The Everything Store: Jeff Bezos and the Age of Amazon (23 page)

Amazon once tried to conquer chaos by synchronizing its employees’ efforts with broad unifying themes like Get Big Fast and Get Our House in Order. That had gotten everyone paddling in the same direction, but now the company had become too big for that kind of transparent sloganeering.

During these years of its awkward adolescence, Bezos refused to slow down, doubling and tripling his bet on the Internet and on his grand vision for a store that sold everything. To guide his company through this transition, he created an unorthodox organizational structure with a peculiar name. And to quell the turmoil in the distribution centers, he started to rely on a young executive named Jeff Wilke, whose cerebral and occasionally impatient management style mirrored his own. “They fed off each other,” says Bruce Jones, a supply-chain vice president. “Bezos wanted to do it and Wilke knew how to do it. It was a hell of a lot of fun, in a very Machiavellian sort of way.”

Jeff Wilke’s job was to fix the mistakes of his predecessor. Jimmy Wright and his cowboy crew from Walmart had designed Amazon’s nationwide logistics network in the late nineties and were the best in the world at building large-scale retail distribution. But in moving quickly to satisfy Bezos’s open-ended goal to store and ship everything, they had created a system that was expensive, unreliable, and hungry for an emergency influx of employees from Seattle at the end of every year. “It was a mess,” says Bruce Jones. “It was pretty much how Walmart did all their distribution centers, which
was great if you had to send out five thousand rolls of toilet paper. But it was not well suited to small orders.”

Wilke was from suburban Pittsburgh, the son of an attorney; his parents divorced when he was twelve. He learned he had a talent for mathematics in the sixth grade when to his surprise he placed second in a regional math tournament. When he was fifteen and visiting his grandparents in Las Vegas, he was enthralled by a casino’s video-poker machine. He went home and replicated it on his first-generation personal computer, called the Timex Sinclair 1000 (internal memory: 2 KB). Wilke got straight As throughout school but his guidance counselor told him not to apply to Princeton University because no one from Keystone Oaks High School had ever been admitted to the Ivy League. He applied anyway and got in.

Wilke graduated summa cum laude from Princeton in 1989, three years after Bezos. He earned an MBA and an MS from the Massachusetts Institute of Technology’s engineering/MBA dual-degree program. Called Leaders for Manufacturing (now it’s Leaders for Global Operations), the program is a novel alliance of MIT’s business school, its engineering school, and partner companies, like Boeing, created to address emerging global competition. Mark Mastandrea, an MIT classmate who would follow him to Amazon, says that Wilke “was one of the smartest people I had ever come across. He got to the answers faster than anyone else.”

Wilke began his career at Andersen Consulting and then joined AlliedSignal, the manufacturing giant, which was later acquired by Honeywell. He quickly climbed the ranks to vice president, reporting directly to CEO Larry Bossidy and running the company’s $200-million-a-year pharmaceutical business. In AlliedSignal’s headquarters in Morristown, New Jersey, Wilke was immersed in the corporate dogma of Six Sigma, a manufacturing and management philosophy that seeks to increase efficiency by identifying and eliminating defects.

Back in 1999, Scott Pitasky, an Amazon recruiter who later became the head of human resources at Microsoft, was put in charge of finding a replacement for Jimmy Wright. Pitasky had previously
worked with Wilke at AlliedSignal, so he thought of his former colleague after concluding that Amazon needed someone who was smart enough to go toe to toe with Jeff Bezos, who delighted in questioning how everything was done.

Pitasky tracked Wilke down on a business trip in Switzerland and pitched him on taking over the critical distribution network at Amazon. He told Wilke that he would have the chance to build a unique distribution network and define a nascent industry, an opportunity that simply didn’t exist at AlliedSignal. Working quickly, Pitasky convinced then COO Joe Galli, visiting his children at the time on the East Coast, to meet Wilke at a hotel restaurant near Dulles International Airport as soon as Wilke returned to the States.

All of thirty-two years old at the time, with a toothy smile and unfashionable eyeglasses, Wilke did not immediately present the picture of a dynamic leader. “He was not a charismatic communicator,” Galli says. “He was an extremely smart and thoughtful supply-chain expert who relied on fact-based analysis and wanted to zero in and do the right thing.” Over dinner that night, and during a separate trip Galli made to visit Wilke and his wife, Liesl, at their home in New Jersey, the pair bonded. Wilke and Galli were both from Pittsburgh and had similar middle-class roots. Ever the salesman, Galli piqued Wilke’s interest in the massive logistics challenges Amazon faced. Wilke then visited Seattle to interview with Bezos and Joy Covey. He joined the company soon after as vice president and general manager of worldwide operations. After his last conversation with Larry Bossidy, who had just announced his retirement from AlliedSignal, the veteran CEO gave him a hug.

Immediately upon moving to Seattle, Wilke set about filling the ranks of Amazon’s logistics division with scientists and engineers rather than retail-distribution veterans. He wrote down a list of the ten smartest people he knew and hired them all, including Russell Allgor, a supply-chain engineer at Bayer AG. Wilke had attended Princeton with Allgor and had cribbed from his engineering problem sets. Allgor and his supply-chain algorithms team would become Amazon’s secret weapon, devising mathematical answers to
questions such as where and when to stock particular products within Amazon’s distribution network and how to most efficiently combine various items in a customer’s order in a single box.
¹

Wilke recognized that Amazon had a unique problem in its distribution arm: it was extremely difficult for the company to plan ahead from one shipment to the next. The company didn’t store and ship a predictable number or type of orders. A customer might order one book, a DVD, some tools—perhaps gift-wrapped, perhaps not—and that exact combination might never again be repeated. There were an infinite number of permutations. “We were essentially assembling and fulfilling customer orders. The factory physics were a lot closer to manufacturing and assembly than they were to retail,” Wilke says. So in one of his first moves, Wilke renamed Amazon’s shipping facilities to more accurately represent what was happening there. They were no longer to be called warehouses (the original name) or distribution centers (Jimmy Wright’s name); forever after, they would be known as fulfillment centers, or FCs.

Before Wilke joined Amazon, the general managers of the fulfillment centers often improvised their strategies, talking on the telephone each morning and gauging which facility was fully operational or had excess capacity, then passing off orders to one another based on those snap judgments. Wilke’s algorithms seamlessly matched demand to the correct FC, leveling out backlogs and obviating the need for the morning phone call. He then applied the process-driven doctrine of Six Sigma that he’d learned at AlliedSignal and mixed it with Toyota’s lean manufacturing philosophy, which requires a company to rationalize every expense in terms of the value it creates for customers and allows workers (now called associates) to pull a red cord and stop all production on the floor if they find a defect (the manufacturing term for the system is
andon
).

In his first two years, Wilke and his team devised dozens of metrics, and he ordered his general managers to track them carefully, including how many shipments each FC received, how many orders were shipped out, and the per-unit cost of packing and shipping each item. He got rid of the older, sometimes frivolous names for
mistakes—Amazon’s term to describe the delivery of the wrong product to a customer was
switcheroo
—and substituted more serious names. And he instilled some basic discipline in the FCs. “When I joined, I didn’t find time clocks,” Wilke says. “People came in when they felt like it in the morning and then went home when the work was done and the last truck was loaded. It wasn’t the kind of rigor I thought would scale.” Wilke promised Bezos that he would reliably generate cost savings each year just by reducing defects and increasing productivity.

Wilke elevated the visibility of his FC managers within Amazon. He brought them to Seattle as often as possible and highlighted the urgency of their technical issues. During the holiday season, in what remains today his personal signature, Wilke wore a flannel shirt every day as a gesture of solidarity with his blue-collar comrades in the field. Wilke “recognized that a general manager was a difficult job and he made you feel you were in a lifelong club,” says Bert Wegner, who ran the Fernley FC in those years.

Wilke had another tool at his disposal: like Bezos, he had an occasionally volcanic temper. Back in the fall of 2000, the software systems in Amazon’s FCs were still incapable of precisely tracking inventory and shipments. So that holiday, Wilke’s second one at the company, during the annual race to Christmas that the company internally referred to as the big push, Wilke started a series of daily conference calls with his general managers in the United States and Europe. He told his general managers that on each call, he wanted to know the facts on the ground: how many orders had shipped, how many had not, whether there was a backlog, and, if so, why. As that holiday season ramped up, Wilke also demanded that his managers be prepared to tell him “what was in their yard”—the exact number and contents of the trucks waiting outside the FCs to unload products and ferry orders to the post office or UPS.

One recurring trouble spot that year was the fulfillment center in McDonough, Georgia, a working-class city thirty miles south of Atlanta. In the heat of the tumultuous holiday season, McDonough—the source of the infamous Jigglypuff crisis of 1999—was regularly
falling behind schedule. Its general manager, a once and future Walmart executive named Bob Duron, was already skating on thin ice when Wilke surveyed his managers on a conference call and asked them what they had in their yards. When he got to McDonough, Duron apparently hadn’t gotten the message and said: “Hold on a second, Jeff, I can see them outside my window.” Then he leaned back in his chair and started counting aloud on the phone. “I’ve got one, two, three, four…”

Wilke went off like a bomb. He was calling that day from his home office on Mercer Island, and he started screaming—an oral assault of such intensity and vulgarity that the handsets of the general managers on the call shrieked with feedback. And then, just as abruptly as the outburst began, there was quiet. Wilke had seemingly disappeared.

No one said anything for thirty seconds. Finally Arthur Valdez, the general manager in Campbellsville, said quietly, “I think he ate the phone.”

There were various interpretations of what actually happened. Some claimed that in his rage, Wilke had inadvertently yanked the phone cord out of the wall. Others speculated that he had thrown the receiver across the room in his fury. A decade later, over lunch at an Italian brasserie near Amazon’s offices, Wilke explains that he had actually still been on the line but was simply so angry that he could no longer speak. “We were just struggling to make it work on a whole host of different levels in McDonough,” he says. “We were struggling to recruit the right leaders, and struggling to get enough people to work there.”

That spring, with Amazon sprinting toward its profitability goal, Wilke shut down McDonough and fired four hundred and fifty full-time employees. Closing the facility wouldn’t solve Amazon’s problems; in fact, the reduction in capacity put even more pressure on Amazon’s other fulfillment centers. The company was already running at capacity over the holidays and sales were growing at more than 20 percent a year. Now Amazon had no choice but to master the complexity of its own systems and get more out of the investments it had already made.

Wilke had burned a boat in mid-voyage, and for the Amazon
armada, there was no turning back. Along the way, he was exhibiting a style—leadership by example, augmented with a healthy dose of impatience—that was positively Bezosian in character. Perhaps not coincidentally, Wilke was promoted to senior vice president a little over a year after joining Amazon. Jeff Bezos had found his chief ally in the war against chaos.

At a management offsite in the late 1990s, a team of well-intentioned junior executives stood up before the company’s top brass and gave a presentation on a problem indigenous to all large organizations: the difficulty of coordinating far-flung divisions. The junior executives recommended a variety of different techniques to foster cross-group dialogue and afterward seemed proud of their own ingenuity. Then Jeff Bezos, his face red and the blood vessel in his forehead pulsing, spoke up.

“I understand what you’re saying, but you are completely wrong,” he said. “Communication is a sign of dysfunction. It means people aren’t working together in a close, organic way. We should be trying to figure out a way for teams to communicate less with each other, not more.”

That confrontation was widely remembered. “Jeff has these aha moments,” says David Risher. “All the blood in his entire body goes to his face. He’s incredibly passionate. If he was a table pounder, he would be pounding the table.”

At that meeting and in public speeches afterward, Bezos vowed to run Amazon with an emphasis on decentralization and independent decision-making. “A hierarchy isn’t responsive enough to change,” he said. “I’m still trying to get people to do occasionally what I ask. And if I was successful, maybe we wouldn’t have the right kind of company.”
²

Bezos’s counterintuitive point was that coordination among employees wasted time, and that the people closest to problems were usually in the best position to solve them. That would come to represent something akin to the conventional wisdom in the high-tech industry over the next decade. The companies that embraced this
philosophy, like Google, Amazon, and, later, Facebook, were in part drawing lessons from theories about lean and agile software development. In the seminal high-tech book
The Mythical Man-Month,
IBM veteran and computer science professor Frederick Brooks argued that adding manpower to complex software projects actually delayed progress. One reason was that the time and money spent on communication increased in proportion to the number of people on a project.