Amazon Ships to Sorting Machine Beat
By SAUL HANSELL The New York Times
With the help of new machinery, Amazon.com, once the champion of the strategy "get big fast," has learned how to become small.
FERNLEY, Nev., Jan. 18 Ever since it built five vast warehouses in 1999, Amazon .com has boasted of the wonders of the machinery inside them 10 miles of conveyer belts and myriad other gadgets.
What Amazon was not so vocal about was how many people it took to operate those machines, especially during the holiday rush. In 2000, for example, Amazon had to hire 7,200 temporary workers to supplement the 4,400 people working in its warehouses in the United States.
Now, Amazon.com, once the champion the strategy of "get big fast," has learned how to become small. On Dec. 11, its busiest day last year, Amazon's warehouses employed only 4,000 temps and 3,700 full-time employees. With one-third fewer people than the year before, the warehouses processed what analysts estimate were 10 to 15 percent more items.
Amazon, which plans to release its fourth- quarter results on Tuesday morning, needs every dollar it can save. A year ago, the company which has lost $2.8 billion since its founding in 1995 promised investors it would turn an operating profit in the fourth quarter of 2001 (at least by its own "pro forma" calculation).
That goal was made harder because Amazon's sales grew at only half the rate it predicted at the beginning of the year, dragged down by the recession, the aftermath of Sept. 11 and some of the company's own missteps.
If, as analysts expect, Amazon nonetheless hits its fourth-quarter profit target, a key reason will be the savings from its yearlong campaign to reorganize the people and the machines in its warehouses.
"They are focused on productivity in a very structured way, and it appears they have made good progress," said Anthony Noto, an analyst for Goldman, Sachs. Mr. Noto estimates that order-fulfillment costs absorbed 11 percent of Amazon's sales in the fourth quarter, down from 13.5 percent a year earlier. Still, he said, those costs need to fall below 9 percent for the company to thrive.
Walking amid a forest of bookshelves and climbing metal bridges over the rivers of conveyer belts in the warehouse here 40 miles east of Reno, Jeff Wilke, Amazon's senior vice president for operations, pointed to dozens of improvements big and small.
One big goal had been to reduce errors in keeping track of the several million items continually being placed onto and pulled off of hundreds of thousands of bins on metal shelves. In theory, Amazon's computers know exactly where each item is at any moment. But in 2000, the computers were wrong more than 10 percent of the time, causing delays as workers searched for missing items and restocked spares.
"We had a whole secret plant, not our main focus, putting stuff back," Mr. Wilke said.
To reduce errors, Amazon wrote new software to take better advantage of the gizmo that each warehouse worker was already carrying a shoehorn-size device that combines a bar code scanner, a display screen and a two-way data transmitter.
The new software beams far more explicit instructions to workers about where they should go and what they should do. And it checks their work by forcing them to scan each item every time they put it on or take it off a shelf. Errors have fallen to below 5 percent, from 10 percent, Mr. Wilke said.
This new system also helps with another of Mr. Wilke's main goals improving the productivity of seasonal temporary workers by giving them more direction. It also monitors their performance, so those who cannot get up to speed in a week or so are given help then fired, if necessary. Amazon also instituted a formal training program for temps. As a result, the average productivity of each temporary worker has doubled.
Many of Mr. Wilke's efforts reflect the highly quantitative bent expected of an M.I.T.-trained engineer who ran chemical plants for Allied Signal before joining Amazon in 1999. But when he talks about the biggest change here in Fernley, he uses the language of music, not manufacturing.
"We needed to build cadence," Mr. Wilke said, "to operate to the drumbeat of the constraint."
The drumbeating constraint is the $25 million Crisplant sorting machine at the center of Amazon's automated approach. Working with batches of 500 to 2,000 orders, the employees with the hand-held terminals feed items onto a network of conveyor belts into the sorting machine. The machine reads the bar code on each item and routes it into one of 2,100 chutes, each chute representing an order for a single customer. When all the items in an order are in the chute, a light flashes, and a worker rushes to put them in a box. They are then sent on other conveyers to machines that print packing slips, seal the boxes and send them off to shippers' trucks.
Adopting such an expensive and complex machine was controversial for Amazon.
Mr. Wilke acknowledges that he was skeptical of the Crisplant machines when he joined Amazon, inheriting the warehouse designs of his predecessor, Jimmy Wright, a former Wal-Mart executive. In fact, Mr. Wilke arrived in time to delete the machines from the designs for Amazon's warehouses in Europe.
But in the last two years, Mr. Wilke says, he has come to believe that the sorting machines were a good choice. He has also concluded, though, that because they are so expensive and so central to the business, all other parts of the warehouse need to operate with the goal of avoiding backlogs and delays that would prevent the Crisplant machine from running at peak efficiency.
So Mr. Wilke created a new job flowmeister making one person the orchestra conductor of the warehouse, to keep each section of the operation in rhythm with the sorting machine. In Fernley this day, the flowmeister was Andy Warren, a former logistics consultant who took a career detour as a lawyer. His podium was a metal table topped with seven computer screens that monitor all the key processes of the warehouse.
As Mr. Warren conducted, a graph showed that the people taking items from the chutes and putting them in boxes were not keeping tempo with the ones putting items into the sorting machine. So he had a worker move from the "induction" area to work the chutes, heading off a backlog.
Mr. Wilke's "cadence" talk was hardly music to the ears of the people who worked in the warehouses, because he was essentially insisting they could handle far more volume with no new equipment.
"I felt like Scotty in `Star Trek' saying, `I can't push her any further, captain,' " said Greg Bennett, the manager of the Fernley warehouse. Yet by keeping the Crisplant operating at full speed for two 10-hour shifts a day, the warehouse was able to pack more than 200,000 items on peak days in December, 30 percent more than the year before.
But Mr. Wilke says the pressure is not off. His calculations show that many more incremental improvements could eventually double the productivity of the warehouses.
"The sum of all the little mistakes," he said, "is big."