Amazon’s Same-Day Delivery Strategy: How Much Faster Can It Go? | WSJ Shipping Wars

- [Narrator] This Amazon fulfillment center is unlike the ones they've been using for years, building the industry standard for fast shipping. It's one-eighth the size. It needs fewer employees, yet, it allows them to deliver even faster. An order here can go from storage to out for delivery in just 11 minutes. Because of Amazon, customers have come to expect fast shipping. And Walmart and Target have met those demands by building systems to beat Amazon's two-day delivery promise. So Amazon is trying to win the shipping wars by investing in what made them successful in the first place. Speed. - Over Prime Big Deals Day, our fastest delivery was 54 minutes. We don't know yet what the limit is. - [Narrator] Here's how the king of fast shipping is overhauling its massive distribution network to shave more days, hours, and even minutes off delivery times. (bright music) - We're delivering between 25 and 30,000 packages a day to our customers. - [Narrator] This facility in Renton, Washington, is one of 49 same-day delivery centers across the country. Unlike Amazon's larger warehouses, these smaller sites prepare products for immediate delivery, a service that's available in more than 90 metropolitan areas. At traditional Amazon warehouses, an order might first be picked up and packed in one center before being moved to another to be sorted and then to a delivery station in the customer's area, before finally arriving on a doorstep. Compare that to the same-day centers, which put picking, packing, and sorting under one roof. The facility here in Renton only delivers to customers up to an hour away. But that's enough to serve households around parts of Seattle and Tacoma. Centers like this deliver the 100,000 most popular items local customers might want in hours, not days. - Apple products, like AirPods, everyday essentials, and then household cleaners. That's what we're driving here in this particular building. - If you have a right analytics, you can keep the right items closer to the customers. And those right items will be different at different regions. - [Narrator] The inventory curation here in Renton, along with AI-driven tech, gets packages to doorsteps faster. - We have things that help make sure we don't have too similar of an item sitting next to each other to avoid a mis-shipment or things like that. - [Narrator] In a process called Stowing, workers store small items in these bookshelf-like containers on the robotics floor. Larger items, which the company calls Non-Sortable, live on these shelves. There are diapers, dog food, even air fryers. That meticulous organization is key to getting orders to customers in record time. - I was in my building at about four o'clock on a Friday afternoon and ordered something in my, and outta my building, and got home within a couple hours and that package nearly beat me. - [Narrator] Say you order this Amazon Echo. One of the facility's hundreds of robots is assigned to pick up the pod it's stored in. The picker pulls the item and places it in a cubby on this wall to be packed. A packer will grab the item, scan it, and package it here. Your order travels on this conveyor belt just a few hundred feet away to the dispatch area. - When that sticker is applied to the package, at that moment, we determine what route that's gonna go to, how long that route could be, and that's dynamically happening throughout our day. - [Narrator] The yellow sticker tells workers which cart selection and cart the order should be routed to. By the time your order is waiting for a driver to pick it up, only four minutes and 50 seconds have passed since a worker pulled it from the shelf. On average, the company says it takes 11 minutes for an order to travel through this whole facility. Once the packages are on the outbound docks, Amazon's flex drivers are notified to load them up. They make deliveries using personal vehicles, allowing the company to utilize more drivers. The timing is roughly the same, no matter what you order alongside your Amazon Echo. - Let's say I ordered three items. We have the ability with our logic, to combine those items from the floor and bring all three of them together. - [Narrator] Amazon says an eligible order placed by 5:00 PM will arrive by 10:00 PM. Otherwise, it will arrive early the next morning. This same-day facility operates 23 hours every day to make that possible. Amazon plans to double the number of same-day centers in the next few years. - The biggest difference is that what we're trying to do is reduce the distance between inventory and the customer as much as we can. - [Narrator] Before, if a shopper in Florida ordered a pair of headphones, they might have been shipped from Seattle. - Now we're at a big enough scale that we've realized it's actually more efficient to break the US up into eight interconnected regions. Today, more than 76% of customer demand is fulfilled from within their region. - [Narrator] Competitors like Walmart and Target are also speeding up delivery, by fulfilling orders closer to customers. But the key difference? Amazon doesn't have thousands of stores. - These same-day sites are directly taking on Walmart stores because it's a lot of the items that someone would go to Walmart for to pick up for their house. - [Narrator] Customers' expectations on speed have also risen. - You have customers that have come to expect two-day delivery all of a sudden saying, "Well, can I get this item or that item without having to go to the store?" And they've had to really meet customers where they're at. But the funny thing is, is customers are where they're at largely because of Amazon. - We see that the faster our deliveries get, the more customers engage with our store and the more they come back. - [Narrator] And as more and more retailers try to compete with Amazon and e-commerce, the company is doubling down on speed. - The response has been, "What we already do good, let's do it even better." And that's sort of is a way to play defense by playing offense. - [Narrator] Since 2018, Amazon has cut its average delivery time by more than half. - Whenever you reduce your delivery time, your cost increases exponentially. - With the same-day centers, you're paying gig workers to do their job and they can only put so many packages in the cars that they're driving around. - [Narrator] To offset some of the cost in speeding up delivery, Amazon uses Prime memberships, which cost $139 a year. It also has another advantage, the sheer breadth of its business. - Amazon has that power right now that they're ready to incur some losses in the short-run, because they have that kind of cash, they have that kind of revenue coming from other things. - [Narrator] Amazon says fast delivery doesn't necessarily mean higher expenses. - Our fastest deliveries are some of our lowest-cost options because we've really shortened that fulfillment distance. - [Narrator] The company argues that the shortened distance also reduces the environmental impact of delivery, like increased packaging and emissions. - Our same-day facilities are located very close to dense metro areas. We stock them with very high demand items. That means we have a lot of packages that go out on the road and they travel much shorter distances. - [Narrator] Labor researchers and activists also worry about employee safety as the company ramps up its speed. - Amazon has a huge history of high injury rates at their facilities, and now that they're trying to go even faster, what does that mean for employees? - Employees go through the same exact process of picking, packing, and packaging an item and getting it ready to be delivered in a same-day site, as they do in a regular site. It's just that the distance traveled is much shorter. - [Narrator] The company says that "From 2019 to 2022, it saw a 23% reduction in its recordable incident rate, and that it has invested over $1 billion in safety initiatives since 2019." Despite those challenges, Amazon aims to be - - Fast, faster, fastest! - [Narrator] It's investing in more automation, electrifying its delivery fleet, and plans to create more efficiency in rural areas with its drone delivery program. And that's forced other retailers to step up their game. But Target is taking a different approach. - Our stores can act like fulfillment centers. - [Narrator] In our next episode, we'll go behind the scenes at Target's first Sortation Center. Can the smallest competitor of the bunch even compete with Amazon in the shipping wars? (bright music)