Amazon.com was established in the year 1995 with the objective of facilitating convenient shopping experiences on books and media products. Amazon.com specializes in the selling of books, CDs, DVD’s and online magazines. The company began with the selling of online books and later expanded to selling of music as well as movies. Amazon’s media segment accounts for the largest percentage of revenues within United States market.
The company usually competes in the market based on product focused retailers, online marketplaces as well as merchandise retailers in the media segment. There are several competitors within the market which includes eBay and Overstock.com. However, Amazon enjoys superiority since it has capabilities of offering more innovative features, services and execution of logistics.
Additionally, Amazon.com differentiates itself from these companies based on selection, convenience as well as online content. There are wider portfolio products offered by Amazon.com compared to online stores such as Wal-Mart, within its services there are product reviews as well as personalized stores for loyal customers. Their elaborate supply chain assists in effective delivery of numerous stock keeping units (SKUs) at affordable costs.
Amazon.com was unveiled to cater for increasing demand for online media shopping services. The company does not only deal with management and shipping of its own inventory but also offers its services to other retailers hence granting Amazon.com economies of scale.
Due to wide consumer base, Amazon.com sells its products through virtual stores hence not incurring extra cost on operational activities based on opening physical retail stores. The nature of their supply chain is attributed to company’s capability of carrying wider selection of inventory, hence still able to maintain competitive advantage over other retailers.
Supply Chain
Amazon.com has continued to expand over the last decade leading to creation of a number of distribution centres. Some distribution centres were eliminated in the year 1999 due to various complications. However, challenge still remains in the growth of internal distribution centres based on required capacity.
At the same time decisions concerning choice of items to store and warehouse designs has proved a great challenge. Application of ‘per order’ basis presents a challenge especially when it comes to deciding on whoever is responsible in signing an order. Customers make online purchases of which they require real-time delivery as per scheduled dates.
Such method makes it cumbersome when it comes to operational costs incurred in delivery processes especially when items are stored in different facilities. Despite such challenges, there’s improvement in the fulfilment of costs incurred on all processes within the supply chain.
Fig 1: Amazon.com Supply chain
Inventory Management
Amazon.com inventory is managed through partnerships with distributors, publishers as well as manufacturers. The company has continued to realize growth in the number of third-party sellers who makes it possible provision of unlimited product selection hence avoiding purchase of inventory.
Such kind of multi-tier supply possess lots of challenges as well as opportunities when it comes to making decisions based on inventory storages within facilities and upstream tiers within the expansive supply chain. They offer free shipping as well as options enabling them maintain longer service windows towards customers.
Amazon supports it multi-million products sale through multi-tier kind of inventory network formation. The tiers are contained within their website www. Amazon. Com which is shared by all customers. Within the supply chain channel, the first tier represents central distribution centre.
This is where inventories are accumulated leading to less work on overall inventory as compared to retail stores operating physical stores. Accumulation of inventory within central distribution centres enables quicker responses towards fluctuations in geographic demand. Amazon.com uses periodic system where inventory are managed physically and resulting figure ultimately used in adjustment of balance sheet inventory asset account.
The second tier comprises of wholesalers and constituent distribution centres which includes; Ingram Book Distributors, Baker and Taylor as well as other media and book distributors. Amazon.com’s IT system has got the capability of dealing with out-of-stock items which are not directly sold through inventory. Third-tier comprises of those dealing with publishing, manufacturing and third-party sellers. These channels ensures that Amazon.com does not incur extra costs hence improve on profit margins.
Other inventory management system include; moving from Purchase orders (POs) to Min/Max Replenishment and Pull-based Replenishment with Suppliers. Pull-Based system enables suppliers to build product’s forecast capable of pushing it to suitable locations. In this case product ownership belongs to supplier until buyer takes the product. While in ‘moving from POs to Min/Max Replenishment’, the company sets necessary minimum and maximum target levels for products.
Supply chain management issues
Amazon.com experiences a number of management issues within supply chain since its pioneering into retailing through the internet. Several challenges exists in the nature of design of the supply chain, nature of segmentation done on inventory, transportation, fulfilment processes as well as processes undertaken by customers to order for products online.
European markets grew so fast making it difficult for the company to decide on a number of distribution centres for the purposes of supporting seasonal increase in demand for online books. At the same time Amazon.com is faced with the challenge of making solid decisions concerning inventory storage.
The same difficulty is encountered during assortment of products in the event of identifying those to be supplied by third-party affiliates. Also potential challenge emerged in transport and delivery processes whereby identifying lowest cost solution for serving customers with real time services became an issue.
Dealing with transportation and delivery issues seem cumbersome owing to the nature of customer base supplied by the small orders. Cutting on transportation costs would call for leveraging of scale and service windows. Amazon utilized the use of injection points in Europe as done in the United States, where supply points are created within areas with high number of customers.
At the same time the company applies sales and operations concept for the purposes of planning. This ensures proper forecast on each product within distribution stores. All the tracking processes are kept in real-time depending on the nature of delivery process used.
Use of PRM and CRM
Partner relationship management (PRM) and customer relationship management (CRM) represents concepts used within the supply chain management. Both are systems designed for the purposes of meeting lead distribution and management within organizations. CRM is used in the process of managing direct sales between seller and client enabling extensive sharing of data.
Within Amazon.com, customers are provided with personal online accounts which enable easy access company’s services. The use of the website www.amazon.com reinforces ownership relationship with customers.
On the other hand PRM is designed for the purposes of managing complicated environment comprising of related organizations. In this case Amazon.com uses variety of suppliers such as Ingram Book, Baker and Taylor book distributors to replenish their inventory distribution centres. This also includes publishers, CD as well as DVD manufacturers.
Amazon.com is known to be utilizing the use of modern technologies such as EDI (electronic data information) for the purposes of differentiating itself within the online market. EDI supports back-end supply chain activities since it operates on highly customized software applications compatible with company’s supply chain business model.
The technology enables easier tracking of products from within storefront to different supply chain partners and ultimately delivery to consumers. There is provision of efficient collaboration between suppliers and the point where orders are sourced. At the same time there exists numerous internal distribution centre processes connected through appropriate technological interfaces.
Amazon.com’s warehouse management system (WMS) are interconnected and marked with different lines of code matching their websites. Efficiency within the internal distribution centres are enabled by use of WMS. In addition, proprietary information technology enables concrete support of Amazon.com’s business model. RFID assists in providing value at crucial points such as inventory analysis and accuracy in real-time information.
Push and Pull strategies
Push and pull strategies are usually used in the event of ensuring constant supply and mobilization of resources within the supply chain. Such concepts are adopted with the aim of improving business operations within Amazon.com. Push strategy is utilized for the purposes of positioning resources within suitable positions capable of satisfying consumer needs and expectations. Push model ensures that Amazon.com’s supply chain contains enough facilities capable of operating based on standardized processes.
Such model assists in scheduling activities along the supply chain hence ensuring that resources are utilized towards meeting global demand for online library services. Amazon.com uses push model within their CBUs, this is since Push model operates from central perspective where all decisions concerning products are done within the central distribution centres.
On the other hand pull strategies involves more of human capital especially in development of foundational principles capable of assisting those actively involved along the supply chain based on appropriate mobilization of right resources. Pull models assist in dealing with uncertainty within multinational companies such as Amazon.com.
The model assists in the event of improving working efficiencies of various sections within the supply chain hence enabling immediate satisfaction of intended needs. There are usually rich ideas within company set-ups which require utilization. Such ideas are consolidated and analysed through pull model for the purposes of attending to rising demand on online books as well as media products.
Pull model identifies appropriate domains required for the purposes of applying efficient solutions towards intended tasks such as hauling products from manufacturers to retail stores. Consumers are important entities when within the context of pull models based on their creative contributions.
Such concepts assist in empowering organizations towards greater achievements based on their relationship with consumers. Amazon.com uses pull model within their transport and picking system where products are picked from shelves depending on item and volume requested.
Fig 2: Push and Pull Model
Delivery lead time Order lead time
Application of cross-docking technique
Amazon.com can utilizes its rich transportation network within various regions to create injection points. Such transportation hubs are used as cross-docking facilities used in transporting products from low long-haul transporters to immediate and last delivery parties along the supply chain just for the purposes of reducing overall operating costs.
The whole process starts from distribution canters where various orders are sorted out based on how faster customers can be found. All orders are therefore accumulated and distributed in form of batches for the purposes of creating some level of organization and effectiveness within internal outbound distribution centre processes. Long-haul vehicles can be contracted to assist in transportation of products between distribution centre and main transportation hub within customer concentrated regions.
After which small batches are delivered through parcel carriers’ up to customer doorsteps. In Amazon.com the process begins at consolidation of orders within distribution centres, then contracting less than truckload shippers (LTL) for transportation from Distribution Centres to transportation hubs where packages are sorted into smaller parcels before reaching customers.
Amazon.com routes order request to distributors such as Ingram Book Distributors who picks the order and packs it within Amazon.com box and ultimately shipping to customer.
Application of zone skipping enables segmentation of operation regions into appropriate delivery zones. Long-haul transportation is used to supply various inject zones for the purposes of avoiding accumulated charges within regions of operation.
However, there is need for strong customer base served by appropriate service window method capable of enabling accumulation of orders. Various shipping prices provided enables customers to enjoy free shipping on orders above twenty five United States dollars. This makes it possible the adjustments on the service window.