In 2022, Amazon built a pandemic-sized logistics network for a post-pandemic market, only to find out the supply planning was way off track. The company had relied on demand forecasts that were not adjusted for the post-pandemic era.
Ultimately, Amazon had to slow down its operations expansion plans for the year and 2023 to better align with expected customer demand. That meant shedding surplus space and shrinking labor. In this article, we explore what happened and the lessons for African supply chains.
Key Nuggets:
- Amazon’s supply planning failure doubled its fulfillment footprint in roughly two years, then demand cooled and left surplus space
- The company had “too much space” and estimated about $10 billion of added costs in the first half of 2022 from excess capacity
- Amazon responded by pausing projects, canceling sites, and seeking to sublease or exit tens of millions of square feet
- African supply chains can borrow the principles without copying Amazon’s scale by building reversible capacity and setting stop rules tied to real demand
Background: Amazon’s Supply Planning Failure
At the height of the pandemic, Amazon struggled with capacity. Because people were stuck at home, demand surged on the e-commerce platform, putting significant pressure on available space.
After that, the company began expanding rapidly. The growth footprint was extreme. For instance, at the time, analysts noted that the company had expanded its fulfillment network in about 24 months by an amount similar to what it built across its prior 25 years.
That pace created commitments that could not be reversed quickly, and those commitments became a problem in 2022 after the pandemic-era demand had cooled considerably.
CFO Brian Olsavsky said the company scaled up for “the high end of a very volatile demand outlook,” only to carry the cost when demand cooled. That choice turned uncertainty into owned capacity.
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Reasons Behind Amazon’s Failed Supply Planning in 2022
The supply planning failure was not just down to one bad forecast. It was a chain of choices that made the demand forecast hard to undo.
1. Peak Demand Became The Planning Anchor
Amazon treated pandemic demand patterns as the new reality and baseline. That assumption drove expansion decisions that made sense in 2020 but became messy in 2022.
A spike is not the same as a new baseline. But planning errors become inevitable when leaders keep the spike in their head even after signals turn.
2. Fixed Assets Locked in the Bet
Warehouses are long-term commitments that come with leases, construction schedules, racking, automation, utilities, and a steady stream of overhead. And when volume drops, those costs stay, which is why overcapacity often hurts more than many teams expect.
You cannot “un-spend” a building in a planning meeting.
3. Long Lead Times Delayed the Correction
Amazon’s major projects were already in motion. By the time demand cooled, many sites were already leased or built. That gap between decision time and operating time is where trouble grows. A plan can remain wrong for months before the balance sheet catches up.
4. A Speed First Network Can Become a Cost Trap
Amazon’s delivery promise shaped its network. More sites closer to customers can reduce delivery distance and support fast shipping. But the problem is that the same design can produce high fixed costs when volumes dip.
And low utilization quickly turns a fast network into an expensive network.
5. Labor Plans Lagged the Demand Turn
Warehouse staffing cannot snap to demand each week. Training, management, and shift structures take time. When volumes fell, labor became a second layer of excess capacity. Empty space hurts, but idle labor hurts just as much.
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The Impact Of Amazon’s Failed Supply Planning
By early 2022, Amazon said surplus capacity would add about $10 billion in costs in the first half of 2022. That figure covered underused fulfillment centers, transportation slack, and labor inefficiency.
And it also showed that Amazon’s excess warehouse space in 2022 was a balance-sheet issue, not a rounding error. To contain the damage, Amazon paused, delayed, or canceled dozens of facilities.
The company also worked to vacate or sublease 10–30 million square feet of warehouse space. Some leases ended early. Others were sublet at discounts. Equipment had to be removed and inventory relocated.
Shrinking space carries its fair share of cost. For instance, exiting leases is quite expensive due to the penalties. And subleasing can mean renting at a discount. Both can require pulling out equipment, clearing inventory, and rebalancing labor.
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How Amazon Approached The Supply Planning Failure
Amazon initially diagnosed the issue as a space problem, but later adjusted it to include cost. Olsavsky said, “We have too much space right now versus our demand patterns.” Once Amazon accepted the mismatch, it shifted from build mode to unwind mode.
And the response was built on four legs:
1. Slow The Pipeline
Amazon paused, delayed, or canceled planned openings. The intent was simple: stop adding new fixed costs while the network already had spare room.
2. Shed Surplus Space
Reports described Amazon trying to vacate or sublease about 10 to 30 million square feet. That wasn’t a small correction. It showed the scale of excess capacity.
3. Trim Labor Growth
Amazon slowed hiring and leaned on attrition. But even a warehouse without volume still needs supervision, safety coverage, and maintenance, so labor costs remained a stubborn expense.
4. Reduce Waste Inside The Network
Amazon began shifting inventory and activity across sites to raise use levels in buildings it kept open. Although the move lifted utilization, it also creates turbulence as flows change.
However, none of these steps was painless. Leasing agreements do not disappear when demand drops, and equipment does not move itself.
Read More: Lessons From Flipkart’s Logistics Network Expansion in 2023.
Lessons From Amazon’s Failed Supply Planning
Amazon’s case teaches a mindset shift for many supply chains and their demand forecasting or supply planning process. Here are some of those:
Lesson 1: Separate Surge Demand From Baseline Demand
There will be seasonal surges. That is almost inevitable. But treating surge volume as the new baseline creates a permanent cost base for a temporary spike. That is how you end up with surplus capacity, as was the case with Amazon. And it is expensive.
Here is a simple practice that can reduce the risk.
Keep two demand tracks in planning meetings:
- Baseline track: what repeat patterns support
- Surge track: what might appear under unusual conditions
If a volume assumption sits in the surge track, it can inform decisions such as short-term options and contingency capacity. It should not, for example, justify a ten-year lease.
Lesson 2: Model The Exit Before You Sign The Lease
The best time to negotiate the exit clause in any lease is before you commit. The second-best time is today. Amazon’s subleasing and lease terminations show the friction cost of reversal.
The lesson for procurement and supply planners is to treat every capacity choice as a two-sided contract:
- What does it cost when you need more space
- What does it cost when you need less space
If the “need less” side is expensive or slow, label the decision as high-risk. And that label should raise the bar for approval.
Lesson 3: Build Capacity in Stages Tied to Real Signals
A large expansion plan should include pause rules that trigger automatically because a plan without stop rules becomes a momentum machine. Amazon’s correction came after the mismatch became visible.
The better approach is to pre-write the rules that freeze commitments when volume drops below a defined band for a defined period.
Lesson 4: Track Utilization Like a Profit Driver Instead of a Warehouse Metric
Low utilization turns good infrastructure into dead weight. The relationship is simple and ruthless. Amazon’s 2022 cost story shows why utilization should sit next to revenue in leadership reviews.
A supply chain leader should be able to state the following by site and by region:
- Occupancy rate of each warehouse
- Productive labor hours
- What fixed costs look like per shipped unit
When those numbers drift, the plan is drifting.
Lesson 5: Watch The Bullwhip in Capacity, Not Only Inventory
The bullwhip effect is usually viewed through the lens of inventory. However, capacity can whip too.
Scott Ruffin described the pattern as “a teenager learning to drive,” with teams “either flooring the gas or slamming the brake.” That image aligns with Amazon’s logistics decisions from 2020 to 2022 and warns against all-or-nothing scaling.
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How African Supply Chains Can Apply These Lessons
Amazon is not an African company, and most African supply chains do not have Amazon’s capital. But the principles still travel well, and they matter even more where cash is tight and volatility is common.
1. Treat Fixed Assets as The Last Step. Not The First Step
In many African markets, a warehouse building or long lease can consume capital that should fund stock, transport, spares, or working capital. Use reversible capacity before permanent capacity.
That can include short leases, shared facilities, and third-party storage, all of which can shrink when demand drops. Just remember that the goal is not to avoid growth. The goal is to avoid trapping cash in empty buildings.
2. Plan With Ranges, Not Single Numbers
A single forecast number may look better, but it hides uncertainty. So, a surge in demand should force honest planning.
A practical approach is to define three volume bands for the next quarter, including the low band, the expected band, and the high band. Then decide which changes to make in each band.
For instance, if volume falls into the low band, what gets paused first? And if volume rises into the high band, what gets added first? This approach keeps expansion tied to evidence, not confidence.
3. Write “Stop Rules” That Protect Cash
“Stop rules” are not slogans. They are triggers. So, tie them to measurable signals. For instance, order volume, factory output, inbound shipments, fill rates, and backlog. When the trigger hits, the response should already be chosen. That removes delay, and it protects cash.
Obinabo Tochukwu Tabansi is a supply chain digital writer (Content writer & Ghostwriter) helping professionals and business owners across Africa learn from real-world supply chain wins and setbacks and apply proven strategies to their own operations. He also crafts social content for logistics and supply chain companies, turning their solutions and insights into engaging posts that drive visibility and trust.
