Amazon CEO: ‘We’re Not Done’ Lowering Fulfillment Costs

Glenn Taylor
4 min read

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Amazon has engineered significant cost cuts across its delivery network over the past year, but CEO Andy Jassy still believes there’s more to come.

“As we look toward 2024 (and beyond), we’re not done lowering our cost to serve,” said Jassy in his annual letter to shareholders. “We’ve challenged every closely held belief in our fulfillment network, and reevaluated every part of it, and found several areas where we believe we can lower costs even further while also delivering faster for customers. Our inbound fulfillment architecture and resulting inventory placement are areas of focus in 2024, and we have optimism there’s more upside for us.”

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Amazon’s cost cutting began in early 2023 when the company restructured its U.S. fulfillment network into eight self-sufficient regional networks, so that product could travel shorter distances to the end consumer.

This has helped the e-commerce giant ultimately lower its “cost to serve”—which is the cost to get a product from Amazon to a customer—by more than 45 cents per unit in the U.S. compared to a year ago.

“Decreasing cost to serve allows us both to invest in speed improvements and afford adding more selection at lower average selling prices,” Jassy said. “More selection at lower prices puts us in consideration for more purchases.”

Jassy attributes Amazon’s wider success to its focus on creating what he called “primitive services,” which are foundational building blocks like Amazon Web Services (AWS) that facilitate innovation for the company.

One such primitive Jassy identified was the company’s 58 same-day fulfillment facilities, which have helped the tech titan increase the number of items delivered either same-day or overnight by more than 65 percent year over year in Q4.

“They’re located in the largest metro areas around the U.S., house our top-moving 100,000 SKUs (but also cover millions of other SKUs that can be injected from nearby fulfillment centers into these same-day facilities) and streamline the time required to go from picking a customer’s order to being ready to ship to as little as 11 minutes,” said Jassy. “These facilities also constitute our lowest cost to serve in the network. The experience has been so positive for customers that we’re planning to double the number of these facilities.”

But Jassy believes the same-day facilities have a lot more potential to improve areas like Amazon’s seemingly experimental grocery business, particularly for delivering organic products from Whole Foods Market or non-perishable goods such as canned goods and health and beauty products.

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