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Why Prime Day is an ‘Execution Story’ Amid Supply Chain Constraints

The first day of Amazon’s Prime Day shopping event saw total sales across U.S. online retail surpass $6 billion, delivering growth of 7.8 percent year over year, according to the Adobe Digital Economy Index, making it the biggest day for online spending in 2022.

But like other major shopping events, the heavy spending extracts a heavy toll on the overall logistics and warehousing landscape, which already has endured a stream of seemingly never-ending bottlenecks since 2020. With Prime Day becoming more of a retail-wide affair every year, the supply chain is likely to get another wrench thrown in its direction, at least in the short term. 

Traditionally, supply chain operators—whether it be a manufacturer, a wholesaler, a third-party logistics provider or a retailer—had a good expectation on what suppliers and transportation providers were capable of, how much shipments would cost and how quickly would get to the door. But this is no longer the case, according to Mark Wheeler, director of supply chain solutions at Zebra Technologies.

“What happened and continues to happen is that a lot of those basic assumptions have been proven to be no longer valid, or at least no longer reliable,” Wheeler told Sourcing Journal. “So there’s been a real premium put on supply chain visibility and the ability to know what I have and know where it is with a high degree of confidence, so that I can react when Supplier A misses a shipment or a product is simply not available.”

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Even ahead of Prime Day, Amazon itself felt the heat of the supply chain concerns when it came down to product availability. Items appearing as “out of stock” on Amazon have reached approximately 5 percent, up from 4.4 percent a year ago, according to research by e-commerce optimization software provider CommerceIQ.

Wheeler called Prime Day “an execution story” given the short duration of the two-day event, and the fact that the major hurdles of merchandise planning and inventory positioning have already been cleared. This puts the onus on Amazon and other retailers to optimize warehousing and supply chain capabilities including picking, packing, shipping, delivering and managing returns.

In a way, the event almost serves as a stress test of sorts for supply chain operators to see if their warehousing and fulfillment systems and transportation networks are able to handle the increase in demand before the holiday season begins.

If anything, Amazon itself should have the manpower to handle the record orders. The e-commerce giant has doubled its fulfillment and distribution network to more than 930 facilitates across the U.S. over the past two years. In the same time frame, the company nearly doubled its workforce to 1.6 million employees. And chief financial officer Brian Olsavsky said in the company’s first-quarter earnings call that Amazon found itself “overstaffed” in the period due to the excess holiday hiring.

Although Amazon continues to rely less on outside shipping partners, about 28 percent of its shipments are still handled externally, according to data from SJ Consulting Group. With the burden of those orders falling on major shipping companies like FedEx and UPS, retailers must balance both consumer demand and carrier availability to formulate their fulfillment strategies.

“It really comes down to knowing your best shot at demand, you’ve done the best you can and inventory positioning so you’ve got the right volumes of the right items in the right place. You’ve done all that,” said Wheeler. “And now you have to execute. That means knowing what your capacities are to execute all these workflows, which is the facility, it may be labor constraints and it may be a transportation constraint.”

Going forward, supply chain operators can learn from Amazon’s execution in areas like robotics, he said, which has helped the e-commerce giant’s human workforce expedite the warehouse fulfillment process. The tech titan has continued to develop more robotics fulfillment centers in North America, even recently developing the Proteus autonomous robot to help its wheeled GoCarts move packages around the warehouses.

He also suggested brands can execute better by augmenting the warehouse employee experience with mobile devices to react to necessary demands in real time.

“It’s not just about the outbound,” Wheeler said. “It’s fulfilling those orders. But we also know that there’s going to be a lot of returns associated with those orders over the following days and weeks, and those have to be effectively efficiently handled as well.”

Target beats out Amazon in apparel discounts

The retailers that are participating in their own version of Prime Day also appear to be competing heavily on discounts. According to research from retail AI and pricing analytics firm DataWeave, Amazon averages a 4.2 percent discount per apparel item sold. But Target, through its competing Deal Days promotion, is offering an even deeper markdown at 6.8 percent.

Amazon still remains king in the home discounts, with markdowns reaching 4.2 percent—much deeper than the 1.8 percent price cut offered by Target. Home improvement giants The Home Depot and Lowe’s are less giving when it comes to pricing, offering 1 percent and 0.4 percent discounts, respectively.

Across both health and beauty and electronics, Amazon leads the way with markdown averages of 5.6 percent and 5.1 percent.

Back-to-school planning already underway

Looking toward the future, Prime Day’s return to July may have kickstarted the back-to-school shopping season, with 42 percent of consumers saying some of their Prime Day purchases were specifically for that purpose, according to a consumer study from Blue Yonder. This is a slight jump from the 38 percent of back-to-school Prime Day shoppers in 2021.

Wheeler said that the impact of forecasting and the ability to pre-position items throughout a distribution network will be pivotal going forward as Prime Day ends and the back-to-school season begins.

“The volumes being ordered and shipped are so big that it will impact the retail supply chain in general in terms of how much product will eventually be fulfilled through a store, as opposed to what would be held during Prime Day,” Wheeler said. “If it’s not forecasted, secured and available in the network, then there’s no chance to sell. All of that has to happen ahead of time.”