The encyclopedia · Engineering & Operations · Strategic decision · 2022-2024
Amazon split the US into 8 regions; package travel fell 10%.
Amazon split its national fulfillment network into eight regions so orders were filled closer to home, cutting cost and delivery distance.
Amazon
the move
Before 2022 Amazon fulfilled orders from a single national pool of warehouses, choosing any site in the country for any order. As demand and facility count grew, the number of possible connections between fulfillment centers, sortation nodes and last-mile stations expanded faster than volume, producing rising cost and slowing speeds.
Amazon's Modeling and Optimization group and Network Design group built a full suite of analytics — optimization, simulation, machine learning and statistics — to evaluate alternative network structures. The breakthrough was recognizing that a stricter model, one that kept most orders inside their own region, reached a better balance of speed, cost and service than the unconstrained national design.
In January 2023 the company piloted two regions, then pulled the national rollout forward a month when the pilot outperformed expectations. Amazon divided the US into eight interconnected regions with strong intra-region links and weaker cross-region links.
why it works
- The unused flexibility of a national network was generating complexity, not value
- Simulation gave management confidence to make a highly disruptive change
- Fewer touches and shorter lanes cut cost to serve while speeding delivery
- In-region fulfillment rose from 62% to 76%, and package travel distance fell 10%
what transfers
Adding constraints is usually assumed to hurt; the test was whether fulfilling close to the customer beats the fully flexible design once real-world complexity is counted.
what came after
By the third quarter of 2023 Amazon reported the regionalization benefits were exceeding its optimistic expectations, with faster Prime delivery, higher local in-stock levels and fewer long-haul legs. Jassy said the work continued by fine-tuning inventory placement algorithms to push even more fulfillment in-region.
references
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