response, to establish a forecasting models and data analytical methods, providing "decision support for speculative shipping of items"

But how Amazon actually take advantages of these forecasting data to improve it ways in goods-shipping?

patent2Typically, Amazon's shipping system involves two computers, one is order-placing system, which is used for accepting customer's order and checking inventory as well as verifying address, and the other one is shipping system that will generate final shipping information tag after address is verified and package is located.

The modified logistics of Amazon's shipping process is shown as the figure on the right. Unlike shipping goods after order is officially placed, Shipping system in new process will first speculatively ship packages to corresponding destination geographical areas based on forecasting result without completely specifying delivery address. After customer order is placed and address is verified, the order-placing system system will locate the closest-procimity package and assign delivery address to the location of selected package to complete the final destination. In this case, the packages will be half-way to the destination when an order is placed. Since the interval between order placing and actually shipping is around 5 hours,  it helps to cut delivery time and allows more flexibility in logistics management, depending on the distance to cloest Amazon distribution center.

The flow chart below illustrates how Anticipatory Shipping will work:
 Anticipatory Shipping

Normally, products that are regularly sold in a certain place with shpped together to the hub nearby, and find. But in some special case, Amazon will also "ship products to your door (or local hubs) whether or not you actually purchased anything", either sells it at a discounted rate if other online shopper lives nearby, or sends it to prime customers as a gift, as the patents says "delivering the package to the given customer as a promotional gift may be used to build goodwill".

In my opinion, there are plenty of reaons why Amazon would like to develop such a future-like technology, we all know that Amazon is the largest E-commerce platform in US who is capable of delivering shipment in two days. However, it is facing increasingly-fierce competitions from other E-commerce companies as the two-day delivery becomes more pervasive. And the disadvantages compared to local stores or supermarket is lowing the growth rate of Amazon's online sales. Thus cutting delivery time while remaining the low cost is quite a critical proposal to be addressed.

Apart from improving customers' online shopping experience, it is also helpful, from inventory management's aspect, in keeping warehouse fully loaded with goods that are likely to be sold and delivered to areas around in the next few days/weeks, reduce overall inventory management cost as well as satisfy local customers' potentailly heavy demand. This idea with ultimately save money for Amazon, and free it from a relatively high both financial and reputation preesure from providing one-day or two-day free shipping. Amazon would be able to bulk-ship products by predicted potential purchses to local distribution, and delivery products to customer's door via cheaper ground shipping, instead of wasting money on shipping a large amount of products on an expensive flight. It also

Currently Amazon has not yet planned to implement this system. But I am quite sure that day will come, along with the amazing "Delivery Drone".

Can anyone think of the reason why Amazon attempt to implement such an Anticipatory Shipping System? both from External and Internal aspect?

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