What is the secret to delivering three million Christmas presents in one night, assuming you are not in possession of a team of flying reindeer?
‘You need to be organised,’ Allan Lyall, Amazon’s vice-president of European operations, tells me as we walk around a 550,000sq ft warehouse near Milton Keynes, two months before the busiest online shopping day of the year. ‘Last year, on our peak day, we had a truck dispatching every two minutes and 45 seconds.’
Banish all images of an industrious festive grotto – this is a functional depot with two miles of gleaming conveyor belts, plastic boxes stacked in designated areas and strip lighting overhead. About 2,000 workers (half of them temporary Christmas staff – Amazon will take on 10,000 extra workers around Britain this year), dressed in jeans and high-visibility vests, are hard at work. But joy is not entirely forsaken – last Christmas, Lyall says, most of the staff wore Santa hats, and One Direction made a personal appearance to sing a Christmas song.
Amazon started life as an online bookshop in the Seattle garage of its founder and CEO, Jeff Bezos, in 1994. Four years later, he launched Amazon in Britain, opening the Milton Keynes distribution warehouse (or ‘fulfilment centre’, as they call it) in October 1998. Bezos started with only 10 staff, and now has 65,000 employees worldwide, operating in 10 countries. Ten years ago the company had 27 million active customer accounts – now it has 164 million. Bezos is worth $19 billion, according to Forbes magazine.
One of the most important businesses of the internet age, it is not without its critics: early this year it was revealed that Amazon, which sells almost a quarter of all books in Britain and recorded sales of £3.3 billion here last year, paid no corporation tax on its profits (it regards amazon.co.uk, its British subsidiary, as a ‘service company’ rather than a retailer).
Its strategy of heavily discounting books has made the last decade an incredibly difficult one for publishers and traditional high-street booksellers, many of whom have disappeared from the retail landscape entirely. James Heneage, the founder of the defunct Ottakar’s book chain, said earlier this year, ‘With great market power comes great market responsibility and I don’t get the feeling that the leaders of businesses like Amazon really understand that aspect.’ James Daunt, the managing director of Waterstones, added, ‘A world that is totally dominated by Amazon will be a poorer one.’
None of which, however, seems to be harming its bottom line. The secret to Amazon’s success (at the end of October it announced that net sales for the third quarter were up 27 per cent to $13.81 billion globally) is how it has made online shopping second nature – with one-click ordering, trustworthy product reviews and prompt, reliable deliveries. Its latest TV ads boast that ‘We’re the reinventors of “normal”; we dream of making things that change your life, then disappear into your everyday.’ Yet behind the scenes, the Amazon machine whirrs to the beat of secret algorithms, and the company’s day is punctuated by a series of immovable deadlines to ensure the customer barely notices a thing.
A parcel whizzes through the system at Amazon’s Milton Keynes warehouse (FRED MACGREGOR)
When I visited at the end of October, Amazon was cranking up for Christmas. While some of its more organised customers had already started shopping for presents by then, the bulk of spending starts on Black Friday (the day after Thanksgiving), a traditional American discount shopping day that Amazon introduced to Britain three years ago. Last year, deals included half-price televisions. This year Black Friday falls on November 23. But the big day in Amazon’s calendar is Cyber Monday, the busiest online shopping day of the year, which in 2012 is on December 3. Last year amazon.co.uk took orders for three million items on Cyber Monday, a rate of 35 items per second in one 24-hour period. The peak shopping time was 9pm – ‘But,’ Lyall says, ‘this peak is becoming flatter as more people place orders on their smartphones.’
Last Christmas, the most popular products included the Kindle, Amazon’s own-brand ebook reader – more than a million were sold last Christmas according to a YouGov survey – plus Harry Potter DVDs and Michael Bublé’s Christmas CD. This year the Kindle is again expected to dominate sales – two new versions have just been launched in Britain – along with Furby (a toy first launched in 1998) and Bananagrams (a word game that now outsells Scrabble). ‘Cliff Richard’s calendar is a perennial bestseller – it sold more than JLS’s last year,’ the PR director Ben Howes tells me.
Sheer volume aside, there is a mindboggling variety of stuff in the Milton Keynes warehouse, which is one of eight in the country (another three are planned to open within the next two years), with a combined space of five million square feet. Although Amazon started out selling books, it now sells everything from electronics to jewellery to garden equipment. In an interview with The Daily Telegraph in 2002, Bezos said, ‘You can’t sell a garden rake over the internet.’ The following year he launched Amazon’s Home and Garden store.
As soon as products enter the warehouse, they are scanned and logged within 12 hours. The products are separated into different sizes, and then file along conveyor belts to one of 50 ‘receive stations’. ‘This is the stuff that is available to buy now, on the website,’ Lyall says. A worker sitting at the end of what looks like a supermarket checkout scans and checks the products for any defects. If they spot something wrong, the traffic lights above their head turn red and a ‘problem solver’ rushes over to help. Today, all the lights are green, which means all the products are ready to be shelved.
Allan Lyall, Amazon’s vice-president of European operations (FRED MACGREGOR)
Amazon sells some things so quickly there is no point shelving them – books such as Fifty Shades of Grey or JK Rowling’s new novel – so they go straight to an area of the warehouse called ‘mass land’, which consists of pallet-loads of books and other high-volume items, such as Kindles. Electronic books account for an increasing chunk of Amazon’s business: in August the company announced that for every 100 hardbacks and paperbacks it sold since the start of 2012, customers downloaded 114 ebooks.
Not that this saves any space on the shelves – Amazon’s sales of physical books are increasing each year, despite industry reports that, on the whole, physical book sales were down 11 per cent for the first three months of the year. Everything else chugs along conveyor belts into the ‘picking tower’, five storeys of shelves that house more than five million items and provide dizzying views of the crisscrossing conveyor belts below.
You might think that with five million items to shelve there would be a section for garden rakes or cameras, or whatever – but not so. Shelvers pop things into a spare space, scan the item and then the code on the shelf. A Mad Men box set could be shelved at 10 different spots around the warehouse. The only rule is that no two similar products can sit next to each other, to minimise human error while ‘picking’.
That is the next stage. The army of pickers slip silently through the shelves collecting customer orders at the command of their hand-held scanners. Amazon has five delivery times, including evening delivery, first class and next day.
‘We know what time the product needs to leave the building to make, say, the Edinburgh evening delivery, which is slightly earlier than the London evening delivery,’ Lyall explains, ‘so we know when it needs to be packaged and when it needs to be picked.’
The scanner groups orders together (about 80 items) based on when they have to be dispatched, and uses algorithms to forge the most efficient route for the picker through the maze of numbered aisles and shelves. ‘The level of accuracy has to be tight,’ Lyall says. He worked for Apple for six years before joining Amazon in 2000, and says it was Amazon’s technological operation that attracted him. Though they vary in size, all of Amazon’s global fulfilment centres use the same operating systems.
‘It’s all integrated, end to end, and it’s home-grown software,’ Lyall says. ‘If we discover a better way of doing something, we can roll it out across the world overnight.’
He bends down to pick up a minuscule piece of packaging, and a few moments later squares a stack of boxes into their designated area. ‘You wouldn’t want me in your house,’ he says, grinning. ‘I can’t help myself.’ His meticulous nature is in tune with the company’s ethos: around the warehouse are yellow markings on the ground to indicate exactly where boxes should be stacked, and stations with brooms and dustpans hanging up. ‘You need to be organised and you need to be efficient.’
Parcels are fed on to ’tilt trays’ and carried chute-wards (FRED MACGREGOR)
In 2009 Bezos wrote a letter to shareholders declaring a war on muda – the Japanese word for waste. That includes wasted time. Amazon’s metrics show that a tenth of a second’s delay in loading a page on the website equals a one per cent drop in customer activity. Delays in customers receiving their parcels are unthinkable. Two years ago, unprecedented December snowfall (some things are beyond even Amazon’s control) caused anxiety among British customers and at the fulfilment centres; Amazon placed a prominent message on its website warning that ‘Adverse weather conditions are impacting deliveries across the country’, although just about everyone received their parcels in time for Christmas.
Last Christmas 99.9 per cent of parcels arrived on time. Bezos believes there’s room for further improvement, and has invested in systems to speed up the picking process. The company’s profits were down by 96 per cent between April and June ($7 million, down from $191 million in the same three months the year before) because Amazon bought the robot-maker Kiva Systems for $775 million in March, to automate its warehouses in the future.
For now, the system relies on human beings. Once the pickers have collected their prescribed orders, they put the items into orange boxes, which travel via conveyor belts down to the packing area. There, ‘packing associates’ sit at checkouts. As an order comes through, a message on their computer tells them what size cardboard box they need.
Each box is weighed (to check that no items are missing) and only then is it stamped with the customer’s address – until this point no one at Amazon has seen who has bought what. Then it’s off to the ’tilt tray’ system, the most Wonka-ish section of the warehouse. It’s also the part of the process that most excites Lyall, where the conveyor belt feeds each sealed and addressed order on to its own school-dinner-style tray, which then travels towards hundreds of chutes, each representing a different regional or international destination. Each box’s barcode is scanned automatically and when it reaches the correct chute for its address label the tray tips, sending the parcel whooshing down.
‘You can imagine on a peak shopping day with all the lines constantly feeding in parcels, all beautifully timed, all going boom, boom, boom down every chute,’ Lyall says, taking off his glasses. ‘It’s… well, it’s pretty cool.’