It’s no secret that Amazon is the world’s largest online retailer. They have remained one of the most dominate online marketplaces for the better part of a decade, and don't show signs of slowing down anytime soon. In 2015, Amazon’s annual sales topped $100 billion, and according to CNN, nearly half of US households have an Amazon Prime account (roughly 1 in every 5 adults.)
One of the the biggest reasons for Prime’s success is the instant gratification customers get when ordering a product. But Amazon’s secret to moving inventory at breakneck speeds, lies in the deliberate chaos of their warehouses.
Unlike the majority of marketplaces, an Amazon warehouse stores virtually all their products in-house, and in order to stock this extraordinary amount of inventory Amazon requires quite a bit of real estate. Weighing in at approximately 150 million cubic feet of storage space (the equivalent of four Empire State Buildings) spanning across a multitude of warehouses, Amazon has one of the world’s largest storage spaces.
As you can imagine, trying to control that much inventory can be a logistical nightmare. However, instead of crumbling under the pressure, Amazon is able to use disorder to its advantage. In this article, we will explore how Amazon creates order from chaos and how you can implement this technique in your warehouse to increase receiving, picking, and shipping times.
When people think of an organized warehouse, they imagine rows of neatly managed shelves stocked with similar products arranged methodically by alphabet, SKUs, or some other metric. However, because of automated inventory and warehouse management systems that utilize barcodes and barcode scanners, warehouses like Amazon are able to enact a system known as “chaotic storage” to manage their storage facilities.
Chaotic storage is a system wherein incoming products are placed randomly on available shelving space within a given warehouse with disregard for itemized locations.
While this method may sound counter-intuitive, in actuality it increases warehouse efficiency and streamlines processes.
A company who relies on manual processes (like Excel spreadsheets) wouldn’t dream of implementing this method and for good reason. Chaotic storage requires a management system, and without one warehouse managers would have no clue what products are where. Resulting in a scavenger hunt during order fulfillment.
Amazon and Chaotic Storage
Amazon services over 300 million customers and has built its reputation around its innovative delivery capabilities. Today, Amazon continues to change delivery standards with its recent release of Amazon Prime Now, which allows customers in select cities to order common household items online and have their products delivered in 2 hours or less.
Consumer demand for Prime Now and Amazon Prime indicate that there is a growing trend emerging which requires companies to have faster shipping processes. This revolutionary approach to inventory management and delivery created a need that requires an equally revolutionary solution.
After assessing Amazon’s warehouse, it becomes obvious that the traditional warehouse approach would not work for them. Spreadsheets are prone to produce inaccurate records due to basic human error, and cause slower lead/fulfillment times, out-of-stocks, mis-ships, and inefficient use of storage space.
However, thanks to the capabilities of inventory management software, Amazon’s warehouse managers and staff know exactly where every item is shelved (despite their random assortment) and are able to advise pickers about which routes to take in order to fulfill multiple orders in the shortest amount of time. Inventory management is the secret sauce behind Amazon’s astonishing fast order fulfillment, delivery capabilities, and accuracy and is something that every company needs to stay competitive.
How it Works
Identifying products and locations
As I mentioned above, chaotic storage is only possible with inventory or warehouse management software. This software is able to aggregate information about specific products and their locations by employing the use of barcodes and barcode scanners. These systems allow users to print barcodes that can be used to organize and track inventory across multiple warehouses. Barcodes hold data that can be appropriated by a barcode scanner and used to differentiate and track of individual items within multiple warehouses.
Warehouses with inventory management software are able to designate locations in their warehouse via barcoding. Users are also able to generate a type of barcode called stock keeping units (SKUs) to identify specific products. These SKUs are scanned into various locations throughout the warehouse. After SKUs or barcodes are scanned, the warehouse’s inventory management system then keeps detailed records of which items are where, how many items are located in a specific location, and anytime an item is added or removed from a location.
At a company like Amazon, orders come in abundance so it is not enough for pickers to just know product locations. In order to keep up with orders, pickers need optimized routes and processes. Data collected on products and locations is used to map out the most optimal routes for pickers.
Instead of picking orders one at a time, pickers are able to pick orders in batches. So, instead of running all over the warehouse to fulfill orders, management software will tell employees how many orders need to be picked, where it is, and the best route to get it. This eliminates wasted time on overlap created by going to the same location multiple times to complete separate orders. These feature alone are a tremendous help, but they’re really just a fraction of inventory and warehouse management systems capabilities.
Coupling chaotic storage and an inventory management software enable you to take control of your warehouse and provide a wide range of benefits. These benefits may not be obvious, but they are plenty. They include:
- Flexibility: Empty storage space if filled up immediately, which means the warehouse becomes more averse to the market’s demand, and you save money by not wasting valuable storage space.
- Space: Implementing chaotic storage forces owners to organize their locations more efficiently which enables you to store more products better. According to a “60 Minutes” piece on Amazon, the company says that using chaotic storage allows them to store twice as many goods than they did five years prior.
- Accuracy: While it may seem odd to stock your products at random, this actually helps employees avoid mix-ups, i.g., grabbing the wrong size or color item, which would ruin an order. So, keeping a T-shirt next to the books acts as an added layer of protection against picking errors.
- Simplicity: For new employees, it can be difficult to learn where everything is within a warehouse. Inventory management takes the guesswork out of the picking process and tells employees exactly where to go and what to pick. This makes it easier to employee and train new hires.
- Optimization: Warehouses can be overwhelmingly large. Chaotic storage eliminates the wasteful back and forth movements to fulfill an order with varied contents. These management systems can compute an optimized fulfillment route.
Implementing Chaotic Storage
Now that you have seen some of the benefits and possibilities of chaotic storage you may be itching to get started.
First things first, you need to take a hard look at your current warehouse structure and make some assessments. If you currently do not have an inventory or warehouse management software start shopping around. Since you have found your way to this blog post I suggest beginning your search with SkuVault’s warehouse management software. Our advanced picking, inventory management, reporting, and many other features are just what you need to reinvent your warehouse. Check out our features to learn more about how we can help you grow your business.
After you decide what management software works well with your business you are ready to get to the real work
. Implementing a management system can take some time so you will want to make sure you are prepared. You will need a master list of all your products that includes information like item numbers, unit of measures, descriptions, purchase cost, vendor info, and other pertinent information. Gathering this information ensures that you will have all the information you need to import into a management system.
Now it’s time to put those barcode printers to work. Start rebuilding the structure of your warehouse by establishing locations with unique barcode identifiers. These locations will serve as storage space for your products which will also be barcoded. Then create SKUs to identify products you place in these locations. After you have implemented your management software, and have scanned your newly barcoded products into now established locations, you are good to go.
Going beyond Chaotic storage
One common trait among entrepreneurs is that they are always on the lookout for more functionality from their systems. You may have noticed that I use inventory management and warehouse management interchangeably in this article, but in actuality, these systems are not the same.
At a base level, all you need to achieve chaotic storage is an inventory management system, but my guess is that you would prefer something that is able to satisfy those needs and more. If this is true, then you may be more interested in warehouse management systems like skuvault that is able to perform all of the things an inventory management software can and more.
The biggest difference between these management systems is that a warehouse management systems provide more functionality. Warehouse management systems have the power to unify your entire business through powerful integrations. These integrations automate different areas of your business such as accounting, shipping, inventory management, and more. By automating different areas of your business your gain a more streamlined, organized, and error-free business structure that will boost your overall performance.