1. Supply Chain Planning and Optimization
Harish Abbott
Program Manager, Strategic Planning & Optimization
Amazon.com
Informs/Dash – May. 4, 2003

2. What you will hear Amazon.com Supply Chain Planning and Optimization
Broad selection and best customer experience
Products, platform, and fulfillment network
Amazon.com supply chain
Supply Chain Planning and Optimization
Operations Research applications
Real time fulfillment optimization
Facilities location models

3. Be The First Place People Come to Look for *Anything*
Amazon.com
Earth’s Biggest Selection
The place where people can find, discover, and buy anything they want to buy online
Earth’s Most Customer-Centric Company
Start with the customer and work backward
Be The First Place People Come to Look for *Anything*

4. One Platform - Countries / Products / ServicesUS UK DE FR JP CA
Books
Music
DVD/Video
Video Games
Software
Electronics
Marketplace
Toys
Tools
Kitchen
Baby
Books
Music
DVD/Video
Video Games
Software
Electronics
Marketplace
Toys
Books
Music
DVD/Video
Video Games
Software
Electronics
Marketplace
Books
Music
DVD/Video
Video Games
Software
Books
Music
DVD/Video
Video Games
Software
Books
Music
DVD/Video
P A R T N E R S: Borders, Target.com, Toys-R-Us, Office Depot
Fulfillment / Customer Service / Technology

5. Amazon.com Platform driving sales for partners
Customer Experience
Scale,
Reach
Partners
More Customers
Amazon.com
Brand
Customers
Technology
Know-How
Fulfillment
Benefits Build for Partners and Customers

6. The Objective: Leadership at Every Point
Growth - The Drivers
Our Virtual Cycle
Growth
Selection
Traffic
Customer
Experience
Sellers
Lower Cost
Structure
Lower
Prices
The Objective: Leadership at Every Point

7. Growth and Operating Expenses
Revenue ($M)
Operating Expense

8. Amazon.com Supply Chain
Physical Store
Amazon.com
HQ / Distribution Centers
Stores
Inventory
Different Business, Less Capital, More Speed

9. Amazon.com Supply Chain
AMZN FC’s
Inject to Hub
Manufacturers/ Publishers
Customers
Carrier Hub
Carrier Hub
Distributors
Carrier Network (Airborne, FedEx, UPS, USPS)
Drop-Ship Partners
Multiple fulfillment methods and optimization opportunities

10. Amazon.com Fulfillment Network
AMZN Fulfillment
Drop Ship
Transportation Hub .

11. Operations Research at Amazon.com
Forecasting
Inventory management
Merchandising
Network planning
Facility location models
Capacity planning
Product allocation and transportation optimization
Drop ship planning & forecasting
Real time fulfillment
Strategic and tactical decision support
Space management models
Fulfillment center process optimization
Picking
Sorting

12. Real Time Fulfillment Optimization
Given the state of the supply chain at order time, determine the minimum cost method of fulfilling each customer order while meeting customer expectations.
Why?
Optimize economics for each order
Balance network (labor and inventory)
Meet or exceed customer expectations
Provide immediate order promises
ship promise
delivery date

13. Real Time Fulfillment Example
Scenario: A customer in Los Angeles orders 2 books, one of which is in stock within the Amazon network, but the other is only available at the distributors.
Book Title
RNO
TUL
SDF
LEX
PHL
IBRO
IBFW
IBLV
IBEW
The Complete Winnie the Pooh 20 8 10 15 83 95 80 5
Beatrix Potter’s Nursery Rhyme Book 40
Fulfillment Options
Transportation
D Product Margin
Handling
Total Cost
Source Nursery Rhymes from distributor and ship both from RNO together
$ 2.50
$ 0.90
$ 1.90
$ 5.30
Ship one book from RNO and drop ship the other from IBRO
$ 2.25
+ $ 2.90
$ 1.30
+ $ 0.75
$ 8.10
Drop ship both books from IBRO
$ 3.25
$ 1.80
$ 1.00
$ 6.05
All costs have been perturbed, preserving only order of magnitude of tradeoffs.
Complexity Challenges
Real time – 500 milliseconds
Problem size:
Larger orders: 2n-1 shipments
More drop ship locations
Modeling Challenges
Uncertainty
Will the sourced book arrive on time?
What should we do if it doesn’t?
What is the value of faster delivery?

14. Uncertainty Modeling Current State Next Steps
Deterministic assignment problem with manipulated data
Safety factor on arrival times and delivery times
Recourse actions not considered during assignment
Safety factors optimized offline
Tradeoff service level and cost
Next Steps
Improve performance to handle complexity
Enhance model using stochastic space time
Expand network: additional drop shippers, more supply chain visibility
More accurate promises
Incorporate uncertainty directly
Increase visibility upstream
Improve prediction of downstream systems actions
Manage the fulfillment plan over time as status of information changes
When should we take action?

15. Full Case, Non Conveyable Facility Location
Full Case, Non Conveyable Products (FC/NC)
Big and bulky (Kitchen, Toys, Electronics..)
Ships in its own box
Offsite
Manual processing
Low overhead and lead time for commissioning
FC/NC Items can be modeled separately
Optimal number and location of fulfillment centers for FC/NC Items and respective demand allocations.
Q4 demand surge
Injection lanes
Inventory availability

16. Model & Implementation
Constrained facility location model
Binary variables for injection lanes
Transferred to business users
Configuration Files
Data Files/DB
Zone and Rates Data
Shipping Module
Data Generation Module
Optimization Model
Output Files
Results Interpreter
Scheduler

17. Data – Example Capacity constraint : 400 FC-NC Units/FC/day
Demand Density(Units/sq mile) Distribution
Forecasted Demand on Peak Day (FC-NC)
Capacity constraint : 400 FC-NC Units/FC/day
Injection lanes
Minimum of 70 units (per FC/day)
Minimum line haul $50/line haul
$0.12/unit/mile (for each line haul )

18. Impact of additional nodes on fulfillment cost

19. Summary Amazon supply chain is very broad
Scalable optimization solutions critical to success
OR helps design and maintain lower cost structure
Real time fulfillment optimization
Scalability and complexity driving new methods
Enhance model to explicitly incorporate uncertainty
Facility location models for fc/nc
Engineering enables quick capacity expansion
Optimization pinpoints the best location for expansion