Amazon's Melissa Nick: Here's how the e-commerce giant is cutting costs

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Amazon’s (AMZM) cost-cutting is hitting every area of its business—from cloud services giant Amazon Web Services to the company's retail footprint.

Still, the most visible part of the business for many consumers is Amazon's e-commerce operation where post-pandemic cost-cutting is now underway, Melissa Nick, VP of North American customer fulfillment at Amazon, said in an interview at Shoptalk 2023.

Amazon, like many other companies, is dealing with costs associated with the at-home spending spree spurred by COVID-19. Now it's time to re-assess, said Nick, who manages nearly 300 fulfillment centers, a network that produces revenue of about $316 billion, a figure greater than the GDP of Finland.

The cutting has already begun at Amazon overall. But despite the 27,000 layoffs in the company’s corporate workforce that have been announced in the last six months, Amazon’s warehouses are still hiring. For Nick, her focus is on building efficiency in the sprawling distribution network.

“We’re really looking at our end-to-end supply chain and figuring out how we best optimize and reduce costs,” said Nick. “So, it sounds like it's very high level, but if you look at how we were operating during the pandemic, it was all about volume, volume, volume – anything you need to do to get the customer’s order to them.”

She added: “Oftentimes, that meant we’d ship things from Denver to, say, you in Florida or Albuquerque,” she said. “Then, during the pandemic, we saw huge supply chain disruptions, so inventory was hard to come by. So, it was all about getting inventory into buildings and shipping it wherever our customers might be. Meanwhile, we were also launching as many fulfillment centers as we could. If you look at our network, what we built over 25 years, we doubled in a matter of two-and-a-half, three years ... All of that happening at once drove some sub-optimization.”

Nailing down inventory is key

Getting the inventory process right is now the key. Sometimes, it’s a matter of analyzing what’s in a warehouse and realizing that, quite simply, it doesn’t need to be there. For instance, when Nick was at a fulfillment center in Miami, she realized they had snowblowers—it hasn't snowed in Miami since 1977. Another example, Nick said: “My husband’s a Raiders fan, and I was in one of our buildings in Kansas City – of course, the home of the Chiefs. We had Raiders hats in that building, and I thought: ‘There can’t be more than 12 Raiders fans in Kansas City.”

Here's the bottom line, she said: “You want swimsuits in Minneapolis in July, but you don’t want them there in November, so you really have to think about placement and overlay seasonality,” she said. "Getting the right inventory in the right place is tough at our scale... We continue to evolve our placement systems to make sure we get inventory as close as possible to the right customers."

Automation, to packaging, to trucks filled

Once inventory is in place, it comes down to getting other operational nuts-and-bolts in order, including improving packaging processes through tech.

"One example is that we have a technology that automates packaging," said Nick. "An Amazon box is tightly built right around a customer order whatever it is, with a focus on less waste. The order goes through a machine, so it’s fully-automated. That’s the sort of thing we’re investing in right now.”

So, some of your Amazon boxes themselves will likely be changing soon.

“You may have even received one of these packages if you order from Amazon a lot – they’re cardboard boxes that are fairly thin and have a pull strip," Nick said. So, you pull it and it pops open.”

Nick said that Amazon's emphasis on automation doesn’t mean there are fewer jobs available in Amazon’s fulfillment centers – it just means those jobs are changing. She points to Amazon's up-skilling program, which the company has invested $1.2 billion in with plans to train 300,000 associates to work with automated equipment by 2025.

Additionally, Nick is focusing on upping the fill rate of the Amazon delivery trucks. More efficient packaging, integrated with trucks that are fuller – that subsequently have to make fewer trips – is a winning combination when it comes to cost-cutting at Amazon.

“The packaging that we’re making takes up less space, and that also means there’s more density in our trucks, and fewer trips," said Nick. "It’s a win for the planet, and it’s a win for cost.”

Allie Garfinkle is a Senior Tech Reporter at Yahoo Finance. Follow her on Twitter at @agarfinks and on LinkedIn.

Read the latest financial and business news from Yahoo Finance.

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