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February 21, 2013

Part III/III: Amazon's Q4 Results: Under the hood of Amazon's Fulfillment Center Network

This is Part III of our three part series digging into Amazon's Q4 results.  A summary and guide to the series is here:

  • Part I: High level overview of Amazon's Q4 (Available here)
  • Part II: Deep dive into Amazon's Q4 3P performance  (Available here)
  • Part III: Under the hood of Amazon's FC network (FC = Fulfillment Center) (You are here)

Important Note on this blog post before we get started:

All of the information in this article is from publicly available sources including, Amazon public reports, CBS, NBC, Fox news, Foursquare, google maps, The MWVPL International Supply Chain Experience, Amazon FBA documentation, wikipedia, Amazon's job listings and Amazon's fulfillment recruitment site

Amazon's FC network is a living breathing 'entity' with new facilities opening and closing all the time.  We will work to keep the data up to date on a quarterly basis. Please let us know in comments if you find an omission or have any FC news we should add to our db.

Backgrounder on Amazon+Fulfillment

 If you look at the growth of Amazon compared to e-commerce (as measured by ComScore), you noticed that before 2006, Amazon grew in-line with e-commerce and then after that time, Amazon grew significantly faster.  I attribute boost in growth rate to two things:

  • 3P - Amazon's Third party marketplace is a huge win - it stocks the shelves (selection), creates price competition (value) and frees amazon's cash to be invested elsewhere
  • Free shipping programs - Industry lore goes that Amazon did research and decided that instead of marketing, if they put every dime into lowering shipping costs to consumers it would drive more sales.  They started with super saver and then introduced Prime (free all-you-can-eat 2 day shipping for ~$80)

Most readers know this, but just in case: these two programs 'intersect' with a program that Amazon calls FBA - Fulfillment By Amazon.  In this program, Amazon allows 3P sellers to use their FCs for a fee.   The beauty of this program is that it allows 3P sellers access to the Amazon Prime program which we estimate is 10% of Amazon's customer base (approx 20m), but they spend 4X the average - so Prime represents about 40% of the Amazon wallet.

In the past two posts, we covered the important 3P results from Q4, and in this post we want to dig deeper into fulfillment because it is the heart of the Prime experience and strategically very important to Amazon's success.

Why does fulfillment matter?

Amazon has been building fulfillment centers (FCs from here out) at a rapid pace and following a pattern where they enter a state/country/region and build out 2-5 FCs around population centers.  During the Q4 conference call there was an interesting Q+A exchange between Morgan Stanley's internet analysts, Scott Devitt and Amazon's CFO, Tom Szkutak that I have snippet-ed from the transcript (here if you want to read the whole thing):

"Devitt:  ...it looks to us that you have successfully begun to transition your logistics cost in the direction of being more of a fixed fulfillment cost, with lower unit based shipping costs...."

Szkutak: "In terms of fulfillment, you're right. Over the past few years, we have expanded our FCs pretty extensively to the point where we are closer to customers; and you are seeing that reflected in our transportation costs...."

This makes logical sense.  Let's say that before it built a FC near SFO, the closest FC was Las Vegas which is 550 miles away.  That's a lot of ground for packages to cross and thus high transportation cost.  Now let's say that the product moves to within 10 miles. You have taken essentially 550 miles out of the trip that package travels (assuming you can be smart about getting the right products and limiting the movement intra-FC, etc.)

In this post, we'll look under the hood of Amazon's FC network and get a good feel for:

  • How large is Amazon's FC footprint both domestically and abroad?
  • How many of the top US cities does Amazon cover with their FC network?
  • How many FCs has Amazon already announced for 2013?
  • What is it like inside Amazon's FCs?
  • Finally if you stick around and you are an FC geek like me, I have a collection of interesting videos and pictures of Amazon's FC network that I've found over the years.

This is very timely because as more and more retailers, manufacturers and sellers are leveraging FBA and programs like FBA export, we are getting a lot of questions about Amazon's fulfillment network. The top question is....

How large is Amazon's FC footprint?

Amazon gives every FC a designator or name that we call it's "Amazon Code" - these are usually three letters and a number and tend to use airport codes as a base and then a number for the sequential order they were opened.  For example, the FCs in Northern Kentucky use the CVG designator (CVG1, CVG2, CVG3), because they are near the CVB Cincinnati airport.  CVG1 was opened before 2, etc.  Sometimes Amazon closes an FC and you'll see the first FC in an area starts with a 3,4,5.  That indicates that 1, 2, etc. are no longer operational.  In a couple of cases, the FCs code share. For example, in Seattle, SEA7/SEA8 appear to be the same facility, but SEA7 is the part of the FC that is for normal goods and SEA8 is for refrigerated groceries.  In this example, Amazon gives them two codes to avoid confusion.

Also, Each FC can have a bunch of other features such as:

  • Is the FC open for FBA or 1P only?
  • What's the size of the FC (we standardize on sq-ft)
  • Is the FC designated for small items, large, or all types?
  • Is the FC used for returns?
  • Is the FC used for cross-shipping or replenishment (for cross shipping to other FCs in the network)
  • Does it have product specific features such as refrigeration or a fashion area (irons and hanger type setup)?
  • Amazon acquired Kiva last year and some of the facilities (particularly the 2013 build-outs) appear to be using those systems vs. miles of conveyors and hundreds of runners.

In this post we only go into the big picture items such as city/state/code/fba?/sq-ft, there is a site that tracks more detail available here.  Also, we do not include most Zappos or Quidsi FCs in these details.  It's not clear if Amazon has 100% assimilated them (meaning they ship non Zappos/Quidsi items) or not.  One of the ones we list in KY has a Zappos name, but appears to have been converted to a multi-purpose Amazon FC.

Here is the summary data of Amazon's FC US network: (A map and complete list are provided in Appendix A.)

  • In the US, Amazon has 46 FCs representing 36.6 million sq-ft.
  • In 2013/14, Amazon has announced 8 more FCs for a total of 8.3 million sq-ft
  • This will bring the US total to 54 FCs, representing 45 million sq-ft

For non-domestic: (note it is harder to find reliable FC size information outside the US so these are quite conservative) A map and list are provided in Appendix B.

  • Non-domestically, Amazon has 43 FCs representing 20 million sq-ft.
  • In 2013/14, Amazon has announced 5 more FCs for a total of 4 million sq-ft
  • This will bring the non-domestic total to 48 FCs, representing 24 million sq-ft

Putting those together we get a global FC network that has:

  • 89 total FCs operational representing 56.6m sq-ft
  • 13 FCs coming in 2013/14 for an additional 12.3m sq-ft
  • Total FC announced network of 102 FCs, ~70m sq-ft

Numbers like these are hard to put in perspective.  One comparison is Wal-mart, who has one of the World's largest logistics systems.  Walmart has 158 distribution centers in the US alone.  So Amazon's US footprint is 1/3 Walmart's US footprint.  It's a bit apples and oranges because Walmart is shipping pallets around and to stores, whereas Amazon is storing singles and shipping to consumers, but you get the general idea.

Interactive map of Amazon's US FC Network

Here is a map that shows the US Amazon FC network (a table is provided in Appendix A ):

View Amazon US FC Map - Amazon Strategies in a full screen map

Interactive map of Amazon's Non-Domestic FC Network

Here is an interactive map that shows the non-domestic Amazon FC network:

View Amazon non-domestic Fulfillment Center Footprint in a full screen map

How many of the top US cities does Amazon cover with it's FC network?

One thing you notice when you look at the maps is that Amazon has 'clusters' of FCs around certain areas.  For example, Kentucky has a lot of facilities, but you don't see any in Florida.  That distribution got me thinking about how Amazon's FC footprint maps against the top population centers.  In this table, I list the top 15 metros according to the 2011 US Census to see if Amazon has them 'covered' (a FC basically in their back yard) or not:

Amazon_fc_footprint_census_metros

Interestingly, within the top 15 metros, there are only three metros that Amazon doesn't have covered already or in process - especially with the California and NJ buildouts currently under way.  The three are Miami, Atlanta and Detroit.

Conclusions

Amazon's massive network of 102 global FCs providing over 70m sq-ft of scale.  They cover 12/15 top US metros.  Of the 102 FCs, 13 are set to open in 2013/2014.  We'll be watching this on a quarterly basis as we get a lot of questions about the FC network.

While it is hard to find any definitive lists of online and offline retailers and the sizes of their logistics capabilities, 

Scot's favorite Amazon FC videos and photos from around the web

As recently as 18 months ago it used to be near impossible to find any pictures or video of the inside of an Amazon FC.  As Amazon has increased the US buildout and worked with local governments on incentives, more video has found it's way out.  Before we get to video though, here is a slide show of my favorite FC images.  I find that these really help give context to what a 1,000,000 sq-ft building looks like.

  • 1m sq-ft is the same as about 22 acres
  • 1m sq-ft is the same size as 18 football fields

This interactive slideshow has ~20 of my favorite images from flickr and other image sites of Amazon's FCs.

 

Videos:

I'm from South Carolina and went to school in Columbia, so this one hits close to home.  This video is from when Amazon formally opened the FC in Cayce/West Columbia (not embeddable). 

VIDEO: Amazon's new SC FC

This one is very old - from 2008, and is interesting because a) it stars a monkey and b) the FC isn't near the scale and complexity you saw in the pictures above.

 

Here's a good one, CNN did a 2010 feature called 'Inside one of Amazon's busiest days'.  My favorite part is when the talent grabs a product and the Amazon guy kind of freaks out. Favorite quote: "so it's all about software!"

OMG it's 1D in a FC!

FBA promo video

This is a really good current one from Q4 12 from a NY local news station.  It has some nice shots of one of the giant 1.2m+ sq-ft FCs in Phoenix (PHX5/PHX6/PHX7).

 

If you are interested in the KIVA robot system, here's Mick giving a really good walk-through of a day in the life of a Kiva robot here:

VIDEO: KIVA ROBOT TALK THROUGH

Appendix A*: Amazon's US FC network:

 

CountAmazon CodeCityStateLaunchedSQ-FTStatusFBA?
1 PHX3 Phoenix AZ 9/1/07 1,000,000 Open Y
2 PHX5 Goodyear AZ 5/1/07 1,400,000 Open Y
3 PHX6 Phoenix AZ 10/1/10 1,200,000 Open Y
4 PHX7 Phoneix AZ 9/1/11 1,200,000 Open Y
5 ONT2 San Bernadino CA 10/1/12 950,000 Open Y
6 TBD Tracy CA 5/1/13 1,000,000 Future TBD
7 TBD Patterson CA 11/1/13 1,000,000 Future TBD
8 PHL1 New Castle DE 11/1/97 202,000 Open Y
9 PHL3 New Castle DE 1/1/00 1,000,000 Open Y
10 PHL7 Middletown DE 10/1/12 1,200,000 Open Y
11 IND1 Whitestown IN 8/1/08 1,000,000 Open Y
12 IND2 Planfield IN 10/1/08 942,500 Open Y
13 IND3 Plainfield IN 10/1/08 1,000,000 Open Y
14 IND4 Indianapolis IN 5/1/11 902,850 Open Y
15 IND5 Plainfield IN 8/1/11 925,800 Open Y
16 IND6 Jeffersonville IN 10/3/12 1,000,000 Open Y
17 TUL1 Coffeyville KS 4/1/99 750,000 Open Y
18 CVG1 Hebron KY 5/1/05 427,200 Open Y
19 CVG2 Hebron KY 12/1/05 543,000 Open Y
20 CVG3 Hebron KY 7/1/07 711,400 Open Y
21 LEX1 Lexington KY 11/1/00 604,000 Open Y
22 LEX2 Lexington KY 5/1/06 380,000 Open Y
23 SDF1 Campbellsville KY 5/1/99 770,000 Open Y
24 SDF2 Louisville KY 9/1/05 110,000 Open Y
25 SDF4 Shepherdsville KY 9/1/05 1,000,000 Open Y
26 SDF6 Shepherdsville KY 9/1/05 1,000,000 Open Y
27 BOS1 Nashua NH 7/1/07 63,750 Open N
28 TBD Robbinsville NJ 7/1/14 1,000,000 Future TBD
29 TBD TBD NJ 7/1/14 1,000,000 Future TBD
30 LAS2 Las Vegas NV 10/1/08 283,920 Open Y
31 RNO1 Fernley NV 1/1/99 786,000 Open Y
32 ABE2 Breinigsville PA 7/1/10 600,000 Open Y
33 ABE3 Breinigsville PA 6/1/11 997,400 Open Y
34 AVP1 Hazleton PA 7/1/08 630,000 Open Y
35 PHL4 Carlisle PA 11/1/10 558,700 Open Y
36 PHL5 Lewisberry PA 8/1/10 750,000 Open Y
37 PHL6 Carlisle PA 8/1/10 1,206,500 Open Y
38 CAE1 Cayce SC 9/1/11 1,000,000 Open Y
39 CAE2 Spartanburg SC 10/1/12 1,000,000 Open TBD
40 BNA1 Lebanon TN 9/1/11 449,000 Open Y
41 BNA2 Lebanon TN 10/1/12 1,000,000 Open Y
42 BNA3 Murfreesboro TN 10/1/12 1,000,000 Open Y
43 CHA1 Chatanooga TN 9/1/11 1,000,000 Open Y
44 CHA2 Charleston TN 9/1/11 1,200,000 Open Y
45 TBD Schertz TX 9/1/13 1,260,000 Future TBD
46 TBD Coppell TX 11/1/13 1,000,000 Future TBD
47 TBD Haslet TX 8/1/13 1,000,000 Future TBD
48 BWI1 Sterling VA 10/1/10 1,000,000 Open N
49 RIC1 Petersburg/Dinwiddie VA 10/1/12 1,000,000 Open Y
50 RIC2 Chester/meadowville VA 10/1/12 1,100,000 Open Y
51 BFI1 Sumner WA 5/1/11 500,000 Open Y
52 SEA6 tbd WA 8/1/07 313,300 Open N
53 SEA8 Bellevue WA 8/1/07 - Open N
54 TBD Dupont WA 11/1/13 1,000,000 Future TBD

 

Appendix B*: Amazon's non-domestic FC network:

  Appendix B Amazon's non-domestic FC network

*Source: MWPVL International Supply Chain Experience 

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