The Role of Sustainable Supply Chain in Amazon’s Success

 

Abstract

As the industry leader in this space, Amazon wants to ensure that products are as sustainable as possible. Amazon sources materials from certified and compliant suppliers regarding sustainability standards and continually assess the practices’ impact on the environment and customers.  Nowadays, there is a lot of competition between the companies active in the retail industry over the speed of processing orders; therefore, each of the big companies in this field is improving their order processing to manage more orders to obtain more market share. Some projects in Amazon are being studied and implemented, as the KIVA project and the project of delivering goods to customers via drones have had significant impacts on increasing customer satisfaction and increasing order processing capacity. Although this project has incurred a considerable cost for the company, it has been able to compensate for this cost by providing better and more service to customers. In this case, Amazon utilizes the most efficient and cost-effective way to store products in their warehouses. In addition, Amazon has established various agreements with freight carriers to ensure that products are delivered to customers promptly. As for pricing and inventory management, Amazon continuously updates its prices and manages its inventory to reduce costs and meet customer demands. This combination of warehousing, inventory management, pricing, and delivery times creates a highly efficient supply chain that enables Amazon to maintain competitive prices and provide customers with an excellent shopping experience. A sustainable supply chain in Amazon creates strong relationships between different stakeholders. This includes practical strategies for reducing environmental impacts, ensuring workers' rights are respected, and managing the supply chain to benefit all. Amazon has made sustainability one of its core values and is actively working to develop a highly efficient and responsible way of producing and delivering goods. A big part of this is looking into the lifecycle of products and determining how to reduce emissions and waste. Providing a high-quality product with minimal environmental impact is our goal. By doing this, Amazon aims to create a more sustainable future for future generations.

Keywords: Amazon, Supply Chain, Sustainable

 

Introduction

            Amazon is an American multinational company specializing in e-commerce, cloud computing, artificial intelligence, and digital streaming. As one of the most successful companies in the world, Amazon sticks with a sustainable supply chain and is considered the most significant corporate buyer of renewable energies. The company’s goal for the products and services is to be provided in a way that respects human rights and the environment. The significant growth of Amazon suggests something big is happening, and every business needs to understand what is behind it. The supply chain standards detail the requirements and expectations for suppliers, supply chains, and selling partners who list products in the stores. All the listed subjects are grounded in continuous improvement, principles of inclusivity, and supply chain accountability, and this sustainable supply chain will be broken down in this study (Sofiah & Aisyah, 2022).

 

Literature Reviews

            There are several successful companies with the sustainable supply chain in the world. These companies improved the business and kept the sustainable supply chain in some aspects. Although they cannot be considered firms with a fully sustainable supply chain, some efforts, in this case, will be mentioned.

            Tesla is one of the leaders in increasing sustainable transportation. This company has zero emissions in electric cars, significantly reducing greenhouse gas emissions. In 2021, the global fleet of Tesla vehicles, solar panels and energy storage enabled Tesla's consumers to avoid emitting 8.4mn metric tons of CO2e. Tesla has also implemented sustainable practices throughout its manufacturing processes, such as using recycling materials and renewable energy sources up and down the chain (Ozsevim, 2023).

            The second company that is considered a company with a sustainable supply chain is IKEA. The globally recognized furniture retailer has implemented sustainable practices throughout its supply chain. The company uses renewable energy sources, including solar power and wind, for its manufacturing and transportation processes. IKEA also claims to source all necessary wood and paper products from sustainable sources shortly. In addition, Ikea has implemented recycling programs for its products at the end of its life (Ozsevim, 2023).

            Another company that has prioritized sustainability in its operations is the notable sportswear manufacturer Adidas. This company has committed to using more sustainable materials in its products, including sustainable cotton and recycled polyester. They have also implemented sustainable practices in their transportation and manufacturing processes. In addition, Adidas has launched programs to improve the sustainability practices of its suppliers to make sustainability reach its scope three emissions (Ozsevim, 2023).

            Ford, the automotive manufacturer, is one of the most successful companies in business history. Ford has implemented sustainable practices throughout its operations and has launched a program to reduce the environmental impact of its vehicles, such as improving fuel efficiency and reducing greenhouse gas emissions. They have also implemented sustainable practices in its manufacturing processes, using recycling materials and renewable energy sources. As a company with 4-6 million cars sold yearly, these sustainable practices will reasonably impact the environment (Ozsevim, 2023).

            The last example is Coca-Cola, which has implemented sustainable practices in its manufacturing and distribution processes. The company made 90% of its packaging to be recyclable globally, where viable infrastructure exists. They also have set a goal to replenish 100% of the water they use in the beverages and production processes, with 61% of the equivalent cans and bottles they introduced into the market in 2021 being collected for recycling or reuse (Ozsevim, 2023).

 

Objectives

     Sustainability has become a critical consideration for companies like Amazon that operate globally. One of the world's largest retailers, Amazon's environmental impact is significant, and the company has recognized the importance of sustainability initiatives in its operations. By implementing environmentally conscious practices such as reducing waste, using renewable energy, and promoting sustainable products, Amazon aims to reduce its carbon footprint and contribute to a more sustainable future. These efforts benefit the environment and help the company gain a competitive advantage by appealing to socially conscious consumers (Cook, 2022).

• Reduce Carbon Footprint: By utilizing renewable energy sources and improving its shipping system, Amazon hopes to cut down on its carbon footprint. By 2040, the corporation hopes to achieve carbon neutrality.

• Utilizing less trash: Recycling more and conserving energy and water are all things Amazon wants to do to be environmentally friendly. Renewable energy and cutting-edge technology are used to improve productivity and cut waste.
• Its employees, clients, and communities are paramount to Amazon. In addition, it recognizes the importance of social responsibility, achieving ethical sourcing, respecting human rights, and following fair labour practices are priorities for the business.

• Sustainable Products: Amazon sells green products like organic food, energy-saving electronics, and packaging. By supplying consumers with environmentally friendly resources and tools, the business encourages them to make ethical decisions.

 

            Continuing with the trend of innovation and technological advancement, some great projects aim to make life easier and more efficient. One such project is the KIVA project, which aims to revolutionize how goods are delivered in warehouses. Another project that has been making headlines is Amazon's delivery of goods to customers via drones. With these projects, it is clear that the future of logistics is set to become more automated and technologically advanced than ever before. Prime Air service is one of the examples of innovative solutions in logistics. These projects aim to revolutionize how goods are transported and delivered, providing faster and more efficient customer service worldwide. While the KIVA project focuses on utilizing robots and automation to streamline the process of order fulfillment, Amazon Prime Air is developing delivery drones that can fly packages directly to customers' doors. With these types of innovations, the logistics industry is primed for significant growth and change in the years to come (Swedha & Dubey, 2018).

 

Hypothesis

• Using renewable energy and lowering its carbon footprint is how Amazon can positively impact the environment. By doing so, the company's ecological footprint can be reduced, and the effects of climate change can be mitigated.

• The reduction of waste and resource efficiency in Amazon's operations can lead to cost savings on electricity, water, and raw materials. Ultimately, this can help the business become more profitable and competitive.

• Enhanced Brand Reputation: Amazon can enhance its brand reputation and attract more customers by displaying its dedication to sustainability and social responsibility. Sales and customer loyalty may rise as a result.

• Increased Innovation: By investing in environmentally friendly technology and goods, Amazon can foster innovation and open new business prospects. This can aid in the business's ability to flourish and stay ahead of the competition.

 

Methodology

            Adopting decentralized warehouses or micro fulfilment centers, which can aid in same-day or next-day delivery, is another trend in warehousing. The pioneers in implementing Micro fulfilment centers are grocery stores. In 2025, micro-fulfillment facilities are predicted to fulfil 8% of all US online grocery transactions (Girija et al., 2021).

            AMRs were first used by Amazon, the leader in warehouse robots. When heavy lifting of products was required, this tactic aids in preventing accidents and encouraging employees' safety in the warehouse. It intends to devote more than $300 million by 2025 to safety initiatives, including autonomous mobile robots (AMRs) (Girija et al., 2021).

            The SWOT analysis comprehensively studies Amazon RaaS (Robotics as a Service). Amazon has unquestionably increased its productivity and security, and by utilizing Amazon Robots, it can now automate inventory movement at Amazon fulfilment centers. Artificial intelligence and machine learning (ML) are used to construct Amazon Robots, which automate vital warehouse functions (Girija et al., 2021).

            The Little Orange Robot, also known as the Kiva robot, is the busiest worker at the Amazon fulfilment centers and can move shelves or pods across the warehouse for quicker and less expensive picking and stowing (Girija et al., 2021).

            Two significant obstacles that might impact the warehouse robotics market are a lack of education about working with robots and job displacement. Below is the result of Amazon robot’s SWOT analysis (Girija et al., 2021).

Drones

            Amazon intends to utilize them in the final mile of package delivery from the warehouse to the customers. Currently, they are in the testing stage. These drones have a 15-mile range and can carry 5 pounds. However, before they are incorporated into delivery services, they will undergo additional testing in the upcoming years (Sudbury & Hutchinson, 2016).

            Amazon's profit margins have decreased in recent years because of growing delivery costs brought on by rising petrol prices. Currently, FedEx, UPS, and the postal service are used by Amazon to distribute their deliveries. Amazon eliminates the need for a delivery service by using drones to deliver packages directly to customers' doorsteps. This will replace the current delivery fees charged by UPS and FedEx, including profit. Amazon obtains the chance to increase profits or decrease consumer costs. Drones also save labour expenses by taking over a large portion of ground delivery labour. Only operational management and drone maintenance will require human labor (Sudbury & Hutchinson, 2016).

            Referring to models of eighth and ninth-generation drones, each drone will weigh less than 55 pounds, fly at up to 50 mph, carry items weighing no more than 5 pounds, and deliver packages up to 10 miles from a drone station. This radius can be covered in 12 minutes at a speed of 50 mph:

            A drone can do a roundtrip flight in 24 minutes at most. For example, a drone can transport delivery to a maximum distance and return in 30 minutes (24 minutes of flight time plus 6 minutes for acceleration and deceleration, loading and unloading of items, and ascent and descent). The total time required is 24 minutes (9-minute flights to and from the delivery place + 6 minutes), assuming an average flight radius of 7.5 miles (Sudbury & Hutchinson, 2016).

            Drones replace labour and trucks with more specialized capital and labour in the manufacturing delivery services, making Amazon's drone technology a labour-saving/capital-using technology. However, due to the introduction of drone technology, manufacturing is switched from isoquant Q1 to isoquant Q2, where labour is replaced by capital and the capital-to-labour ratio is increased (Sudbury & Hutchinson, 2016).  

            Drones are used instead of vehicles in Amazon's deployment of drones to package delivery. Each vehicle needs a driver; however, computer programmers are supplied with labour for flight monitoring and piloting the drone. In addition, a single drone operator will monitor several drones (Sudbury & Hutchinson, 2016).

            Sudbury and Hutchinson’s (2016) calculation shows UPS delivery cost. They assume a UPS driver works 10 hours daily and earns $25 an hour. When petrol and taxes are considered, the cost of delivery by truck comes to about $30 per hour, but capital or maintenance costs are not included. According to a UPS driver forum, Swope discovered that a driver might deliver up to 250 parcels daily. The typical shipping fee for each product is equivalent to the following:

(Cost of driver) / (# of packages delivered) = (($30 / hour) * (10 / hoursday)) / (250 packages / day) = $1.20 / package

            This does not include the cost of shipping packages from Amazon to the UPS facility, gasoline and other transportation, or any other contractual charges. Alternatively, this computation predicts that during a drone's five-year lifespan, maintenance and other charges will cost, on average, $4,000. This data may be used to compute the price per parcel delivered with 24-hour service. The total number of parcels delivered during the past five years is (Sudbury & Hutchinson, 2016).

4,943 packages / day * 6 days / week * 51 weeks / year * 5 years = 7,562,790 packages

The total cost for three shifts of 24-hour drone delivery is equivalent to:

(Capital Cost * #Drones + Delivery Cost * #Drones) / 7,562,790 packages = Cost / package

($4,000 * 189 + $4,000 * 189) / 7,562,790 packages = $0.200 / package

The price per delivered delivery for a 12-hour shift is (Sudbury & Hutchinson, 2016):

($4,000 * 384 + $4,000 * 384) / 7,562,790 packages = $0.406 / package

            Assuming a slight decrease in maintenance and other costs to $3,000 per drone per five years because a drone delivers, on average, fewer packages:

($4,000 * 384 + $3,000 * 384) / 7,562,790 packages = $0.355 / package

These prices are per parcel for the busiest or most efficient day of delivery. Even yet, the cost of using a drone to deliver a product is about a third of the price of using UPS. The $1.20 payment does not include the cost of the car. Due to economies of scale in drone manufacture, as their commercial use grows, the drone price is projected to drop in the future. Conversely, fewer busy days result in higher drone delivery costs per product. Even yet, delivering half as many packages each day only raises the cost of a 12-hour workday's operation to around $0.80, which still represents a $0.40 cost savings per package before any concurrent drops in maintenance or other operational expenses (Sudbury & Hutchinson, 2016).

 

Findings

Amazon stands to earn significantly if the drone initiative is successful. The Company will have a significant competitive edge over online and brick-and-mortar stores. Businesses should grow because of drone deliveries' speedy turnaround and initial novelty. The study shows that drone delivery offers a cost advantage of up to one-third per item over land delivery, even if the system’s mechanics are still a mystery to anyone outside Amazon's internal operations (Sudbury & Hutchinson, 2016). On the other hand, Using drones instead of vehicles decreases fossil fuel usage and leads to more sustainable operations. Reducing natural resource usage and more attention to the Environment, Reducing wasting time, and providing more effective and precise services with fewer costs, are all parts of the benefits of this method that cause a more sustainable supply chain in Amazon (Staff, 2022).

 

Recommendations

The Amazon Company can implement the following general suggestions for sustainable supply chain practices:

• Develop sustainability standards: Amazon can create sustainability criteria and standards for its suppliers, including social responsibility, labour practices, and environmental impact.
• Conduct a sustainability assessment: Amazon could start by analyzing its supply chain to see where waste, pollution, and efficiency might be reduced. This can entail considering its energy consumption, transportation strategies, packaging materials, and waste management procedures.
• Promote circular economy practices: To cut waste and save resources, Amazon might increase the implementation of strategies like product redesign, reuse, and recycling.
• More investment in renewable energy: Amazon can invest in renewable energy sources such as solar electricity and wind to power its facilities and lessen its dependency on fossil fuels.
• Encourage suppliers to adopt sustainable practices: Amazon can collaborate with its suppliers to encourage them to adopt more environmentally friendly behaviours, such as using renewable energy, cutting waste, and improving working conditions.
• Using fully electric delivery vehicles to make operations with 100% renewable energy.

 

By implementing these recommendations, Amazon can contribute to a more sustainable future while improving its supply chain efficiency and competitiveness.

 

Conclusion

            Amazon’s sustainability initiatives and innovative projects display its commitment to reducing its environmental impact and increasing efficiency. The company's investment in renewable energy, sustainable products, and social responsibility demonstrates the importance of incorporating sustainability into business operations. As the business landscape shifts towards environmental and social responsibility, companies like Amazon prioritizing sustainability will likely become more profitable and competitive.

 

Impacts

            By implementing these initiatives, Amazon is reducing its environmental impact and increasing its efficiency, making it more competitive in the market. Adopting decentralized warehouses, autonomous mobile robots, and artificial intelligence has allowed Amazon to increase efficiency while reducing its reliance on fossil fuels. Furthermore, Amazon's dedication to sustainability and social responsibility can help enhance its brand reputation and attract more customers who prioritize environmental and social responsibility (Varsei, 2019).

 

References

Cook, A. (2022). Sustainable Supply Chain Management with Amazon. SuperDisty. Retrieved April 17, 2023, from https://www.superdisty.com/2022/08/23/sustainable-supply-chain-management-with-amazon/

Girija, P., Mareena, J., Fenny, J., Swapna, K., & Kaewkhiaolueang, K. (2021). Amazon Robotic Service (ARS). Portland State University PDXScholar. Retrieved April 14, 2023, from https://pdxscholar.library.pdx.edu/cgi/viewcontent.cgi?article=3309&context=etm_studentprojects

Ozsevim, I. (2023). Supply Chain Magazine. Retrieved April 14, 2023, from https://procurementmag.com/articles/top-10-sustainable-supply-chains

Sofiah, M., & Aisyah, S. (2022). Analysis of Supply Chain Management implementation on Amazon e-commerce. Journal of Indonesian Management (JIM), 2(2). https://doi.org/10.53697/jim.v2i2.779

Staff, A. (2022). Look back on 10 years of Amazon robotics. US About Amazon. Retrieved April 16, 2023, from https://www.aboutamazon.com/news/operations/10-years-of-amazon-robotics-how-robots-help-sort-packages-move-product-and-improve-safety

Sudbury, A. W., & Hutchinson, E. B. (2016). A COST ANALYSIS OF AMAZON PRIME AIR (DRONE DELIVERY). JOURNAL FOR ECONOMIC EDUCATORS, 16(1). Retrieved April 17, 2023, from https://libjournals.mtsu.edu/index.php/jfee/article/download/1512/1090/4144

Swedha, K., & Dubey, T. (2018). Analysis of Web Authentication Methods using Amazon Web Services. 2018 9th International Conference on Computing, Communication and Networking Technologies (ICCCNT). https://doi.org/10.1109/icccnt.2018.8494054

Varsei, M. (2019). Sustainable Supply Chain Design. Handbook on the Sustainable Supply Chain, 242–260. https://doi.org/10.4337/9781786434272.00019