Amazon Moves from National to Regional Fulfillment

In his second annual letter to shareholders as Amazon CEO, Andy Jassy has announced a coast-to-coast reorganization of the e-commerce giant’s national fulfillment network into eight “interconnected” regional hubs.

The tech giant also said it is deploying new AI-driven algorithms to predict what customers in the regional hubs will need and to guide inventory placement systems.

“Until recently, Amazon operated one national US fulfillment network that distributed inventory from fulfillment centers spread across the entire country,” Jassy said, in the letter.

“If a local fulfillment center didn’t have the product a customer ordered, we’d end up shipping it from other parts of the country, costing us more and increasing delivery times,” he said.

“This challenge became more pronounced as our fulfillment network expanded to hundreds of additional nodes over the last few years, distributing inventory across more locations and increasing the complexity of connecting the fulfillment center and delivery station nodes efficiently,” the letter continued.

During the pandemic, Amazon doubled the size of its logistics network to more than 400M SF and built a last-mile delivery system that, according to the company, now rivals UPS in its reach.

During H2 2022, as Amazon begin a cost-cutting campaign that saw it delay, close or cancel 99 facilities in its overextended logistics network, the company began an initiative to redesign the network around a less-costly “regionalized” model, Jassy said.

The tech giant adjusted its inventory placement strategy—as well as placement and logistics software, processes and physical operations—to create eight interconnected regions in smaller geographic areas, Jassy said.

“Each of these regions has broad, relevant selection to operate in a largely self-sufficient way, while still being able to ship nationally when necessary,” he said.

“We’ve recently completed this regional roll out and like the early results,” Jassy said, in the letter to shareholders.

“Shorter travel distances mean lower cost to serve, less impact on the environment and customers getting their orders faster. On the latter, we’re excited about seeing more next day and same-day deliveries, and we’re on track to have our fastest Prime delivery speeds ever in 2023,” he said.

In his letter, Jassy also issued a mea-culpa of sorts for the overextended logistics network. Noting that revenue from Amazon’s e-retail business increased from $245 in 2019 to $434B in 2020, Jassy said “this meant that we had to double the fulfillment center footprint.”

“With that rate of scale and change, there was a lot of optimization needed to yield the intended productivity,” he added.

Jassy’s letter did not mention OSHA’s citations against Amazon warehouses for unsafe labor conditions, or the company’s plans to remedy these complaints.

Regarding artificial intelligence platforms like ChatGPT—also known as Large Language Models (LLMs)—the Amazon CEO said Amazon Web Services would be “democratizing” generative AI technology so that small companies could build LLMs.

AWS has introduced an AI platform called CodeWhisperer to compete with Microsoft’s code-writing “co-pilot” for GPT-4.