Amazon.com Distribution Network

Notes:

• Definitions of facility types:
• Big sortable fulfillment centers generally house items that can all fit into one box / shipment (e.g. books, DVDs, watches, etc.)
• Small Sortable fulfillment centers generally house smaller items that can all fit in one box/shipment
• Non-sortable fulfillment centers generally house items (usually because of size) that can not be sorted into a box with other items.
• Replenishment centers  generally receive product from vendors and then move these products to and between fulfillment centers.
• Customer returns centers process all Amazon.com customer returns.
• Specialty sites fulfill specialty items sold on Amazon.com such as jewelry and clothing.
• Facilities that have been closed or converted include:
• McDonough, Georgia. Originally opened as the company’s 5th distribution center in October, 1999. This 800,000 sq. ft. fulfillment center employed 450 associates and was closed in 2001 after business slumped and cutbacks were necessary.
• Seattle, Washington:  Restructuring plans in 2001 led to this 93,000 sq. ft. distribution center being converted to a seasonal facility.
• Grand Forks, North Dakota: This 130,000 sq. ft. power tools distribution center was originally opened in 1999 when Amazon bought the catalog division of Acme Electric, a local hardware store.  Amazon closed the distribution center in March, 2005 eliminating 50 jobs, but the company converted the operation into a call center which in turn created 60 jobs.
• Red Rock, Nevada: Originally opened in January, 1999. This 322,560 sq. ft. distribution center was closed in March, 2009 as part of the closure of 3 distribution centers as the company transferred volumes to other facilities to streamline operations.
• Chambersburg, Pennsylvania: This 875,300 sq. ft. distribution center was also closed in March, 2009 as part of the closure of 3 facilities as the company transferred volumes to other distribution centers to streamline operations.
• Munster, Indiana: Originally opened in October, 2007, this 75,000 sq. ft. distribution center was also closed in March, 2009 as part of the closure of 3 facilities.
• Irving, Texas: Originally opened in 2005, this 493,290 sq. ft. facility was closed in April, 2011 after a tax fight with the state of Texas.  The Texas comptroller's office sent Amazon a demand for $269 million in uncollected sales taxes, plus penalties and interest, from 2005 through 2009.  The state contended that Amazon.com was responsible for sales taxes not collected on on-line sales made in Texas because its distribution center was in Irving.  Amazon closed the facility and 119 jobs were lost as a result.

Discussion on the Amazon North American Distribution Network:

Amazon.com’s distribution network strategy is interesting because it does not necessarily reflect an optimized distribution network in terms of serving the U.S. population from the optimal geographical location (e.g. note the conspicuous absence of existing facilities in the highly populated states of California, Texas and New York in the first map below).  Fulfillment center location decisions are made based on proximity to customers in concentrated areas and state tax implications.  Sales taxation laws vary from state to state within the country and since we are not experts on this topic, we thought it best to click here for more information on this topic. In short, Amazon.com sells most of its merchandise through distribution centers which are not technically classified as retail stores. As such, the company is within the letter of the law to not charge sales tax to consumers with the exception of five states.  This provides Amazon with a significant competitive advantage over conventional retailers with retail stores that must charge state taxes at the time of purchase.  Currently 8 states have introduced Internet sales tax legislation already on the books (Arkansas, Colorado, Connecticut, Illinois, New York, North Carolina, Rhode Island and South Dakota.), with another 9 considering the same (Arizona, California, Hawaii, Louisiana, Minnesota, Mississippi, Nevada, New Mexico and Vermont.

To further illustrate Amazon's distribution strategy within North America, note the second map whereby the circles are sized larger on the basis of square feet of distribution center space.  Here one can clearly see the significant infrastructural investment that the company has made in Arizona, Tennessee, Pennsylvania, Kentucky, Indiana, Delaware, and more recently South Carolina and Virginia - all states that have made deals with Amazon in exchange for agreements to guaranteed job creation targets over time.

The Amazon.com Distribution Network Outside of North America

As at the start of 2012, Amazon.com operates 29 fulfillment centers outside of North America exceeding 15 Million square feet of space.  A detailed listing of these facilities appears in the table below.  All figures provided are estimates based on our research of the best information available.  Most countries use a value added taxation (VAT) system which collects taxes up front at the time of purchase hence the taxation issue does not impact Amazon’s distribution network outside of the United States.

Legend / Notes:

• Red Facilities are planned to be opened in 2012; Blue facilities are existing.
• Facilities that have been cancelled include:
• Iwanuma City , Miyagi, Japan: Originally planned for April, 2011, the plans for this fulfillment center were cancelled after the tragic earthquake and subsequent tsunami hit the region on March 11, 2011.
• New facilities on the horizon:
• Australia:  Unconfirmed rumors are circulating that Amazon will be entering the Australian market which has an estimated on-line retail sales of $12.3 Billion/year.  Australian customers are currently serviced from Germany so this move will reduce shipping costs and improve their competitive position for this market.

Conclusions

Marc Wulfraat is the President of MWPVL International Inc.  He can be reached at 514) 482-3572 Extension 100 or by clicking here.  MWPVL International provides supply chain / logistics network strategy consulting services. Our services include: distribution network strategy; distribution center design; material handling and automation design;  supply chain technology consulting; product sourcing; 3PL Outsourcing; and purchasing; transportation consulting; and operational assessments.

Legal disclosure: The information assembled in this research paper is intended to provide the audience with intelligence on the subject of world class strategies for distribution networks.  In preparing this material, MWPVL International Inc. has not disclosed any private or confidential company information.  MWPVL International Inc. has made every effort to ensure that the information contained within this white paper is as accurate and up to date as possible. However, it is important to note that distribution networks change over time and for this reason there is a possibility that information contained within this paper may be out of date or inaccurate.  If you wish to submit any information to improve the quality of this white paper, pleas be sure to send us some feedback.