Amazon Supply Chain Journey Case study

5.2 Proximity

One of Amazon’s most radical departures from traditional retail was the idea that customers shouldn’t have to wait days for products that could be stored locally. In the 1990s and early 2000s, most e-commerce companies operated large, centralized warehouses. Orders were picked, packed, and shipped hundreds or even thousands of miles, resulting in long lead times.

Amazon decided early that proximity was power. This conviction led to the gradual development of regional Fulfillment Centers. For example, by the late 2000s, Amazon had built FCs near major population centers like Dallas, Chicago, and Los Angeles.

In the 2010s, the company began layering additional infrastructure: Sortation Centers and Delivery Stations, further breaking down inventory closer to the last mile.

By 2019, Amazon launched Same-Day Fulfillment Centers—smaller, hyper-local warehouses stocked only with the fastest-moving SKUs. This allowed orders placed by noon to arrive by dinner time.

A vivid illustration of this came during the COVID-19 pandemic. As lockdowns were imposed in March 2020, e-commerce volumes surged. Competing retailers struggled to fulfill orders because their inventory was consolidated in a few hubs. Amazon’s distributed model allowed it to reroute shipments dynamically and keep delivery times relatively consistent. In a letter to shareholders, Jeff Bezos noted that the company had achieved “weeks’ worth of growth in a matter of days.”

5.3 Predictive Inventory Positioning

The engine behind this proximity is predictive positioning, an approach that uses massive data volumes to forecast demand and move products closer to where they will likely be ordered.

For example, Amazon’s machine learning models analyze:

• Search behavior (e.g., customers browsing for a specific model of headphones).
• Purchase trends in similar ZIP
• Seasonal buying
• Social media mentions and external news

When signals indicate rising demand for a product, Amazon pre-positions inventory in Fulfillment Centers nearest likely buyers—before a single order is placed. This practice is sometimes called anticipatory shipping, and Amazon filed a patent for it in 2013.

A notable incident occurred during the launch of the Echo Dot in 2016. Early marketing campaigns triggered a spike in searches and pre-orders. Amazon’s algorithms recognized this trend and began shipping units to Sortation Centers in anticipation of same-day orders. When customers in Boston and San Francisco placed orders on launch day, inventory was already sitting minutes away, allowing deliveries within hours.

5.4 Safety Stock & Service Level Target

While many companies optimize inventory to minimize carrying costs, Amazon emphasizes

service level targets—the probability that a product is in stock when a customer wants it.

The company’s internal benchmarks often exceed 99% in-stock rates for top-selling SKUs. Maintaining this requires holding significant safety stock, especially for items that are:

• High velocity (e.g., iPhone accessories).
• Critical to the Prime
• Seasonal (e.g., holiday decorations).

This approach was critical during COVID-19. As demand for essentials surged, many competitors ran out of stock. Amazon, while not immune to shortages, was able to maintain relatively higher availability due to pre-existing safety stock buffers. For example, during March and April 2020, the company prioritized inventory replenishment for household staples and medical supplies, suspending shipments of non-essential goods to keep FC capacity focused.

5.5 Replenishment & Vendor Managed Inventory

Amazon operates a highly automated replenishment engine. For many first-party products, the system:

• Monitors sales velocity in real
• Calculates reorder
• Places purchase orders automatically with

Additionally, Amazon uses Vendor Managed Inventory (VMI) relationships, where suppliers are responsible for maintaining agreed stock levels within Amazon’s facilities. This model improves responsiveness because suppliers can see their sell-through data and adjust shipments proactively.

For example, Procter & Gamble has VMI arrangements with Amazon. During the early pandemic phase, as demand for cleaning supplies spiked, P&G was able to accelerate replenishments because its teams had full visibility into Amazon’s stock levels and sales data.

5.6 Inventory Optimization

Amazon’s inventory strategy incorporates multi-echelon optimization, which means managing stock not only within a single warehouse but across the entire network.

This involves:

• Balancing inventory between regional
• Pre-staging in Sortation Centers and Delivery
• Accounting for lead times between

One illustrative case occurred during the 2017 hurricanes in Texas and Florida. Amazon dynamically rerouted inventory from unaffected regions to maintain service levels in the Southeast. By leveraging data from its Transportation Management System and predictive analytics, the company minimized disruption and quickly restored normal delivery speeds.

5.7  The Prime Imperative

If there is a single force shaping Amazon’s inventory strategy, it is Prime. Prime membership— launched in 2005—committed Amazon to free two-day delivery on millions of items, a radical promise at the time.

Over time, Prime evolved to offer one-day and same-day delivery, raising the bar for inventory positioning. In 2019, Amazon announced that it would invest $800 million in a single quarter to make one-day delivery the default for Prime customers in the U.S.

This shift required:

• Splitting inventory into smaller batches spread across dozens of
• Increasing inventory carrying
• Investing in faster replenishment

However, the payoff has been enormous. According to analysts, Prime members spend more than twice as much annually as non-Prime customers. Maintaining inventory close to the customer sustains this loyalty.

5.8 Covid19-Stress Test of The Inventory Model

The pandemic offered a rare real-time case study of Amazon’s inventory resilience. When lockdowns began:

• Demand for non-perishable food and household goods
• Fitness equipment and home office supplies
• Some SKUs saw sales increases of over 500%.

While many retailers rationed orders or posted out-of-stock notices, Amazon rapidly adjusted:

Prioritizing FC capacity for essentials.

• Temporarily restricting inbound shipments of low-priority
• Reallocating inventory between

Even so, the company faced unprecedented strain. Prime delivery times extended beyond two days for many products. Jeff Bezos warned customers in his shareholder letter that delays would persist as Amazon balanced employee safety with fulfillment volume.

This incident underscored the challenges of balancing cost efficiency, resilience, and customer expectations.

5.9 The Trade-Offs Of Proximity

While bringing inventory closer to customer’s yields faster delivery, it also introduces complexity and higher costs:

• More FCs require more stock
• Demand volatility increases the risk of misallocated
• Rebalancing stock between FCs incurs transportation

Amazon manages these trade-offs by continuously refining its forecasting algorithms and by maintaining flexible transportation capacity (e.g., Amazon Air).

5.10 Returns & Inventory Recovery

Returns represent a significant aspect of inventory management. Amazon has invested heavily in

reverse logistics to recapture value:

• Returned items are scanned and
• Resellable items are re-entered into active
• Damaged or used goods are refurbished or
• Donations are channeled through the FBA Donations

This system allows Amazon to maintain higher inventory efficiency despite high return volumes—especially in categories like apparel and electronics.

5.11   Inventory Visibility & Customer Experience

A crucial differentiator is inventory visibility for customers. When a buyer views a product page:

• The system shows delivery date estimates based on the exact inventory
• If inventory is low, the site displays messages like “Only 2 left in stock—order ”
• Real-time updates track fulfillment progress post-

This transparency builds trust and encourages faster purchasing decisions.

5.12 Real-Time Inventory Rebalancing in Crisis Scenarios

One of the most compelling aspects of Amazon’s inventory management is its ability to

rebalance inventory on the fly, particularly during disruptive events.

A notable example came during the 2015 West Coast port congestion, when a protracted labor dispute slowed the movement of shipping containers at the ports of Los Angeles and Long Beach. This crisis threatened to choke off inventory flow to Amazon Fulfillment Centers on the West Coast.

Rather than accept weeks-long delays, Amazon activated contingency plans:

• Redirecting inbound containers to Gulf Coast and East Coast
• Expediting cross-country intermodal
• Using air freight for high-velocity SKUs like consumer

These measures incurred higher transportation costs, but they kept Prime delivery promises intact for millions of customers. Even as competitors saw their stock outs balloon, Amazon maintained fulfillment rates above 95% for top-selling products.

This incident highlights a recurring theme: inventory proximity and resilience are expensive but can be decisive competitive advantages.

5.13 The Role of Third-Party Sellers and FBA Inventory Strategy

Another essential element is how Amazon manages inventory in partnership with its Fulfillment by Amazon (FBA) sellers.

FBA allows independent merchants to send their products into Amazon’s Fulfillment Centers, where inventory commingles with Amazon’s own stock and is eligible for Prime delivery. This model creates both benefits and challenges:

Benefits:

• Dramatically expands product selection without requiring Amazon to purchase
• Increases utilization of warehouse
• Enables faster scaling of new categories and

Challenges:

• Complexity in demand forecasting across millions of small
• Higher likelihood of overstocking slower-moving
• Need for real-time reconciliation of ownership and

To manage this, Amazon uses restock recommendations driven by predictive algorithms. Sellers see dashboards advising optimal inventory levels, timing, and replenishment quantities.

During COVID-19, Amazon temporarily suspended inbound shipments for FBA items not deemed essential. Many sellers were forced to pivot to Merchant Fulfilled Network (MFN) fulfillment or to redirect stock to alternative carriers. While controversial, this decision demonstrated Amazon’s willingness to prioritize core inventory categories critical to customer needs.

5.14 Seasonal Inventory Planning

Seasonality is a major factor in Amazon’s inventory model. The fourth quarter, encompassing Black Friday and the holiday peak, often generates as much as 30–40% of annual sales.

To prepare: Amazon begins inventory planning in Q2, working with suppliers to lock in production capacity.

• Safety stock levels are increased across all Fulfillment
• Sortation Centers expand operating
• Additional warehouse space is leased
• Delivery Service Partners and Flex drivers are recruited in

In 2020, amid the pandemic, holiday inventory planning was especially challenging. Global supply chains were still strained, but consumer demand was unpredictable. Amazon mitigated risks by:

1. Diversifying suppliers for critical
2. Chartering additional cargo

• Launching an early holiday sales event in October to flatten peak

This proactive approach allowed Amazon to sustain fulfillment performance while competitors were often overwhelmed.