How Amazon’s Corporate Strategy Affects Its Supplier Selection Criteria
One of the major characteristics of Amazon’s corporate strategy is the company’s strict orientation toward the needs of consumers. In other words, Amazon can be recognized as an ultimately customer-centric business whose main point of difference is the ability to deliver purchased goods within just one day or overnight, as well as replace the purchases that were broken or damaged with no fault of consumers. As a result, Amazon’s extremely organized and efficient supply chain is the backbone of this business. In addition to fast delivery, Amazon’s competitive advantage also is tightly connected to its prices. In other words, Amazon is known for selling a wide range of goods that can be delivered within one or two days for the prices lower than those of its competitors.
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As a result, criteria for the selection of suppliers help the professionals of Amazon to sort through suitable and not suitable vendors. Specifically, since Amazon’s websites are very busy and have a large base of consumers in many countries of the world, Amazon can negotiate prices so that suppliers can sell more items for lower prices and still generate profit. However, the example of the MacMillan case shows that there are challenges in such negotiations. In particular, MacMillan refused to lower their prices, to which Amazon responded by disabling the “buy” buttons on the company’s products. In turn, MacMillan prepared to leave Amazon and take its business to Apple. As a result, Amazon had to agree to MacMillan’s terms. This case signified that regardless of Amazon’s striking success, the company has to compete against some very powerful rivals who can take over at any moment, and so Amazon has to maintain the highest level of quality, the lowest prices, and the fastest delivery and shipping time to retain its customers.
Amazon’s Sourcing Strategy
Jeff Bezos, the leader of Amazon, started this business as online retail of books. Eventually, as Amazon’s success grew, it started to make sense to expand the business. As a result, the sourcing strategy of this business changed as it began targeting music records in addition to its selection of books. Further, Amazon expanded into a variety of other markets, thus diversifying the list of goods that could be purchased on its websites. Also, very quickly, the leaders of Amazon began to develop a so-called eco-system similar to the one that was built by Apple.
To be more precise, Amazon created its digital reader – Amazon Kindle that aligned with the company’s strong presence in the electronic books market. Alongside the expansion of the selection of goods sold online, Amazon also made several acquisitions that boosted its profit and performance allowing the business to grow. Finally, recognizing technologies as one of the most progressive and profitable future markets, at the beginning of the 2000s, the leaders of Amazon decided to expand into the IT market and start offering website development services. Eventually, this endeavor resulted in the creation of Amazon Cloud Drive, as well as Amazon’s ownership of a variety of large online companies such as IMDb, A9, pets.com, and woot!
Amazon’s 2012 Losses: Causes and Treats
At the end of 2012, Amazon posted its first quarterly losses in over five years. These losses were caused by several different factors and management decisions. First of all, one of the causes of the losses was a large amount of money spent on the establishment of several new distribution centers. The second cause was the decision to continue the development of Kindle. Both lines of investment resulted in the decrease in capitals that Bezos hoped to address during the holiday season even though the competition was very tight during the period.
The aforementioned losses resulted in the occurrence of additional threats to Amazon’s business. In particular, the accommodation of new distribution centers would result in some inevitable changes within the company’s supply chain that, consequently, could lead to technical challenges interrupting Amazon’s delivery operations. In turn, these outcomes could cause the loss of clients and a slower profit acquisition.
Prices for Online Goods
The prices for goods sold online are often lower than for the goods offered in brick-and-mortar stores. This is the case because the prices for the goods sold physically are partially comprised of the costs of rent and maintenance of the stores. Free from this burden, online retailers can afford lower prices. In the case of Amazon, the online interface of its websites also attracts a large customer base. In that way, vendors who choose to sell their goods on Amazon can enjoy larger margins than they would by selling independently or using brick-and-mortar stores.
At the same time, operating online, Amazon is threatened by large physical retailers such as Barnes and Noble and Walmart because their stores provide customers with an opportunity to touch the goods and evaluate them before deciding to purchase. In this regard, Amazon cannot help but hope that some buyers will have faith in the quality of goods offered online. In that way, Amazon has an opportunity to grow as the new generation of Millennials strongly prefers online shopping to physical shopping. However, Amazon also faces a threat from the existing powerful competitors in both off- and online segments, as well as the entry of new competitors in the markets where it operates.