Amazon says it is lowering delivery costs by putting inventory closer to customers, after replacing its single US fulfillment network with eight interconnected regions. In first-quarter results released April 27, 2023, chief executive Andy Jassy said the company was improving both delivery speed and the cost of getting products to customers. The redesign changes where an order starts its journey, rather than relying only on a faster final trip to the door. [S1][S2]

The old arrangement could send a parcel across the country when a nearby fulfillment center lacked the ordered product. In his April 13 shareholder letter, Jassy said that adding hundreds of network locations had made connecting warehouses and delivery stations more complicated. Amazon had doubled its fulfillment-center footprint in about two years during the pandemic. More buildings did not automatically mean the right stock was close to the person buying it. [S1]

Amazon began changing its inventory-placement strategy in 2022. It changed software, processes and physical operations to give each region a broad, locally relevant selection, Jassy wrote. He said the rollout was recently complete. Each region was meant to handle much of its own demand, but could still ship nationally when needed. The eight regions are connected, not sealed off from one another. [S1]

Forecasting is what connects the smaller delivery area to the stock on its shelves. Amazon said it was improving machine-learning algorithms to anticipate what customers in different parts of the country would need. The operational implication is that faster local service depends on deciding where to place products before an order arrives. If the local assortment misses that demand, the national shipping option remains available. The letter gives no region-by-region measure of how often that happens. [S1]

Amazon’s North America business returned to operating profit: $0.9 billion for the quarter ended March 31, against a $1.6 billion loss a year earlier. Segment sales rose 11% to $76.9 billion. Those figures cover more than US regional fulfillment and do not isolate the redesign’s savings. Company-wide fulfillment expense actually rose, to $20,905 million from $20,271 million. That total does not contradict a lower cost of serving an order; it measures aggregate spending, not cost per parcel in the redesigned network. [S1][S2]

For shoppers, the intended payoff is a shorter wait because the product starts closer to home. In the April results announcement, Jassy said Amazon expected its fastest-ever Prime delivery speeds in 2023. That was still a forecast for the year, not a promise of same-day arrival for every item or address. [S1][S2]

Source documents

  1. CEO Andy Jassy’s 2022 Letter to Shareholdershttps://www.aboutamazon.com/news/company-news/amazon-ceo-andy-jassy-2022-letter-to-shareholders
  2. Amazon.com Announces First Quarter Resultshttps://s2.q4cdn.com/299287126/files/doc_financials/2023/q1/Q1-2023-Amazon-Earnings-Release.pdf