Operations
01 September 2022
With AWD, Amazon is introducing 'supply chain as a service'
Amazon Warehousing & Distribution is offering bulk inventory storage to third-party sellers.

Photo by Adrian Sulyok on Unsplash
Amazon Warehousing & Distribution is offering bulk inventory storage to third-party sellers.
Amazon is set to introduce a service for third-party sellers: Storage.
At a time when many brands and retailers continue to face supply chain issues, Amazon Warehousing & Distribution (AWD) is set to provide sellers with space to store bulk inventory.
Amazon said it is making new facilities available for the program, where sellers can store goods that are awaiting the move into position for ordering and shipment. From these facilities, the inventory can then be tapped to automatically replenish supplies at Amazon's fulfillment centers, where orders are packed and shipped to customers.
“With this simple pay-as-you-go service, sellers are free from the time-consuming, cumbersome process of moving inventory from upstream facilities to Amazon fulfillment centers,” Amazon VP of Distribution and Fulfillment Solutions Gopal Pillai, wrote in a blog post announcing the service. “AWD makes the promise of supply chain as a service a reality and is specifically designed to solve inventory management challenges and deliver operational efficiencies.”
Amazon added that sellers using the service will be able to consolidate global inventory into one pool, which can in turn be managed through Seller Central.
In 2023, Amazon said the service will be available for sellers to send their inventory to “any location,” including wholesale customers or brick-and-mortar stores.
At a time of supply chain headaches, storage has become one of the biggest challenges for brands and retailers selling consumer goods over the last three years. According to a recent report on the state of US logistics by the global management consulting firm Kearney, warehousing capacity reached its peak in 2021. Vacancy rates dropped to their lowest point on record, while the cost of storage per square foot rose to the highest. Michael Zimmerman, a partner at Kearney who runs the global logistics practice, told attendees of the NACDS Total Store Expo that supply chain issues are likely to continue, and advised them to work to add capacity.
“You’ve probably heard the expression, ‘Hope is not a strategy,’” said Zimmerman. “This is a perfect example of that. Get your supply chains ready.”
For its part, Amazon said a recent survey of US sellers showed that the three biggest pain points for sellers in upstream warehousing and distribution operations are:
As it navigated skyrocketing demand for goods sold online and sought to speed delivery times, Amazon added significantly to its logistics network over the last three years. It now stands at about 1,250 facilities in the US, according to the supply chain and logistics consulting firm MWPVL. In fact, the network had grown so large that in April executives said the company had overbuilt warehouse space, and would pursue subleasing and consolidation while slowing expansion in the latter half of 2022.
With new facilities coming online for AWD, apparently that doesn't mean expansion is being halted together. With AWD, Amazon is putting warehouses to work for sellers, who run independent businesses that sell on Amazon's marketplace. AWD will be a service offered to third-party sellers in addition to Fulfillment by Amazon, the service that allows third-party sellers to allow the fulfillment of orders to Amazon. It is also rolling out Buy With Prime, a service that allows brands to make Amazon's shipping and returns services available to websites outside of Amazon.com, and, in turn, presumably will lead these brands to tap into FBA.
For its part, AWD offers a path to enter Amazon's logistics network earlier in a good's journey, and adds capacity to that network. The new warehouses that will be part of AWD are “purpose-built facilities for bulk inventory storage and automated distribution,” the company wrote.
“With one click sellers can send their inventory to Amazon Distribution Centers and significantly reduce storage costs, while eliminating complex pricing schemes and long-term contracts that are common throughout the industry,” Pillai wrote. “Sellers can integrate their upstream inventory storage operations with the Amazon Fulfillment Network, ensuring they always have the right amount of inventory in stock, in the right places and at the right times.”
There are still specifics of AWD that must be filled in ahead of the 2023 launch. The blog post quoted Harris Chan, senior business manager at AmaMax, who said that," Automated replenishment and master case handling is the key of the program," but it's not clear how. Other details on how AWD will work and pricing were not immediately available. Amazon said it will share more about AWD at Amazon Accelerate, the annual seller conference that is set to take place September 14-15.
Offering services to third-party sellers has proven kind to Amazon's business. In its second quarter earnings report, the company said these sellers were responsible for 57% of sales on Amazon, which was a record. Revenue from third-party seller services rose 13% to more than $27 billion, a record for a non-holiday quarter. On the other hand, Amazon's overall sales from ecommerce fell 4%.
Amazon built its logistics network to serve its own needs in moving inventory into place, shipping and delivering packages. Now, it is one of the largest in the country. With that scale, it is offering parts of that network up to others, turning what could be a cost center into a potential business booster.
It recalls how Amazon offered the cloud infrastructure it built to others through Amazon Web Services (AWS), which was long run by current Amazon CEO Andy Jassy and is now one of the company's most lucrative divisions. Along with similar acronyms, the two services will now share a similar primary offering: storage.
Logistics are one of the most expensive parts of ecommerce, so it would be all the more impressive if Amazon could turn a profit in an area that leaves many in the red.
At the same time, the service arrives as other retail leaders are building out supply chain networks. Shopify is making a big investment in building an "asset light" fulfillment network following the $2.1 billion acquisition of Deliverr. Meanwhile, American Eagle Outfitters is standing up Quiet Platforms as a vertical network of logistics partners that can join forces and take on the biggest names. Gap Inc. said last week that it is making its fulfillment logistics services available to other brands and retailers, as well.
But Amazon remains the largest and most mature logistics network. New services like AWD show how it can press that advantage by adding major capacity. It also shows how it can create an easy-to-use service that is difficult for sellers to refuse. Amazon grew by promising one click service to consumers. Now, it wants to offer that convenience to sellers, too.
The figure underscores the importance of the marketplace to Amazon's business.
When it comes to selling physical goods through online channels, the Amazon model is dominant.
The company’s commerce business has four distinct components: A marketplace with a constantly expanding assortment of goods driven by third-party sellers, an advertising network that helps sellers stand out, a fulfillment network that delivers items quickly and conveniently, and a membership program that builds loyalty, while connecting shoppers to the other parts of Amazon’s consumer ecosystem.
Each of these elements are mutually-reinforcing. At this point, it would be difficult to grow one without another. A third-party seller on the marketplace likely buys advertising to stand out in a sea of brands, and uses Fulfillment by Amazon to store and ship inventory in part because it’s the most convenient way to access Prime customers.
Yet these parts also exist as their own lines of business that have helped Amazon unlock new avenues for growth beyond the rote sale of goods. Services provided to third-party sellers, Amazon Ads, FBA and Prime all generate their own revenue, and most of these are growing rapidly.
Just how important are they to Amazon?
The company offered some details on one of these areas in a new report this week: Third-party sellers. These independent sellers that list, manage and ship their own products are distinct from first-party sellers, which effectively sell items to Amazon and leave the ecommerce company responsible for the sale to the consumer. As Amazon points out, most third-party sellers are small and medium-sized businesses. First-party sellers tend to be the larger name brands.
As it turns out, third party sellers are very important to Amazon. Key stats from the report:
Independent sellers account for 60% of sales in Amazon’s store.
U.S. sellers sold more than 4.1 billion products—an average of 7,800 every minute. These sellers averaged more than $230,000 in sales in Amazon’s store.
Brand owners in the U.S. grew sales over 20% year over year in Amazon’s store.
Amazon sellers are based in all 50 states.
Over 260 million products were exported globally by U.S.-based sellers.
The results in part underscore how much energy Amazon has put toward growing the marketplace, and the uptake in sellers that has arrived as a result.
“Amazon invests billions of dollars annually to provide entrepreneurs with a constantly improving set of valuable tools and resources to help them gain access to capital, quickly launch in our store, build their brands, and rapidly scale and reach more customers,” said Dharmesh Mehta, vice president of Worldwide Selling Partner Services at Amazon, in a statement. “Amazon is committed to the success of small businesses, and we are excited to continue innovating on their behalf and help them grow into thriving success stories.”
Make no mistake: There is also a massive benefit to Amazon’s business. In the first quarter of 2023, third-party seller services generated $30 billion, and grew 20%. Compare that to AWS, which is typically seen as Amazon’s big profit driver, and you’ll find that the cloud division generated about $21 billion while realizing 16% growth.
While third-party seller services aren’t always running ahead of AWS, the fact that they are growing in areas close to each other is a sign of how much opportunity lies in the marketplace for Amazon. Factor in that Amazon’s $9.5 billion (Q1) advertising business is also tied in part to the marketplace, and it’s clear that the impact extends beyond a single budget line.
Amazon’s success with third-party sellers is a big part of the reason why the marketplace model is being widely applied across commerce. Walmart is doubling down on growing third-party sellers on its marketplace as it follows an ecommerce playbook that has similar components of Amazon, and Macy’s opened its ecommerce business to third-party sellers last year. Shein recently brought its own marketplace to the U.S., and the fast fashion platform is using it as a means to expand the number of categories.
While Amazon will likely to continue to couch its communications about third-party sellers in the language of support for small businesses, it is a major reason that the company has been able to grow to the giant it has become, and remain there. With the growth of ecommerce and the rise of retail media, plenty of others in commerce will continue to apply the model, as well.
For a bit more info on Amazon, the company also shared the below rankings in the report on third-party sellers:
The most-shopped categories from third-party sellers:
The five states with the most third-party sellers: