Amazon FC are playing in the Euros (the UEFA football championship). Or at least that’s what could be inferred from my name badge.
In fact, Amazon FC is one of the Amazon fulfilment centres, located in the Polish town of Poznań, location of the 28th European conference on Operational Research.
The fulfilment centre is huge – with a million separate items stocked, and up to a million items being processed every day – and is just one of a network of existing sites around Europe and around the world, the locations of which are themselves optimized to minimize cost.
One of the many interesting facts about the tour was the way that Amazon store stock on their shelves. Like any other business, they want to minimize fixed costs. One way they can do this is to maximize the density of items stored on their shelves. Unlike in my Mini factory visit (which will be the subject of a later post), Amazon does not run a just-in-time stock system. They are happy(ish) to hold stock on the basis that their customer will have it quickly and will not have to wait for it to be backordered. Amazon was founded on the basis of being able to supply items that only a few people will want – the so-called long tail – itself the subject of a book available on, where else, Amazon… the upshot of which is that if you rank the most popular to the least popular items sold on one axis, and take a logarithm of the number of these items sold on the other, it will make a nice straight line (a Zipf distribution for those interested). So, Amazon will hold on to some items for years on the basis that someone, somewhere, sometime, will want to buy it.
So, Amazon needs to store these millions of items. While most things are controlled and optimized by computer, they leave it down to human intuition as to where to store items – albeit guided by optimization algorithms.
Instead of giving a specific destination for each stock item (basically a very large grid reference), they give their employees a general area into where to store items. The idea behind this is that when you first fill a location with stock, the space-packing density will be high as items fit next to each other. But as items are removed and sold, spaces will be created meaning that you are effectively paying to store air. So Amazon allows its employees to use these spaces to store more items – even if they are unrelated to each other. Of course, the system keeps track of stock locations, but by doing things this way, the efficiency of the operations is improved, and less space is required for storage.
There is a similar example of adaptive organization used by Southwest airlines in my article The Complexity of the Corporation.