by Fred Vogelstein
From Fortune May 12, 2003 as modified by Richard M. Kesner 072413
… The story of how he started Amazon is now legendary. While working at Shaw in 1994 Jeffrey P. Bezos read a study that predicted the Internet would explode in popularity. He figured it wouldn't be long before people would be making money selling over the web. After researching a host of items that could sell online, he settled on books. Almost every book was already catalogued electronically, yet no physical bookstore could carry them all.
… The beauty of the model, Bezos thought, was that it would give customers access to a giant selection yet he wouldn't have to go through the time, ...view middle of the document...
For example, by redesigning a bottleneck where workers transfer orders arriving in green plastic bins to a conveyor belt that automatically drops them into the appropriate chutes, Amazon has been able to increase the capacity of the Fernley warehouse by 40%. Today, Amazon's warehouses can handle three times the volume they could in 1999, and in the past three years the cost of operating them has fallen from nearly 20% of Amazon's revenues to less than 10% percent. The company doesn't believe it will even have to think about building a new warehouse for another year.
The warehouses are so efficient that Amazon turns over its inventory 20 times a year. Virtually every other retailer is under 15. Indeed, one of the fastest-growing and most profitable parts of Amazon's business today is its use of its warehouses, and sometimes its entire back end, to run the e-commerce business of other retailers, such as Toys "R" Us and Target.
All of this helps explain Bezos's larger point, one he's been making since he started Amazon but that people are only now starting to believe. "In the physical world it's the old saw: location, location, location," he says. "The three most important things for us are technology, technology, technology." [But technology is actually the means of managing Amazon’s most valuable asset, its data. Data about products, data about customers, data about supply chain management, data about suppliers…….] Amazon spent big on software development, but now its platform requires little additional investment. "There just aren't other companies that let a consumer order two out of what are millions of products in a warehouse and then quickly and efficiently, at low cost, get those two things into a single box," Bezos says....