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Amazon is to insert an extra layer of warehousing in its parcel distribution infrastructure, between its fulfilment and distribution centres.
It has started trials with clients of its Fulfilment by Amazon (FBA) programme, feeding fulfilment centres “from upstream, for more seamless replenishment”.
“These new facilities are essentially for inventory staging,” said Rick Watson, founder and CEO of RMW Commerce Consulting. “Amazon wants to optimise them for holding inventory.”
John Haber, CEO of parcel logistics consultant Spend Management Experts, said the move would reduce the time to shift inventory to fulfilment centres and estimates that the upstream warehouses will be located within a day’s drive of these.
Amazon said: “Our system will automatically replenish inventory from upstream storage into Prime-ready fulfilment centres.” It added it came with “simple, pay-as-you-go pricing, plus low storage costs”.
It told FBA clients storage costs in the new facilities would be, on average, between 47% and 63% lower than in its fulfilment centres.
Mr Haber reckons the upstream facilities will have relatively little investment in automation, compared with fulfilment centres. Moreover, they are not likely to be located in urban centres, so land costs should be lower too.
According to some reports, the trials work with imports from Hong Kong and China shipped by ocean carriers through Amazon Global Logistics. As the new facilities offer significantly more storage space than fulfilment centres, this should allow FBA users to keep larger inventories in the US, noted Mr Haber.
One new facility in Minnesota that has been identified as an upstream warehouse for the programme has a footprint of 517,000 sq ft – “That’s more than most companies’ distribution centres,” said Mr Haber.
Mr Watson believes the concept is of “significant operational importance” to Amazon, and added: “Over the past two years, Amazon has been really constrained by capacity in its warehouses.
“Things in FBA facilities have to move extremely quickly. You can’t afford to store products [in fulfilment centres].”
Ands FBA users, Mr Watson thinks, will welcome the expanded storage capacity.
“Anything that alleviates capacity constraints is welcome in the market,” he explained.
However, he doesn’t think the concept is so revolutionary that people will rush to sign up for it. One constraint is that goods in upstream Amazon facilities can only be moved to its fulfilment centres, not to other distribution or drop-off points, or alternative final-mile channels, according to one report.
Amazon has not indicated how long the trials will last or how many upstream warehouses it intends to set up if the concept does go ahead. And the need for more storage capacity, coupled with Amazon’s play for shorter delivery windows, suggests the project will likely receive a green light.
And Mr Haber expects this to be taken up by other players as well.
“I think you’ll see Amazon won’t be the only one doing this. Some 3PLs are already doing this kind of stuff. UPS mentioned it was looking at something similar.”