AI in Action: Enhancing Efficiency and Sustainability Across Amazon’s Value Chain
by Colton Bragdon, Nathan Domeck and Chris Franco
Emerging Applications of AI
Amazon is a massive company that owns a significant portion of their supply chain, so there are a wide variety of current and potential applications of AI in their supply chain. In the context of Amazon’s ecommerce business, we will define AI as software technology that ingests data of any form and outputs decisions without regular human intervention or oversight of outputs.
AI is used across Amazon’s ecommerce value chain today and integration will only continue in the coming years. Starting at the top of their value chain, Amazon utilizes AI powered inventory management systems to identify and adapt to trends that would have negative bottom-line implications in traditional inventory management models. Inside the warehouses, Amazon utilizes AI powered algorithms to reduce customer delivery times by preparing items for shipment before they have even been ordered, as they know the order trends before orders have even been placed.
In their warehouses Amazon uses AI for several tasks. One is identifying damaged products, so they don’t get sent to the customer. At some point or another we all have likely received damaged products, which can be extremely frustrating as a consumer. Amazon’s use of AI here helps to create a better customer experience and reduces costs related to sending out damaged products. Over the past several years Amazon has looked to grow its ecommerce food delivery via Amazon Fresh. Amazon monitors their fresh produce to ensure it exceeds traditional supermarket quality standards before being sent out to customers. Moreso, if produce doesn’t meet their standards, it can be properly sorted into recyclables, compostables or even repurposed into livestock feed to reduce their overall waste. A final example from the warehouse is proper sized packaging identification. It’s more than likely at some point in your life you received a package and thought to yourself, “did they run out of smaller boxes”? Speaking for anyone who has worked in a distribution center, the answer is certainly no. Packaging is generally hand-picked by a tired, over-worked and under-paid employee who has no incentive to find the best package for your product. Utilizing AI here allows for simple and quick selection of the best packaging material for each product, reducing waste and shipping costs that quickly add up at Amazon’s scale.
At the end of their value chain is the customer, and we are all too familiar with how products are targeted to us. Amazon’s seemingly endless catalog of products means purchases via Amazon helps them understand you as a consumer better, and therefore target you with products you are more likely to purchase. Their use of AI is more than just targeted products, as Amazon has tried to solve clothing returns via AI. Based on your past purchases and any other size related information you provide Amazon; they can make sizing recommendations to help reduce fit related returns. This increases customer satisfaction, reduces shipment costs and helps create a more sustainable world due to the need to dispose of so much returned clothing. Finally, Amazon delivery drivers are directed by AI. A seemingly infinite number of orders go out for delivery from Amazon warehouses each day, and their routing needs to be dynamic to provide the level of customer service they promise. This AI balances the need to reduce route miles, delivery times and other factors to come up with an optimal routing for that delivery driver on a given day.
Stakeholder Impact
The emergence of AI in warehousing will have a substantial effect on multiple stakeholders, and we will break them down individually:
Amazon:
Amazon can expect increased operational efficiency and long-run cost savings, but the initial capital investment will be significant. In addition, Amazon has faced consistent criticism of its’ warehouse work conditions, and the company can expect additional criticism if it uses AI technology to cut existing warehouse jobs.
Employees:
The stakeholders that have the largest potential to be negatively impacted are the employees. If Amazon’s goal is to increase automation and reduce the functions of the employees, job cuts are almost a certainty. However, if Amazon chooses to use AI technology as an enhancement to employee capabilities, it can benefit the employees by adding to their individual efficiency and safety.
Customers:
The emergence of AI into Amazon’s business is immensely positive for its’ customers. First, due to increased operational efficiency at the supply chain and warehousing level, customers can expect faster delivery times and a lower occurrence of receiving defective or incorrect products. Furthermore, AI will likely enhance Amazon’s individual product recommendations on its’ website and apps, leading to increased customer satisfaction.
Suppliers:
AI will likely enhance Amazon’s ability to accurately forecast demand, which will also help Amazon’s suppliers forecast the appropriate levels of production. However, Amazon’s increased operational efficiency resulting from AI could also make it difficult for some suppliers to keep up with potentially increased levels of demand.
Regulatory Bodies:
AI’s potential to replace jobs and increase unemployment levels will undoubtedly result in attempts to further regulate AI use in the workplace, and regulatory bodies will have to decide whether to add additional labor protections for potentially affected workers.
AI Impact in the organization
There are positive and negative impacts associated with these changes. Below is a table that compares how AI impacts Amazon’s short-term and long-term social and/or environmental performance:
The integration of AI into Amazon’s traditional ecommerce business is reshaping the company’s entire value chain. From inventory management to customer delivery, AI-powered algorithms are streamlining operations, improving efficiency, and enhancing the overall customer experience. By leveraging AI technologies, Amazon is not only staying competitive in the rapidly evolving ecommerce landscape but also setting new standards for supply chain optimization.
