Amazon's Role in the Retail

„To E or not to Be“ Amazon's role in the retail industry How is Amazon able to differentiate itself from its competitors and why is its supply chain strategy so significant for its success?

Bachelor Thesis for Obtaining the Degree

Bachelor of Business Administration in

Tourism and Hospitality Management

Submitted to Miguel Suarez

Nicole Bluschke

1311069

Vienna, 13 June 2016

Affidavit I hereby affirm that this Bachelor’s Thesis represents my own written work and that I have used no sources and aids other than those indicated. All passages quoted from publications or paraphrased from these sources are properly cited and attributed.

The thesis was not submitted in the same or in a substantially similar version, not even partially, to another examination board and was not published elsewhere.

13 June 2016

Date Signature

Abstract This study aims to clarify the position of Amazon in the retail industry which it primarily gained through high-level supply chain and logistics developments. The first part of this research describes the retail industry, especially E-Commerce, as well as supply chain practices whereas the second part focuses on Amazon as a representative company. Drivers of the company's supply chain as well as numerous product and service developments such as Anticipatory Shipping, Amazon's Chaotic Storage Model and Amazon's Logistics Network Plan are identified and discussed. It becomes apparent that constant innovation in a supply chain context has more extensive and significant long-term effects on company success than large profit figures. A comparison of Amazon with Apple, Google, Walmart and other relevant companies shows that Amazon's supply chain is more diverse, implying that numerous services that are offered by competitors are combined within Amazon and its supply chain. Amazon's supply chain may be described by an efficient and flexible inventory management, fast delivery fulfillment, effective collaborations with partners, strategic acquisitions of supporting systems and companies and a high level of customer service. The results of this research paper may direct future studies towards the investigation of further competitive advantages of Amazon as well as how potential threats and weaknesses a company faces may be overcome in a supply chain context.

Table of Contents

AFFIDAVIT 2

ABSTRACT 3

LIST OF TABLES 7

LIST OF FIGURES 8

LIST OF ABBREVIATIONS 9

1 INTRODUCTION 10

1.1 RESEARCH PROBLEM AND RESEARCH QUESTION 11

1.2 METHODOLOGY 12

2 LITERATURE REVIEW 13

2.1 INTRODUCTION TO THE RETAIL INDUSTRY 13

2.1.1 ORGANIZATIONAL CONCEPTS 13

2.1.2 TOP 250 RETAILERS WORLDWIDE 14

2.1.3 RETAIL TRENDS AND PREDICTIONS 2016 15

2.1.4 SUPPLY CHAIN APPLICATIONS IN THE RETAIL BUSINESS 16

2.2 E-COMMERCE 16

2.2.1 FRAMEWORK FOR ELECTRONIC COMMERCE 17

2.2.2 E-COMMERCE CLASSIFICATION AND CONTENT 18

2.2.3 BENEFITS OF E-COMMERCE 18

2.2.4 LIMITATIONS OF E-COMMERCE 19

2.2.5 IMPACT ON MARKET AND RETAILERS 20

2.2.6 IMPACT ON SUPPLY CHAINS AND THEIR MANAGEMENT 20

2.2.7 MASTERCARD OMNISHOPPER REPORT 21

2.3 SUPPLY CHAINS AND THEIR MANAGEMENT 25

2.3.1 DETERMINANTS OF SUPPLY CHAIN SUCCESS 26

2.3.2 SUPPLY CHAIN STRATEGY 26

2.3.3 DRIVERS OF SUPPLY CHAIN PERFORMANCE 27

2.3.4 SOURCING 28

2.3.5 INVENTORY 28

2.3.6 TRANSPORTATION 29

2.3.7 FACILITIES AND NETWORK DESIGN 30

2.3.8 PRICING 31

2.3.9 INFORMATION 31

2.4 INFORMATION TECHNOLOGY APPLICATIONS AND SUPPLY CHAIN AUTOMATION 31 2.4.1 RFID 33

2.5 FINANCIAL MANAGEMENT IN LOGISTICS 33

3 AMAZON CASE STUDY 34

3.1 GENERAL INFORMATION AND COMPANY BACKGROUND 34

3.2 BUSINESS STRATEGY AND BUSINESS MODEL 35

3.3 AMAZONS' FINANCIAL POSITION 36

3.4 AMAZON'S SUPPLY CHAIN 38

3.5 SUPPLY CHAIN DRIVERS OF AMAZON 40

3.5.1 INVENTORY PLANNING AND MANAGEMENT 40

3.5.2 AMAZON'S FACILITIES 42

3.5.3 AUTOMATED WAREHOUSES AND KIVA ROBOTS 44

3.5.4 FBA – FULFILLMENT BY AMAZON 45

3.5.5 PRICING ADJUSTMENT STRATEGY 46

3.5.6 TRANSPORTATION 47

3.5.7 AMAZON'S LOGISTICS 47

3.5.8 ANTICIPATORY SHIPPING 48

3.5.9 AMAZON DASH BUTTON DELIVERY 48

3.5.10 INFORMATION AND TECHNOLOGY 49 3.5.11 RFID 50

3.6 AMAZON'S CUSTOMER SERVICE 51

3.6.1 RESPONSE TIME TO CUSTOMERS 51

3.6.2 PRODUCT VARIETY AND AVAILABILITY 51

3.6.3 CUSTOMER EXPERIENCE 52

3.6.4 TIME TO MARKET 52

3.6.5 RETURNABILITY 52

3.7 SUPPLIER CODE OF CONDUCT 53

4 AMAZON'S COMPETITION 55

4.1 GARTNER LIST 59

4.2 TOP 50 E-RETAILERS 60

4.3 THE Q RATIO 61

5 DISCUSSION AND ANALYSIS 63

5.1 SWOT ANALYSIS 63

5.2 PORTER'S FIVE FORCES 64

5.2.1 THREAT OF SUBSTITUTE PRODUCTS OR SERVICES 65

5.2.2 THREAT OF NEW ENTRANTS 65

5.2.3 BARGAINING POWER OF CUSTOMERS 65

5.2.4 BARGAINING POWER OF SUPPLIERS 66

5.2.5 COMPETITIVE RIVALRY WITHIN THE INDUSTRY 66

5.3 GLOBAL VALUE CHAIN ANALYSIS 66

5.3.1 GLOBAL VALUE CHAIN CLASSIFICATIONS 66

5.3.2 PORTER'S GLOBAL VALUE CHAIN 67

6 CONCLUSION 70

6.1 IMPLICATIONS AND RECOMMENDATIONS 74

6.2 LIMITATIONS 75

6.3 DIRECTIONS FOR FUTURE RESEARCH 76

BIBLIOGRAPHY 77

APPENDICES 86

APPENDIX 1 AMAZON Q4 2015 FINANCIAL RESULTS 86

APPENDIX 2 MWVL OVERVIEW AMAZON FACILITIES 104

APPENDIX 3 AMAZON SUPPLIER CODE OF CONDUCT 105

List of Tables Table 1: Organizational Concepts in Retailing (Kalakota et al., e-Business 2.0 – Looking over the New Horizon, 2000)

Table 2: Top 250 retailers (Deloitte, Global Powers of Retailing 2016. Navigating the new digital divide, 2015)

Table 3: E-Commerce Classification Models and Characteristics (DigitSmith, E- Commerce definition and types of E-Commerce, n.d.)

Table 4: Benefits of E-Commerce (Turban et al., Electronic Commerce 2008, 2008)

Table 5: Amazon's Competitors

Table 6: Global Value Chain Classification (Gereffi et al., The governance of global value chains, 2005)

Table 7: Amazon's Global Value Chain

List of Figures Figure 1: The Dimensions of Electronic Commerce (Önder, I. New Media & E- Business Applications - Electronic Commerce: Definitions and Concepts. (2014))

Figure 2: How has technology changed the way that you shop? (MasterCard, The Omnishopper Project, 2015)

Figure 3:How often do you use technology when shopping? (MasterCard, The Omnishopper Project, 2015)

Figure 4: Why don't you shop more online? (MasterCard, The Omnishopper Project, 2015)

Figure 5: Where online is better than in-store (MasterCard, The Omnishopper Project, 2015)

Figure 6: Where in-store is better than online (MasterCard, The Omnishopper Project, 2015)

Figure 7: Supply Chain Strategy Dimensions (Lee, Aligning Supply Chain Strategies with Product Uncertainties, 2002)

Figure 8: IT systems classification in a SCM context (Mangan et al., Global Logistics and Supply Chain Management, 2008)

Figure 9: The Gartner Supply Chain Top 5 for 2015 (Aronow et al., The Gartner Supply Chain Top 25 for 2015, 2015)

Figure 10: Top 20 e-retailers (Deloitte, Global Powers of Retailing 2015, Navigating the new digital divide, 2015)

Figure 11: Top 10 retailers by Q ratio (Deloitte, Global Powers of Retailing 2016, Navigating the new digital divide, 2015)

Figure 12: SWOT Analysis Amazon's Supply Chain

List of Abbreviations ASEAN – Association of Southeast Asian Nations

AWS – Amazon Web Services

B2B2C – Business to Business to Consumer

B2E – Business-to-Employee

BRIC – Brazil, Russia, India, China

CEO – Chief Executive Officer

CFO – Chief Financial Officer

CPFR – Collaborative Planning, Forecasting and Replenishment

EDI – Elecfronic Data Interchange

ERP – Enterprise-Resource-Planning

EU – European Union

FBA – Fulfillment By Amazon

IT – Information Technology

MRP – Materials Requirements Planning

MRPII – Manufacturing Resource Planning

R&D – Research and development

RFID – Radio-frequency Identification

ROA – Return on Assets

ROI – Return on Investment

SCM – Supply Chain Management

SWOT Analysis – Strenghts, Weakenesses, Opportunities, Threats Analysis

UCLA – University of California, Los Angeles

VMI – Vendor Managed Inventory

WMS – Warehouse Management Systems

1 Introduction Until approximately 25 years ago, a product order that was placed, took between 15 to 30 days to be entirely fulfilled (Ali, 2015). Nevertheless, even when planning was accurate, this time frame often extended to more than 30 days. Reasons for delayed deliveries and long lead times, meaning the time frame between an order initiation and the completion of a production process, were mostly inventory shortages, misplaced orders or wrong shipments (Bowersox et al., 2007). Today it is not imaginable or acceptable for any customer to be forced to wait longer than a week for an order. The combination of wide choice, constant availability, IT systems and quick transportation has created “perfect orders” (Bowersox et al.,2007). According to the authors mentioned, perfect orders are defined as „delivering the desired assortment and quantity of products to the right location on time, damage-free and correctly invoiced“ (Bowesox et al., 2007). As years ago the above mentioned requirements were exceptions in the retail industry, today, those are every customer's expectations. This shows that in the past 20 to 25 years the retail industry has gone through various changes, shifts and optimization processes. One development which mainly influenced and revolutionized the industry and the linked customer approach, was the introduction of E-Commerce. Another business aspect which has gone through numerous developments and changes, and which has therefore gained importance in previous years, are companies' supply chains. As evaluated by Mahdavi et al., changes and adaptions in global economy are omnipresent, fast and dynamic. This also implies that today special emphasis is put on the role of supply chains, supply chain management and supply networks (Mahdavi et al., 2011).

One of the most successful companies in the E-Commerce sector today is Amazon which, according to Chopra et al., is „one of the pioneers of consumer e- business“(Chopra et al., 2007). The great impact of Amazon on the E-Business industry cannot only be explained by the fact that the company constantly strives for innovation and development and continuously introduces new products, but also by the fact that Amazon is retailer and marketplace at once.

This strategic combination creates economies of scale which are, according to The Economist, unreachable by rivaling companies (The Economist, 2011). Amazon has

been growing rapidly since its emergence in 1994 and is the largest „pure-play“ E- retailer world-wide today. As the success of “click-and-mortar”- companies, meaning organizations who are involved in E-commerce that do not possess physical outlets, is closely related to supply chain management and network development, the following research tries to identify and discuss Amazon's strategic approach in the named fields.

The first part of this paper primarily discusses the revolution of the retail industry, gives an insight into the E-commerce sector and critically reviews the importance of supply chain strategy and management for a company. As assessed by Agarwal, various factors such as the brand, personalization and merchandising may be significant for a company's success. However, he concludes that the supply chain can be seen as the basis of E-commerce success (Agarwal, 2014). The second half of this research focuses on the real life implication and analysis of topic-related theories based on the company Amazon and its position in the overall retailing and E- commerce industry. It includes the discussion and analysis of the company's supply chain, its financial performance and the identification of success factors as well as differentiating factors in comparison to rivaling companies. Furthermore, along with a supply chain-centered SWOT analysis, Amazon is furthermore analyzed by applying Porter's five forces. Lastly, Amazon’s global value chain will be discussed.

At the end a conclusion will be reached, answering the central research question concerning Amazon's ability to differentiate itself from its competitors and the significance of its supply chain strategy, and recommendations for Amazon will be shortly discussed.

1.1 Research Problem and Research Question This paper focuses on the development of the retail business, the introduction of E- commerce and the role of supply chain management as a critical success factor. In this context, Amazon is analyzed as a representative company.

The main research questions therefore is formulated as: “How is Amazon able to differentiate itself from its competitors and why is its supply chain strategy so significant for its success?”

1.2 Methodology The information for the following paper was collected by critically reviewing secondary data and summarizing it into a literature review. According to Hair et al., a literature review is a “comprehensive examination of available information that is related to a research topic” (Hair et al., n.d.).

The purpose of a literature review is the identification, description and evaluation of previous studies and the critical assessment of possible research gaps.

For this paper, secondary data was gathered from academic and commercial publications, newspapers as well as official company reports.

The second part of this research follows a case study approach which will be further discussed and explained in Chapter 3 “Amazon Case study” of this paper.

2 Literature Review 2.1 Introduction to the retail industry The retail sector is characterized by multiple processes where businesses or individuals sell items or services to consumers using various channels in order to reach a specific level of financial wealth (Harper, n.d.). As summarized by Mahdavi et al., the majority of organizations in the retail sector contains and manages five business processes, namely buy, make, store, move and sell (Mahdavi et al., 2011). As furthermore analyzed by Ferrara, retailing adds up to being one of the most extensive and widely-expanded sectors today (Ferrara, n.d.). As Deloitte researched, major markets involved in the retail sector are the United States, China, Europe and Japan. Additionally, emerging markets with steadily increasing importance, are BRIC-countries Brazil, Russia and India (Deloitte, 2015).

The retail industry generally contains interactions between its three core pillars, which are Logistics, Merchandising and Stores (Sehgal, 2013). As concluded by Deloitte, the retail industry is characterized by high sensitivity towards new market entrants, intense price competition and dynamic consumer tastes (Deloitte, 2015).

2.1.1 Organizational Concepts The retail sector can be categorized into three main concepts, namely brick-and- mortar, virtual and click-and-brick (Kalakota et al., 2000) which are shortly summarized and characterized in Table 1 below. In recent years, competition has increased between these concepts, enlarging opportunities and threats for all involved parties and stakeholders.

Table 1: Organizational Concepts in Retailing (Kalakota et al., e-Business 2.0 – Looking over the New Horizon, 2000)

2.1.2 Top 250 retailers worldwide In 2015, Deloitte published its “Global Powers of Retailing 2016”-report, containing a highly-detailed analysis of the 250 strongest retailers globally. The Top 20 of the “Global Powers of Retailing 2016”-report is visualized in Table 2 below whereas the generated data which the report is based on originated in the fiscal year 2014.

Heavily decreasing oil prices determined economic winners and losers in 2014 (Deloitte, 2015). According to the research paper by Deloitte, oil importing countries resulted in increased consumer purchasing power. Nevertheless, net profit margins as well as the ROA generally decreased.

Out of 250 companies, 198 published net income figures whereas 90% of these businesses were profitable. According to Deloitte, accounted revenues from the Top 250 retailers, totaled almost 4,5 trillion dollars (Deloitte, 2015). The most powerful retailer of 2015 was US-based Walmart with a retail revenue of over 485 million $. Among the Top 10, five companies originated in the United States, whereas the other five are prominent European organizations. Carrefour, ranked on Place 6, has the widest cross-country reach as it is currently operating in 34 countries. In addition to its 250 Top Retailers-report, Deloitte's report furthermore includes a ranking which is solely focusing on E-Commerce. An insights into the Top 50 E-retailers will be given in Chapter 4.2 “Top 50 E-retailers” of this study.

Table 2: Top 250 retailers (Deloitte, Global Powers of Retailing 2016. Navigating the new digital divide, 2015)

2.1.3 Retail Trends and Predictions 2016 As for every year, Vend, a retail management platform which mainly develops software for usage in the E-Commerce sector, published its predictions on trends which are likely to occur in the retail industry in 2016 (Vend, 2016). The first trends which were identified, are increased and eased payment options for consumers. An example which Vend named, were the broader usage opportunities of PayPal. Furthermore, retailers will be increasingly facing the “click-and-collect”- principle, meaning that consumers may order items online and, instead of receiving these by post, may pick up the products at physical stores. This frictionless shopping has been heavily discussed in recent trend reports – especially since the introduction of Amazon Dash, which will be further discussed in Chapter 3.5.9 “Amazon Dash Button Delivery” of this paper.

Moreover Vend predicts that pure-play offline retailers will lose importance and therefore companies will continue working on online presence. As further evaluated by Vend, generally technology and attached social media channels will become more significant to a company's success.

The MasterCard Omnishopper Report, which will be further discussed in Chapter 2.2.8 “MasterCard Omnishopper Report”, underlines this hypothesis as it analyzed that 80% of consumers use technology while shopping (MasterCard, 2015).

2.1.4 Supply Chain Applications in the Retail Business Haksever et al. analyzed that sales volume as well as profitability ratios are directly affected by the level of customer exposure to products (Haksever et al., 2013). More specifically, this implies that an increased rate of exposure typically leads to greater sales figures and thereby to a higher ROI. This exposure rate can be easily modified and adjusted by changing store arrangements and product allocation. Haksever et al. evaluated that by positioning high-draw items at the periphery of stores, consumer's attention would often be captured by items, which they initially did not want to purchase when entering the retail outlet. Furthermore Haksever et al. suggest the usage of first or last aisle positions as well as cash registers for high- impulse and high-margin items in order to increase their exposure rate. Furthermore, end-isle locations are very popular and successful in generating additional sales (Haksever et al., 2013). Similar influential applications are used in E- Commerce. By using collaborative filtering, more precisely “you may also like” and “customers who bought this item also bought this”, as well as search engine optimization, companies try to actively make product recommendations to their customers.

2.2 E-Commerce In it's origins, E-Commerce is defined as “the transformation of key business processes through the use of Internet technologies” (Schneider et al.,2000). This definition implies that processes such as buying, selling, and the exchange of products, happen with the help of the Internet and other related systems. Amor further describes E-Commerce as a business approach which is secure, flexible and integrated and may ease company procedures and create value by using IT (Amor, 2000).

As mentioned by Turban et al, E-Commerce has various features which make perfect competition possible in this field.

More precisely, perfect competition is characterized by numerous buyers and sellers who can enter the market at limited entry cost (Turban et al.,2008). Furthermore parties do not have the possibility to influence the market and offered products must be homogenous. The final condition for perfect competition is the availability of perfect information about “market, participants' demands, supplies and conditions” (Turban et al.,2008).

The two most common E-Commerce concepts today are pure and partial E- Commerce whereas the classification depends on the degree of digitization, specifically, the ordering system(order, payment), processing (creation of product/service) and delivery method. The classification is further detailed and visualized in Figure 1 below.

Figure 1: The Dimensions of Electronic Commerce (Önder, I. New Media & E- Business Applications - Electronic Commerce: Definitions and Concepts. (2014))

2.2.1 Framework for Electronic Commerce The field of E-Commerce is very broad and has various applications and usages including home banking, online shopping, stock handling, electronic collaborations and digital auctions (Turban et al., 2008). These diverse implementations are based

on a highly advanced framework which is firstly supported by a developed infrastructure.

A typical E-Commerce infrastructure consists of multiple hardwares, softwares and various networks. Examples for major components are web servers, electronic catalogues, transactional software and Internet access components (Turban et al., 2008). A successful and stable infrastructure is especially significant to an E-Business as it has to guarantee smooth global transactions fulfillment without any delays or significant errors. Secondly, this framework is based on the five fixed supporting pillars of E-Commerce which are namely people, public policy, marketing and advertisement, support services and business partnerships (Turban et al.,2015). A successful Electronic Commerce Application cannot be attained if the supporting structure is incomplete or if parts of it are missing entirely.

2.2.2 E-Commerce Classification and Content According to DigitSmith, there are four main classification models in E-Commerce (DigitSmith, n.d.). Furthermore there are various additional existing models including B2B2C, Intra-business E-Commerce, B2E, C-Commerce and E-Government which are all based on the four main models. They primarily differ in the parties which are involved in the process. These four models are shortly contrasted and characterized in Table 3 below.

Table 3: E-Commerce Classification Models and Characteristics (DigitSmith, E- Commerce definition and types of E-Commerce, n.d.).

2.2.3 Benefits of E-Commerce According to Priester et al., one of the main benefits and significant competitive advantages for organizations who offer E-Commerce is the ability to operate the business with a much lower inventory level in comparison to physical retailers (Priester et al., 2010).

Moreover, there are numerous additional advantages for businesses and consumers which are shortly summarized and contrasted in Table 4 below (Turban et al., 2008).

Table 4: Benefits of E-Commerce (Turban et al., Electronic Commerce 2008, 2008)

2.2.4 Limitations of E-Commerce As further discussed by Turban et al., the presence of benefits, also implies the presence of limitations and challenges within the field of E-Commerce. These limitations are of technical and non-technical nature (Turban et al., 2008). Technical limitations include missing global standards in terms of quality, security and reliability. Furthermore, softwares which are still in their development or testing phase might limit E-Commerce operations. Moreover, existing network servers are typically not as powerful as required for E-Commerce, implying that additional web servers have to be developed. The development of these web servers typically has high costs attached to it. The most crucial example for non-technical limitations is the security and privacy concern faced by customers. This concern is directly linked to some trust issues as the Internet unites numerous unknown and unfamiliar sellers. Moreover, online fraud is increasing which adds additional danger and fear for consumers. As investigated by Deloitte, one of the major challenges the E-retail industry is currently facing, is “The new digital divide” (Deloitte, 2015). This issue is defined as,”The gap between consumers' digital behaviors and expectations and retailers' ability to deliver the desired experiences” (Deloitte, 2015). The new digital divide therefore means that needs and requirements of consumers change at a fairly unpredictable and incredibly fast speed, making it difficult for technology to catch up and ensure customer satisfaction.

2.2.5 Impact on market and retailers The development of the Internet has primarily influenced the number and type of producers that operate in an industry. However, there are still organizations which benefit more from recent developments than others. Two main factors which have witnessed radical changes are prices and market shares. Retailers have to deal with increasing price competition, stagnating retail sales and reduced sales density. It is therefore of crucial importance to invest into new channels which may make it possible to compete with online entrants.

One disadvantage which physical retailers have in comparison to online platforms are high fixed costs which are mainly resulting from physical outlets which need to be operated. Therefore, retail margins are likely to decrease (AMP Capital, 2013).

2.2.6 Impact on supply chains and their management As identified in previous chapters, since its emergence, E-Commerce had and still has an impact and influence on numerous business processes and has substantially changed the retail industry. Specifically, it was also able to affect and change companies’ supply chains and their managements. According to Johnson et al., “E- commerce has had a profound impact on the supply chains of many products” (Johnson et al., 2002).

As further analyzed by Sell, E-Commerce has considerably increased direct-to- consumer shipping as old-fashioned supply chains usually included the transportation of immense product bulks to assigned brick-and-mortar retail stores or aggregated distribution centers which would manage and control smaller bulks of direct-to-consumer catalog purchases (Sell, 2014).

Since the introduction of E-Commerce, direct deliveries to consumers have therefore increased, also changing firm's overall transportation system and management. Another aspect which Sell discussed, were raised consumer expectations especially towards shipping times and product availability. Consumers are typically dissatisfied if an item is not instantly available for purchase at a retail stores.

This gives online providers a competitive advantage, implying that a “proactive and responsive supply chain” (Sell, 2014) is essential for keeping consumers' attention. Resulting from the emergence of E-Commerce, E- Businesses have the advantage that new products may be launched faster and especially through various digital and non-digital channels. The digitization of business has positively influenced efficiency and responsiveness of supply chains (Lee et al., 2001). Furthermore E-Commerce also resulted in faster information sharing among supply chain members. Data may be exchanged more rapidly which is especially beneficial in the fields of stock management, manufacturing, customer care and order tracking. According to Lee et al., the goal of most E- businesses is to streamline and automate as many processes as possible (Lee et al., 2001).

2.2.7 MasterCard Omnishopper Report The Omnishopper Report by MasterCard is a research conducted by MasterCard which, according to the company, analyzes what the shopping behavior of present generations is and what thereby might be predicted for future peer goups (MasterCard, 2015). This company report is based on a survey which more than 10,000 omnishoppers across 11 countries responded to. The overall aim of this study was to find out more about consumers who are actively participating in online and offline shopping within a set period of one month (MasterCard, 2015) Omnishoppers are defined as “consumers who use technology for the full range of shopping experiences” (Thelander, 2015). This includes the usage of desktop computers, mobile devices and telephones. Nevertheless, omnishoppers also regularly visit local bricks-and-mortar stores.

One specific characteristic of omnishoppers is that many consumers today use their phones while being in a physical store to instantly look for availability and price and compare multiple retailers. Omnishoppers are a result of the emergence of E- Commerce and the further development of traditional retail businesses and their outlets. In comparison to consumers of 20 years ago, omnishoppers typically have high expectations towards their shopping experience, are highly communicative and constantly connected. Furthermore, the goal of the shopping process for omnishoppers is convenience (Thelander, 2015).

As the omnishopper is a completely new customer segment with new opportunities and threats to businesses, its discussion is of special interest and importance to the retail industry. MasterCard has therefore published its statistic report which contains a brief discussion and examination of topics as consumer perceptions of payment methods, E-Commerce, information research and drivers of loyalty. The second part of this chapter therefore gives an insight into the MasterCard Omnishopper Report and thereby presents, analyses and visualizes a selection of significant survey questions and their outcomes.

The first selected question for interpretation is: “How has technology changed the way you shop?” which is visualized in Figure 2 below. Generally, technology has increased price and product comparison among different retail competitors. Furthermore, consumers agreed that they tend to choose a product which fulfills their expectations more often and therefore get to avoid disappointments. Additionally, reviews play a central role in shopping behavior today as these comments and ratings can substantially affect consumer behavior. Possibly, these are also the reason for the high response rate in the answer possibility “I buy more from unfamiliar merchants”.

Figure 2: How has technology changed the way that you shop? (MasterCard, The Omnishopper Project, 2015)

Secondly, the question “How often do you use technology when shopping?” was chosen for evaluation. In order to find out more about trends and target groups, the answers for this question were assessed by MasterCard based on age groups. 87% of the youngest participants, more precisely respondents in the age of 18 to 29, always or sometimes use technology when shopping. This means that the main target market for E-Commerce is the younger part of the population as technology is handled much easier and as the awareness of technological progress is much more present than for older age groups. All answers are furthermore visualized in Figure 3 below.

Figure 3: How often do you use technology when shopping? (MasterCard, The Omnishopper Project, 2015)

The third question, namely “Why don't you shop more online?” gives an insight into possible constraints consumers face concerning online shopping. Answers are visualized in Figure 4 below. The least prominent issue is attached to the non- availability of products online as this problem can usually be solved quickly because there is an enormous variety of online shops available which offer the same product. Typically, consumers tend to be unsure of and therefore unsatisfied with the safety of online payments and the overall lead time of online purchases. Nevertheless, “I want to touch and see the product” appealed to almost 50% of the sample.

This answer also implies that returns from online sales are much higher than those, which have been made in physical stores.

Figure 4: Why don't you shop more online? (MasterCard, The Omnishopper Project, 2015)

The following paired questions give an interesting insight into the direct comparison between brick-and-mortar and click-and-mortar shops as MasterCard asked its consumers: “Where is online better than in-store?” and “Where is in-store better than online?”. Online shops score especially high as, according to survey respondents, their usage is convenient and easily accessible. Additionally price comparison among large selections is easy and therefore money can be saved with less effort. In direct contrast, in-store shopping gets chosen as purchased items are received immediately, the shopping experience, merchants create by giving advice and as the after-sale service is usually perceived as a value-adding service.

Figure 5: Where online is better than in-store (MasterCard, The Omnishopper Project, 2015)

Figure 6: Where in-store is better than online (MasterCard, The Omnishopper Project, 2015)

2.3 Supply Chains and their Management According to Mangan et al., a supply chain is the “network of organizations which are involved through various linkages in different processes that produce value in form of products in hands of ultimate consumers“ (Mangan et al., 2008).

A common supply chain contains interactions between suppliers, manufacturers, distributors, retailers and consumers. Due to the remarkable growth of international trade and the influence of globalization, Mangan et al. point out that various companies today possess facilities which are located overseas and work closely together with international supply chain partners. Nowadays, this is especially possible due to established trade agreements as the EU and ASEAN.

As Mangan et al. further analyzed, globalization and international trade growth imply increasing global competition, sourcing and presence as well as global access to knowledge and new technologies. Therefore outsourcing and offshoring also gained importance in previous years as both arrangements are methods which aim to reduce costs and improve efficiency in an international context. According to Kersten et al., companies outsource for several reasons, including cost reduction, flexibility and the concentration on core competencies. Amazon traded these advantages off and accepted a certain loss of control and partially the loss of direct customer contact (Kersten et al., n.d.). A supply chain requires efficient logistics support in order to function and maintain high performance standards. According to Mentzer, logistics is defined as “the movement and storage of materials to meet the

customers need and organizational objectives“ (Mentzer, 2011). Furthermore, as pointed out by Bowersox et al, logistics unites the overall operations and actions of supply chain members to build a stable network (Bowersox et al., 2007). Supply chain management is the management across these named supply chain dimensions and evaluates the flows of materials, information and resources. The purpose of such management process is the creation of value, efficiency enhancement and customer satisfaction (Mangan et al., 2008). Lastly, SCM aims to achieve cost reduction and company liquidity.

2.3.1 Determinants of Supply Chain Success According to Talib et al., the success of a supply chain can be determined by four main factors (Talib et al., 2014). Firstly, partner collaborations have to be viewed and registered as strategic assets by all supply chain partners. As further developed by the author, this implies that successful integration as well as a trustful relationship leads to faster progress, agility and lower costs. Moreover a well-defined strategy is crucial for a supply chain's success, including the evaluation of strengths and weaknesses as well as the development of plans for improvement. Thirdly, the author adds that information is the key to success of a supply chain. Making information visible along the whole chain is crucial in terms of inventory, demand, capacity and material flows.

Lastly, a supply chain is especially successful if it is fast, low-cost, of high quality and customer service- focused. These factors combined make up the metrics by which supply chains are generally measured.

2.3.2 Supply Chain Strategy According to Mangan et al, a company without strategy, is “like a ship without a compass” (Mangan et al., 2008). In addition to the above mentioned determinants of supply chain triumph, a company's supply chain strategy is crucial to success. As pointed out by Qrunfleh et al., a company's supply chain strategy indicates which goals and objectives the business has (Qrunfleh et al., 2014). Such strategic approach usually contains a company's demand management, the sum of sourcing, procurement and inventory management as well as a detailed transportation

planning. Monczka et al. summed up that the overall goals of such a strategy are the maximization of company skills in terms of customer satisfaction as well as increasing company value (Monczka et al., 2014).

Main drivers of such strategy are consumer requirements, demand and supply.

Figure 7: Supply Chain Strategy Dimensions (Lee, Aligning Supply Chain Strategies with Product Uncertainties, 2002)

As visualized in Figure 7 above, Lee states that demand and supply uncertainty may be set at a low or high level, depending on product type and the mobility of the process (Lee,2002). Agile supply chains are a combination of responsive and risk- hedging supply chains, implying tight collaborations with suppliers and customers. Risk-hedging supply chains are characterized by high safety stocks and component standardization and responsive supply chains may react quickly to unpredictable demand. The combination of predictable demand and adequate supply creates efficient supply chains which are additionally very low cost-oriented.

2.3.3 Drivers of Supply Chain Performance The performance of a supply chain gets determined by a well-planned supply chain strategy, the company's customer approach and additional factors which vary across industries. Nevertheless, this assessment typically involves a critical judgment and planning process of sourcing, inventory, transportation, facilities, pricing and information (Chopra et al., 2007).

2.3.4 Sourcing Sourcing is mainly concerned with decisions on the distribution of business processes. This means that sourcing manages the identification of parties which will perform specific supply chain activities including transportation, inventory control or production (Chopra et al., 2007). Based on a critical assessment of the named dimensions, companies may decide whether to keep or outsource parts of their operations. Sourcing decisions have direct influence on efficiency and responsiveness of a supply chain (Chopra et al., 2007). Moreover, outsourcing operations may lead to increased efficiency but lower responsiveness and longer lead times whereas keeping operations might imply the exact opposite.

2.3.5 Inventory One of the three most important flows which can be managed through a supply chain, is the flow of material and inventory. Stock, which is one of the key-assets a company possesses and manages, can be held in many different forms and at various locations.

Most prominent examples are finished goods at the supplier and raw materials at the manufacturer (Mangan et al., 2008). Companies usually make use of three types of inventory – cycle, safety and seasonal inventory. Cycle inventory is the stock a company holds in order to satisfy regular operating customer demand. Prominent examples are items which can be found on shelves in local retail outlets. Safety inventory is the product stock, which is hold by companies to better prepare for uncertain or variable demand. Seasonal inventory is held in order to be prepared for periods of higher demand, mainly Christmas, Easter and other public holidays. Overall, higher inventory levels typically imply higher possible responsiveness as well as increasing inventory carrying costs. Inventories typically have high costs involved and as analyzed by Mangan et al., stock is binding working capital and has a large effect on cash flows (Mangan et al., 2008). Moreover, inventory requires space to be stored as well as employees who handle and control this stock on a regular basis. The overall goal for inventory management is therefore the reduction of inventory holding while keeping operations at a stable level that satisfies customer demand.

As a result, many companies today put increased emphasis on implementing strategies which continuously help reducing inventory.

For example, a reduction of safety stock may be achieved by limiting variation in terms of lead time, demand, supply and quality (Mangan et al., 2008).

2.3.6 Transportation Companies typically have two types of transportation directions, namely inbound and outbound. Inbound transportation involves the process of bringing material or finished goods into a facility whereas outbound transportation describes the sending process out of a facility to customers (Chopra et al., 2000). These two transportation directions may be fulfilled by six main transportation modes, namely air, road, rail, water, pipeline and electronic transportation (Davidsson et al., 2005). When organizations evaluate which transportation mode is appropriate to use, this decision typically depends on “volume and value of the freight, the distance to be travelled, the availability of different services and freight rates to be charged” (Mangan et al., 2008).

The following comparison, published by Mangan et al. shortly contrasts the six previously named transportation modes based on relative costs and operating characteristics. This comparison is especially important as today competition among transportation providers is very high. Trucks which transport freight on roads, have relatively low fixed costs as needed infrastructure is fully financed by public funding. Furthermore, variable costs as fuel expenses, maintenance and congestions charges are comparably low, always depending on the extent of vehicle usage. As summarized by the author, advantages of roads are speed, availability, dependability and frequency whereas disadvantages are a trucks' limited capacity on freight weight and volume. Due to very price-intensive equipment, rail transport has higher fixed costs than trucks. Nevertheless, trains are considered very fast, dependable and capable of transporting larger quantities of freight than trucks. Airplanes have relatively low fixed costs but again very high variable costs – especially as fuel is very expensive. As pointed out by Mangan etc al, the biggest strength of planes as a transportation mode, is their speed. Nevertheless, air transport typically needs to be combined with other transportation modes as a plane rarely is able to reach the desired final destination. Water transportation has a medium level of fixed costs and

a very low level of variable costs, especially as ships may typically carry enormous volumes of freight. However, ships are typically fairly slow and can, similar to planes, rarely reach their end consumers without being dependent on another transportation mode which is more mobile. Pipelines and electronic transportation are limited in their usage as they can only be applied in few situations and for very specific products.

2.3.7 Facilities and network design Facilities are defined as the “actual physical locations in the supply chain network where product is stored, assembled, or fabricated” (Chopra et al., 2007). As further evaluated by Sople, facility networks are typically built based on the facility's duty area, geographic position, volume as well as their flexibility (Sople, 2012).

Therefore, the processes which will be performed at facilities, have to be clearly defined before allocating specific operations to a certain space. Another factor which is crucial on this decision path is the assessment on where a company may still operate on a low budget while still ensuring customer satisfaction.

Clear information about needed floor space and capacity is mandatory as well as the identification of the market which will be served. Moreover, potential supply sources have to be identified in order to ensure supply availability for the facility's operations. In conclusion, one may say that all of these questions and their answers are highly dependent on and influenced by each other. When deciding which strategy to follow when allocating and managing facilities and their locations, firms may generally decide whether to build one single global distribution center or multiple depots within a single or within multiple countries. This decision is mainly based on overall fixed facility costs as well as variable costs and consumer requirements. Generally, warehouses receive items, put them into their storage, wait for an order to arrive, pick and pack the items and dispatch them at the end. An alternative would be the usage of cross-docks, overcoming the necessity of storage. A value-adding warehouse strategy contains the creation of bulks, for other cases the breaking of bulks, combining goods and smoothing. In order to manage warehouses more efficiently, Warehouse Management Systems may be introduced, improving information flows while minimizing human efforts needed, time, costs

and errors. Furthermore WMS may improve standardization in warehouse processes as well as overall performance accuracy.

2.3.8 Pricing Buyers behavior is directly affected by the prices companies charge for their goods and services. It is therefore also determining the level of demand and thus the level of supply.

2.3.9 Information Forecasting processes, enabling technologies and aggregate planning are factors which need to be considered and discussed when managing information.

Information and data analysis play a special role in supply chains and their management as pricing, sourcing, inventory, facilities and transportation are all based on accurate information.

This implies that information is the most important driver of supply chains and companies in general as information has direct effects on each of the above mentioned driver.

2.4 Information Technology Applications and Supply Chain Automation As supply chains have evolved, grown and optimized, so have Information Technologies and Applications (Mangan et al, 2008). It is especially significant to mention these two developments in the same context as IT has essentially contributed to various innovations in the supply chain context.

The following chapter therefore shortly identifies the main Information technologies and their characteristics developed for the global supply chain business. Generally, all three flows which have been named in foregone chapters, namely materials, resources and information may be controlled, managed and therefore improved more efficiently by using automated computer systems. The overall development and implementation of a computer system may take some years and typically has high investments attached to it. Nevertheless IT usage is able to effectively increase

productivity and efficiency in comparison to prior-IT business procedures. As analyzed by Qrunfleh et al., companies typically use Information systems to improve efficiency or flexibility. Information systems which aim to increase efficiency, more precisely, EDI, workflow automation systems and ERP typically improve the control of day-to-day internal and external company processes. As further evaluated by the author, the above mentioned systems register transactions, publish information about these, structure workflows and enhance standardization. Information systems which may lead to more flexibility include market information systems and strategic decision support systems. Moreover these systems aim to enhance the decision- making process of companies (Qrunfleh et al., 2012).

IT systems in a SCM context can be further categorized based on two factors, more precisely overall reach and general application. As explained by Mangan et al., Figure 8 below visualizes the main classification of IT systems in SCM.

Figure 8: IT systems classification in a SCM context (Mangan et al., Global Logistics and Supply Chain Management, 2008)

Enterprise resource planning, materials requirements planning and manufacturing resource planning are systems which may be installed inside organizations in order to increase effectiveness of internal planning processes. Collaborative planning, forecasting and replenishment is another planning system which, however, is inter- organizational, meaning systems from different companies may be connected.

Electronic Data Interchange - which, according to Chopra et al. especially facilitates order placements with suppliers, speeds up transactions and collects data more

accurately (Chopra et al.,2013) - and Vendor Managed Inventory are two systems which are used in an inter-organizational context in order to support a specific process execution. Warehouse Management systems are used at the execution stage of supply chains and are intra-organizational, meaning, they increase efficiency of company-operated warehouses.

2.4.1 RFID When RFID is applied in a supply chain context, these technologies serve to monitor the movement of goods and thereby enables an automated identification and location detection of physical freight (Mangan et al., 2008). Furthermore, RFID is often used in order to improve real time communication as well as visibility when used in combination with a developed supply network (Mahdavi et al., 2011).

The underlying concept of RFID implies that items which a company desires to track, get tags implemented which transmit radio frequency signals that can be detected by RFID readers. These tags may be attached to individual objects, freight batches or entire containers (Mangan et al., 2008).

RFID has a significant importance in supply chain management as it can be efficiently used for asset tracking and management whereby increased security of freight may be guaranteed, stock management is improved and errors in product data handling are generally reduced. As further evaluated by Mangan et al., the emergence of RFID in a supply chain context resulted from the desire to maximize agility, react faster to product spread as well as demand volatility (Mangan et al., 2008).

2.5 Financial Management in Logistics As pointed out by Mangan et al., trade is based on financial flows (Mangan et al., 2008). Furthermore he evaluates that accounting and supply chain management are closely related to each other. Finance in this context is described as “the use of financial or accounting information by management at all levels to assist in planning, making decisions and controlling the activities of an enterprise”(Mangan et al., 2008).Financial management however primarily oversees how companies manage their funds in a long term perspective.

3 Amazon Case study

The following part of this paper contains a simplified case study on the company Amazon which Brad Stone refers to as “The Everything Store” (Stone, 2013). The case study approach was chosen as, according to Simons: “a case study is a study of the singular, the particular, the unique” (Simons, 2009). As Amazon is undeniably an exception in the retail industry, more specifically in E-Commerce, and unique in its nature and retailing approach, the company case will be studied in depth in the following. The goal of a case study in general is to gain a comprehensive and detailed insight into a specific field and topic (Simons, 2009), whilst applying theoretical knowledge onto a real-life company. According to Stake, a case study focuses on the identification of the extraordinary rather than on abstract generalities (Stake, 1995).

Stake concludes that it is furthermore special in its nature as it represents the identification of “particularity and complexity” (Stake, 1995) of a certain single case.

3.1 General Information and Company Background Amazon.com Inc. was originally founded in the 1994 by CEO Jeff Bezos. The organization is a multinational E-Commerce company with headquarters in Seattle. Today, it is the largest online retailer of the world (Li, 2015) and as Simpson predicts, 85% of all products available world-wide will be purchasable on Amazon in the near future (Simpson, 2016).

The Amazon River was Bezos' inspiration when choosing the company name as the river's image is best described by being exotic and different. Furthermore the name reflected Bezos' plan of following the path of the Amazon River as it is one of the largest of its kind in the world (Rouse, 2014). Originally started as a basic online bookstore, Amazon now continuously adds new products to its range, including various merchandise items as DVDs, CDs, video games, furniture and food. Furthermore Amazon also added video and music downloading services and a streaming platform to its range. This shows that the company has partial and pure E- Commerce features.

As summarized by Turban et al., product purchasing from Amazon is partial E- Commerce as the item which was bought, is physically delivered. Nevertheless, downloading an E-Book or music from Amazon may be summarized as pure E- Commerce as all business processes are in a digital format (Turban et al., 2008). Markets which Amazon targets and currently covers and serves are mainly North America, Western Europe, Brazil, Japan, India and China. Currently, India represents a special market for Amazon as, according to the company's financial analysis of 2015, sellers who sold their products through Amazon.in, achieved higher sales figures in Q4 of 2015 than in all quarters combined in 2014 (Amazon.com, 2015). Further expansions to Southeast Asia and Eastern Europe are scheduled (Amazon.com, 2015). According to Amazon's mission statement, the company aims at becoming the „Earth’s most customer-centric company for four primary customer sets: consumers, sellers, enterprises, and content creators“ (Amazon.com, 2015) .

In order to fulfill customers' expectations, the E-Giant also works on various product developments and has launched a large variety of items until now. One of them is Amazon's E-Book reader “Kindle” which has been introduced to the market in 2007 and has foregone various updates and improvements ever since.

A more recent product development by Amazon is “Amazon Locker” that has been firstly brought to the market in 2011 and which has expanded rapidly in the beginning of 2016. The system behind “Amazon Locker” is similar to the principle behind DHL packing stations in Germany. Currently these lockers are solely available for testing in certain cities in the United States as well as London as the only European metropolis. This self-service was primarily developed for users who are not able to receive parcels due to long working hours which make it impossible to reach post offices on time

3.2 Business Strategy and Business Model According to Farhi, Jeff Bezos had three main points he wanted Amazon to follow when setting up his company. Firstly, Bezos aimed at developing Amazon to be as customer-oriented as possible. Furthermore one of his goals was not to remain a simple selling platform, but to actively create and invent products and services. However Bezos realized that building up and establishing a company takes much

time and patience (Farhi, 2013). According to the CEO, these three main strategic ideas are still the main reason for the company's success. Amazon's business model can be further described by the “flywheel”-strategy, which was developed by Jim Collins. As analyzed by Tonner, Collins' flywheel gives a significant insight into how Amazon is able to manage and guide its everyday business procedures (Tonner, 2016). As Brad Stone analyzes, the flywheel of Amazon implies that lower prices are typically followed by higher customer traffic to a website. By attracting more potential buyers, sales increase and thereby higher commissions may be generated which are payed by third-party sellers (Stone, 2013). Moreover, this strategic approach resulted in lower fixed costs and generated increased efficiency. Therefore lower prices could be guaranteed. Setting a flywheel in motion is tedious at first. However, once the process has started, effects will be increasingly visible and generally faster to achieve (Tonner, 2016).

In order to keep the flywheel spinning, Amazon is required to manage a constant flow of new products, suppliers, customers and promotions, as well as timely delivery. Another strategic business goal, which Amazon is trying to constantly reach is to gain competitive advantage in the fields of choice, convenience and price (Furtwengler, 2015). As Amazon is an Internet-based company, this goal is easier to attain than for physical retailers. Their inventory model, which will be further discussed in Chapter 3.5.1 ”Inventory Planning and Management” includes company-owned inventory, partner inventory and third-party sellers. This large variety gives consumers the opportunity to browse through the entire selection of products available on the Internet. This suggests that Amazon summarizes every possible and imaginable product category, implying that potential consumers do not have to browse through websites of other product providers anymore.

In summary, Amazon follows a customer-centric flywheel- business model which is especially characterized by putting special emphasis on choice, convenience and price.

3.3 Amazons' financial position As analyzed by Laudon et al., few businesses have gone through rapid changes in performance similar to Amazon's (Laudon et al., 2014). The company has exceeded

expectations in regards to growth as such an expansion and growth pattern is not typical for the industry. Having witnessed extensive losses shortly after, Amazon was able to eventually slowly reach profitability after almost ten years of operations (Laudon et al., 2014). When operations started in 1995, Jeff Bezos announced that Amazon would not be a profit-generator in its nature. Furthermore, Edward analyzes that reaching enormous profits was never the primary goal of the company (Edwards, 2015). Surprisingly, Amazon managed to generate its first positive profit figures in 2003 (Chopra et al, 2013). Amazon's most impressive performance indicators are its sales figures. Taking Cyber Monday 2015 as an example, consumers ordered around 500 items a second from Amazon as USA Today published in an article (Siegal, 2015). This sums up to more than 42 million products which have been purchased in one day. On January 28th 2016, Amazon published its financial results for the last quarter of 2015, ended in December 2015, containing a detailed financial analysis of Amazon as well as the company's financial statements.

The entire company report may be found in Appendix 1 of this paper. For their fourth quarter in 2015, Amazon reported the following financial results: The company's net sales totaled $35,7 billion, representing an increase of 22% in comparison to Q4 of 2014. The operating income in Q4 of 2015 totaled $1.1 billion which is an increase of 88% when compared to the same period of the previous year. Amazon furthermore reported a net income totaling $482 million, showing a large increase in comparison to Q4 2014, where net income totaled $214 million. When looking at the bigger picture and therefore evaluating the full year 2015, net sales increased by 20% and operating income totaled $2.2 billion in comparison to $178 million which was generated in 2014. Furthermore, net income was $596 million whereas in 2014, a net loss of $241 million was noted. The first part of the company report gets concluded by a quote by Jeff Bezos, saying: “Twenty years ago, I was driving the packages to the post office myself and hoping we might one day afford a forklift. This year, we pass $100 billion in annual sales and serve 300 million customers” (Amazon.com, 2015). He adds, that he is aware of the fact that the industry he positioned himself in is highly dynamic and continuously re-defining opportunities and consumer expectations, making operations and the generating competitive advantages, much harder.

Another financial aspect which Amazon included in its end-year report, is a financial guidance for 2016, containing goals which the company wishes and expects to attain through Q1 of 2016. According to Amazon these predictions are however subject to change and uncertainty. Examples for factors which may critically affect these desired predictions are exchange rates, the overall global economy and consumer purchasing power. Furthermore, Amazon's actual performance is highly dependent on the following factors below which have been directly retrieved from their report:

• the amount Amazon invests in new business opportunities and the timing of those investments

• the mix of products sold to customers

• competition

• international growth and expansion

• data center optimization

• seasonality

• payment risks

• risks attached to new products, services and technologies

• government regulation and taxation.

Amazon finally wishes to generate net sales totaling between $26.5 billion and $29 billion. Furthermore a sales growth of 17% to 28% in comparison with Q1 of 2015 is their goal. Furthermore operating income in Q1 of 2015 totaled $225 million – for Q1 of 2016, Amazon desires to achieve operating income laying between $100 million and $700 million.

3.4 Amazon's Supply Chain According to Mahdavi et al., a well-functioning supply chain network is characterized by being agile, adaptable and aligned (Mahdavi et al., 2011). Amazon's supply chain is one of the strongest world-wide as it is firstly agile, meaning that it can react speedily to sudden changes in demand and supply. Furthermore, it is highly adaptable to changes in market structures and strategies and lastly their supply chain is able to align interests of all participants in a supply network, implying that when optimizing the performance of a supply chain, also the participants interests

get maximized (Lee, 2004). Being a top performer in these three dimensions gives a sustainable competitive advantage to Amazon. When firstly overlooking Amazons' supply chain, the company itself is part of two main cycles. Firstly Amazon is involved in the customer order cycle when a consumer buys items from Amazon online. The consumer represents the buyer in this case, whereas Amazon is the supplier. Nevertheless, when Amazon orders items which it does not store in its warehouses or which are out of stock, the company is involved in the replenishment cycle as the buyer. This explanation implies that, once a customer places an order online, there are two process possibilities that might follow. Firstly, if Amazon stores the product itself, Amazon's ERP identifies the closest distribution center to the customer which has the item stored.

Alternatively, the distributor who is going to fulfill the consumer's order, is identified on Amazon's behalf.

Looking into option one, orders get received at the distribution center by a flow master who assigns orders to specific employees or KIVA robots. Once an item gets ordered, it gets marked by illumination until the picker gets the item from its bin. By using conveyor belts, picked items get transported to a central point where the individual product barcodes get matched with order numbers (Turban et al., 2015). Following, items get packed into parcels, the freight gets weighed, labeled and placed onto trucks (Lee, 2004).

As investigated by Bacheldor, Jeffrey Wilke, who is the senior vice president of Amazon worldwide, says that the company is going to further focus on price, selection and availability in order to achieve growth. However, Wilke concluded that a success in these three fields may only be possible with a well-functioning supply chain (Bacheldor, 2004). In summary, Amazon's innovative supply chain is following a Triple A-approach and is diverse yet cohesive as the company obtains its supplies from many varying resources, making it a valuable partner to cooperating businesses.

3.5 Supply Chain Drivers of Amazon The main goal of every company's supply chain, including Amazon, is to reach a balance between responsiveness and efficiency by making decisions in the fields of inventory, facilities, pricing, transportation and information. The following chapter therefore analyses how Amazon manages these factors and what influence this management has on their supply chain.

3.5.1 Inventory Planning and Management Inventory Management is one of the drivers of supply chain success and therefore of significant importance to Amazon. In comparison to direct competitors which will be further discussed in Chapter 4 “Amazon's Competition”, Amazon offers one of the widest product ranges on the Internet. The first assumption Bezos had about Amazons' inventory and storage capabilities at the beginning of the company's operations, was to equip warehouses with everything the CEO thought, consumers might buy during the holiday season in order to ensure immediate product availability.

Additionally, Amazon wanted to avoid the situation of a consumer not finding an item on the website and therefore going to a competitive company. Clearly, customer satisfaction and service were very high in this period. Nevertheless, this idea resulted in a large company loss by the end of 2001. Following this, Amazon started outsourcing parts of its inventory management and redesigning its warehouses by introducing their “Chaotic storage” (Schofield, 2016). Traditional warehouses today are typically arranged based on product categories or levels of demand. However, Amazon decided to distance itself from the constant need of rearranging complete isles in case of new product introductions or deliveries of large quantities of items.

Therefore, the company developed a simple grid of items which are randomly assigned to isles, sections and shelfs and can be easily identified with the help of their barcodes. By assigning an individual barcode to every item, products can be stored and found more efficiently and much faster. Furthermore, the registration system which these barcodes are based on is able to update item availability on a

real-time basis. This implies that once an item gets ordered by a consumer and scanned by an employee, the available number of goods gets lowered instantly.

Additionally, for specific, especially high-demand products, Amazon is currently working on the implementation of reorder points. These points include automated reordering systems which, once inventory gets down to a certain point, automatically generate an order for new stock without the need for human intervention.

Today, Amazon has the ability to lower inventory levels and costs without limiting product selection by improving the match between supply and demand. Nevertheless, the company is not using the same strategy for all of its products, but differentiates between high- and low-demand items. One of Amazon's initial strategies is the aggregation of stock at a few facilities (Chopra, n.d.). In order to increase its reach, this number is growing and much larger today than 20 years ago, but however still smaller than the number of retail outlets of many competitors. As further argued by Chopra, this inventory aggregation is especially beneficial for low- demand items with high variability (Chopra, n.d.).

This means that the reduction of inventory is mainly useful for low-demand items with high demand uncertainty as this also saves storage in warehouses which can be used for other, more popular items, which also have a higher inventory turnover and therefore generate larger profits. This also implies that a reduction of inventory for best-sellers is not advisable as Amazon would thereby risk inventory shortage and dissatisfied customers. In order to better manage inventory, Amazon has furthermore introduced Drop-Shipping. This method is a supply chain technique where, according to Chopra et al., orders are directly shipped to the consumer from the manufacturer. In this setting, Amazon only manages the request and does not physically fulfill the order (Chopra et al., 2007). Therefore, for certain items, Amazon does not carry inventory but relies exclusively on direct manufacturers. The biggest benefit Amazon gets from drop-shipping, is the partial centralization of stock at manufacturers (Chopra et al., 2007). Additionally, Chopra analyzed that especially slow-moving items might benefit from drop shipping. Specifically, inventory turnover may increase by a factor of six or higher (Chopra et al., 2007). Nevertheless this advantage in inventory management gives Amazon additional costs for

transportation arrangements as typically manufacturers are positioned further away from end consumers. This cost disadvantage is especially present when consumers order multiple items which have to be sent individually.

In summary, this means that Amazon stores high-demand products and directly purchases items with a lower demand from distributors when orders by customers have been placed. Amazon therefore accepts the trade-off between product availability and cost reduction. This means, that increased inventories would clearly improve product availability and margin captures from customer purchase. However more stock would also mean increased inventory holding costs.

3.5.2 Amazon's facilities Most e-retailers, including Amazon, began their operations with a single distribution center in order to centralize operations and save costs. The original strategy of Amazon was to place its fulfillment centers and warehouses at places where local taxes were relatively low. Geographic proximity to potential consumers and target markets was not the company's priority at the beginning. Taking the US as an example, some states only raised sales taxes for brick-and-mortar stores.

However, fulfillment centers and warehouses do not belong to the same classification group as retail stores (Hansen Harps, 2005). This low-cost advantage made specific states especially appealing to Amazon. Furthermore, comparing the cost of shipping resulting from the distance between tax-free facilities and customers still resulted in higher returns on equity and assets compared to potential fulfillment centers located closer to customers. However, as the supply chain furthermore drives customer experience, Amazon has invested heavily into additional distribution centers in order to limit distance to its customers and to enable faster delivery and transportation (Misch, 2014).

Today Amazon operates 293 active facilities world-wide on over 113,000,000 square feet. Furthermore 27 additional facilities are planned for the future (MWPVL International, 2016). A detailed overview over Amazon's facilities and their locations can be found in Appendix 2 of this paper.

There are two main types of facility costs where the first one comprises all costs which are related to the number and the location of a company's facilities. The other type represents costs which are associated with the operations that take place at these facilities. Companies with customers who typically don't require a short response time may operate efficiently by only operating few facilities which do not have to be located at a close distance to its customers (Chopra, n.d.). Therefore, Amazon's advantage in comparison to brick-and-mortar companies in this context is the ability to centralize operations and thereby save on network facility costs by having a relatively small amount of facilities. Amazon today operates around 300 active facilities whereas comparable, well-known and established book stores may have up to 500 facilities, including numerous retail outlets. Certainly, also Amazon's facility costs are growing with their continuous expansion and growth, however, they are still much lower than costs of physical retailers. Identifying the number of boxes and packages which Amazon ships per day is almost impossible as the company generally keeps these information confidential. Nevertheless, the Michigan State University performed an estimated calculation based on figures which were researched for 2013. Amazon's revenue for 2013 totaled $74.45 million which the authors then multiplied by an estimated percentage of physical goods totaling 85% - excluding E-books and AWS (Michigan State University, n.d.).

Assuming that the average order cost is around 50$ and that there is one box used per order and that there are approximately 360 days in a year where Amazon operates, MSU came up with the following calculation:

$74.45*.85/$50*1/360 = 3,515,694 packages per day.

When items arrive at a warehouse from Amazon, employees typically manually transport the freight from trucks and position it onto conveyer belts at the entry of the warehouse. The parcels are opened, unpacked and placed into special sorting carts which get assigned to sorting teams of the warehouse. These teams then position the newly-arrived items into storage units which have been assigned to them by Amazon's inventory algorithm which follows their well-known “chaotic storage method” which has been discussed in Chapter 3.5.1 ”Inventory Planning and Management” of this paper.

Replenishing warehouses with items and the fulfillment of orders, is very time- consuming for Amazon and its employees. In addition to the time factor, this process requires an immense number of employees, considering the high number of orders that are placed daily. Despite the fact that this method is still used on a daily basis in many warehouses worldwide, Amazon sought for possible improvements of the “find, select, pick and pack”-process. The result was the acquisition and new introduction of KIVA robots into Amazons warehouses in 2012. The automation of the company's warehouses and KIVA Robots will be discussed in the following chapter.

3.5.3 Automated Warehouses and KIVA Robots As mentioned in the foregone Chapter, Amazon's overall goal for the optimization of its warehouses was the minimization of human power needed for operations (Kaplan, 2015). Furthermore Amazon's traditional warehouse management had two main points which could be improved. Firstly, the company realized that putting manual inputs of sales figures into their inventory management software and system was neither effective nor efficient. Moreover, Amazon had issues with communication among their warehousing parties.

As connections and communication among partners are automated today, consumers who place an order get information about the order's arrival date within some seconds. Additionally, if the order contains more than one single item, Amazon calculates in real time if the products will reach the consumer as a single delivery or in separate parcels on different dates. In order to ensure more efficient warehouse operations, KIVA Robotics, a company which develops automated material handling order fulfillment systems (Robotics Business review, n.d.), became a subsidiary company of Amazon. As a consequence, the company officially changed its name to Amazon Robotics LLC in 2015. The robot, which has been introduced to American warehouses first, often gets referred to as the strongest and busiest employee of Amazon (Tam, 2014) as it is able to perform various tasks, does not require breaks and as it is much faster and more efficient than humans. The main task the robot performs is the identification of items which have been ordered and the attached transport to assigned picking- employees.

When a consumer purchases an item on Amazon, a robot gets assigned automatically by the system to identify the location of the product and to carry it to the picker. To finalize the order, the picker then only has to select the item, register and scan it and prepare it for the packing process.

As pointed out by Tam, Amazon's senior vice president Dave Clark states that the robot itself had immense effects on the order packing process of Amazon – limiting the average fulfillment time of an order from 90 to only 15 minutes (Tam, 2014). Currently, in order to further speed up and optimize the fulfillment process and to minimize human intervention, Amazon is looking into the development of a picking and packing robot. In addition to increased efficiency and faster possible operation, warehouse automations also result in better allocation of floor space as less employees and less supersize forklifts are needed.

3.5.4 FBA – Fulfillment by Amazon “You sell it, we ship it” (Amazon.com, n.d.) is the prominent headline of the company-operated fulfillment service of Amazon which does not only support the growth of Amazons marketplace, but also has various benefits to third-party sellers that use Amazon's services.

One of Amazons all-time goals is the reduction of fulfillment and transportation costs. Therefore they increased the number of warehouses and therefore fulfillment centers in recent years. FBA was developed for interested retail parties which store products in Amazon's Fulfillment Center network and when the product is ordered, Amazon picks, packs and ships the chosen item to its destination. It additionally handles customer service on behalf of the company. This service was primarily developed for retailers of a smaller size which have a limited budget. Therefore, collaborating with firms which already possess advanced technologies, might be especially interesting for these organizations. Furthermore, as analyzed by Channel Advisor, over 60% of sellers, which use FBA reported an increase in sales of more than 20% since they joined the program by Amazon. Moreover, almost a quarter of sellers reported sales which doubled in comparison to previously collected data prior-FBA (Channel Advisor, 2016). For providing this service, Amazon gets a percentage of revenue which these companies generate.

3.5.5 Pricing Adjustment Strategy Pricing is one of the main success factors in the retailing industry and price wars are typical for this industry sector. As quoted by The Wharton School of the University of Pennsylvania, Thomas Szkutak, the CFO of Amazon, confirms that pricing has been extremely competitive since the first day of operation (The Wharton School of the University of Pennsylvania, 2009). The company therefore had to develop various differing pricing strategies which appeal to numerous potential clients with dissimilar needs and requirements. As specified by Chopra et al., the pricing menu which was developed by Amazon, allows the company to target a large variety of consumers which furthermore have differing levels of desired responsiveness (Chopra et al., 2007).

Moreover this pricing approach is very flexible in its nature. This means that it is able to provide responsiveness to consumers who require it whilst remaining at a low- cost level to improve the company efficiency (Chopra et al., 2007). Amazon is especially successful in changing and adjusting its pricing and demand strategies in response to seasonality. Most retailers are facing this seasonal peak and are implementing various different manners to overcome product unavailability or an extended lead time and thereby late deliveries.

Amazon therefore regularly offers “off-peak discounting”, implying that specific discounts are given on shipping and products themselves when orders are made in advance before Christmas. By this manner, demand from the Christmas-peak may get partially transferred to an off-peak season, easing operations and demand management of the company. Another strategic approach which Amazon developed in order to get consumers attention, is their promise that if orders are placed well in advance, they will eventually arrive on time, which is not self-evident during seasonal peaks. Moreover, in order to further influence its consumers to shift purchases to November or early December, Amazon also applies the exact reverse strategy, meaning that the company might charge higher prices during peak periods. By applying these manners, Amazon manages to increase its internal efficiency without harming responsiveness.

3.5.6 Transportation The fact that Amazon does not only sell physical items, but also provides a platform for downloadable music and software, removes some cost dimensions associated with transportation. Nevertheless, for nondigital items, Amazon's main issue remains the misbalance between its inbound and outbound transportation costs. The company receives very large truckloads of items on the inbound side. Nevertheless, on the outbound side, Amazon only ships out small packages which typically contain few items. This therefore stands for high costs attached to transportation – also as many of Amazons' shippings are free of charge for customers. Therefore, when rating Amazon based on the drivers of supply chain performance, transportation is Amazon's weakest part. In the transportation sector, Amazon has various partnerships and cooperations with international logistics providers and parcel couriers, including UPS, FedEx and DHL. Nevertheless, Amazon is not the only party that relies on these companies, which make promises as “Same- day-delivery” harder to achieve. As grasped by Saito, Brian Olsavsky, the CFO of Amazon analyzes that today, the above named transportation providers are not advanced and fast enough anymore in order to fulfill Amazon's expectations and needs (Saito, 2016). This also implies that Amazon cannot fully rely on these third party transportation providers anymore in times of busy operations.

Therefore the company decided to introduce “Amazon Logistics” to the market, which will be further discussed in the following chapter.

3.5.7 Amazon's Logistics Since 2015 Amazon has been planning on launching its own-account logistics network in order to get the opportunity to rely less on third-party logistics providers like DHL and UPS. As mentioned by Saito, CFO Olsavsky clearly stated that the purpose of this network was to supplement partners, not to replace them (Saito, 2016). This also implies that Amazon does not intend to compete against these carriers.

Primarily, Amazon therefore developed this network to gain the ability to react faster when third parties are not able to fulfill the company's needs. In its last 10-K report which is based on the fiscal year 2015, Amazon firstly referred to itself as a

transportation service provider. These recent developments are not surprising industry experts as the company has already made use of its own trucks to move goods out of its warehouses in recent years in order to decrease its rising outbound external transportation costs. Furthermore, as analyzed by Oreskovic, Amazon has recently leased airplanes which will mainly operate in the United States in order to ensure fast deliveries (Oreskovic, 2016). The second goal of Amazon's „Logistics Network Plan 2016“ is to gain the ability to better control delivery times (Pymnts, 2016). As analyzed by Bensinger from the Wall Street Journal, Colin Sebastian, a Baird Equity Research analyst states that the overall market containing delivery processes as well as overall logistics currently has a potential wealth of $400 billion (Bensinger, 2016). Primarily and currently, this service was developed exclusively by and for Amazon in order to support its own transportation and growth. Nevertheless Sebastian also analyzes that Amazon will most-likely offer services and expertise to third parties in the near future. Another future outlook on Amazon's Logistics is the possible acquisition of Frankfurt-Hahn Airport, as Oreskovic analyzed. This airport would be mainly used in order to serve the European market.

3.5.8 Anticipatory Shipping Another unique strategic approach which Amazon had recently patented in 2014 that could further minimize delivery and lead time, is its Anticipatory Shipping.

As analyzed by Kopalle, Amazon is planning on sending items to consumers before an actual order has been received (Kopalle, 2014). According to Kopalle, Amazon tries to successfully predict customer demand based on previously placed orders, consumers' product searches, registered wish lists, shopping-cart contents, return and time spent scrolling through a certain product category on the website (Kopalle, 2014). These pre-ordered packages may be stored at specifically allocated storages or on trucks until an actual order takes place.

3.5.9 Amazon Dash Button Delivery Since the beginning of Amazon's operations the company has invested heavily into its Research and Development department in order to achieve a reduction of its delivery and lead time. Promising same-day delivery to specific customers today represents an additional pressure to the company. Therefore, following a similar

path as Amazon's Anticipatory Shipping, meaning, fulfilling orders before customers realize that the need for a specific product exists, the company developed the Amazon Dash Button. Amazon Dash is currently still in its testing phase and therefore only available on the North American market. The button's main benefit is the functional ability for consumers to send out orders to Amazon without having to use a computer or any other technological device. The Dash Button gets attached to devices as the dish washer or the washing machine where a certain supply, in this case a dishwasher tab or washing powder, is needed for the machine to operate. Once the consumer realizes that one of these supplies, is used up, pressing and releasing the button instantly generates an order (Amazon.com, n.d.).

3.5.10 Information and Technology Without the constant development and change in the field of Information technology, successful E-Businesses would not be able to continuously and sustainably improve their operations. By using computer systems, Amazon is able to successfully handle Big Data, more precisely massive data sets including page traffic, clicks, time spent on the website, demographics, social information and timing (Vend, 2015) as well as share significant demand and supply information with every party along its supply chain to increase visibility.

This is why Bezos has decided to invest heavily into IT development from the beginning of the company's operations. In recent years, Amazon has implemented services and systems in the fields of Website management, search, customer interaction, recommendation, transaction processing and fulfillment.

As these services all require high investments and an extremely well-developed technological infrastructure, Amazon currently possesses the largest quantity of online retailing technologies (Laudon et al., 2014). Information technologies play a crucial role for Amazon as the company needs to deal with a very high number of products, different status inquiries, gift-wrapping requests and various shopping methods. Amazon's Inventory and Order Management, especially their Amazon Marketplace, is supported by the Appath cloud software. As stated on Appath's website, selling on Amazon is beneficial for most companies. Nevertheless, Amazon as a selling platform is typically not easy to manage (Appath, n.d.).

Moreover, Amazon uses its competitive advantage in Information Technologies in order to further differentiate itself from its competitors. Amazon Web Service is a software which was specifically programmed to offer storage and computing services to corporate customers. For a fee, corporate customers may get limited access to Amazon's IT, which also creates a new revenue stream for Amazon. The Wharton School of the University of Pennsylvania analyzed that, according to Xavier Dreze, a marketing professor at UCLA, AWS is especially fitted to companies which do not have financial measures to invest in IT (The Wharton School of the University of Pennsylvania, 2009).

3.5.11 RFID Amazon currently uses RFID technologies on a moderate level. Bacheldor analyzed that Jeff Wilke, current CEO Worldwide Consumer of Amazon, evaluates that presently, RFID only plays a role for the company when it notes poor inventory accuracy, if it witnesses an unusually high shrink rate or if Amazon requires more real-time information (Bacheldor, 2004). When directly contrasting Amazon with Walmart, Walmart firstly equipped whole cases, pallets and trucks with RFID tags to be able to control inbound transportation more effectively. However, Amazon faces little issues with their inbound transportation.

Therefore, the company's preference would be the implementation of RFID tags onto single items to be able to better control and track outbound transportation. The points concerning supply chain drivers of Amazon discussed above, more precisely inventory management, facilities, pricing, transportation and information, suggest that Amazon's supply chain is driven by its Chaotic Storage model, flexible pricing, increased closeness to customers, real time inventory tracking and the company's ability to lower inventory levels without limiting product selection. Based on the named factors along with Amazon's Logistics Network Plan, same-day deliveries might be feasible in the close future for a large number of markets. Furthermore, Amazon's unique retail advancements, namely Drop Shipping, automated warehouses, Anticipatory Shipping, the company's Dash Button and FBA might become increasingly important in the future as they offer increasing flexibility and services to customers.

3.6 Amazon's Customer Service Amazon is a B2C business which fulfills orders placed by individual customers who purchase through their online platform. Amazon's target consumer is a well- educated shopper who has access to the Internet and furthermore puts high emphasis on selection, convenience and price. Customer service plays a major role for CEO Jeff Bezos who argues that competitors play a secondary role for the company whereas customers and their feedback are the priority and guideline for Amazon (Baldacci, 2013). Amazon's business strategy has an influence on various departments and furthermore on its supply chain and distribution network.

Most prominent examples are response times, product variety and availability, customer experience, time to market and returnability. This chapter therefore focuses on an analysis of the above mentioned factors and how Amazon handles and controls each of them.

3.6.1 Response time to customers When a product gets sold online which cannot be downloaded, E-Businesses, which do not have physical outlets, have a longer lead time. This means that order fulfillment takes longer because of involved delivery time. Therefore Amazon is usually not an option for consumers, who require short response times.

This also implies that Amazon mainly trades off fast response time, which might be requested by consumers for a large variety of products. Nevertheless, this is only valid for the partial E-Commerce side. For pure E-Commerce however, in this case linked to products, which can be downloaded, this disadvantage is invalid as it takes shorter time to download an item than to go to a store where similar items can be bought.

3.6.2 Product Variety and Availability In terms of product variety, Amazon has an advantage over traditional retailers as E- Businesses are generally able to offer a larger choice of products and services. Amazon is furthermore able to react faster to changing customer demand which allows the company to forecast its figures more accurately. Following improved forecasts and therefore more accurate views of customer demand, a better match between supply and demand is possible and feasible which is a further

step towards the elimination of excessive supply. Furthermore, better search options as well as customer awareness of competitive assortments furthermore increase the need for companies to increase product variety and availability.

3.6.3 Customer experience Amazon as an E-Business stands for access, customization and convenience. As a result of successful programming and strategic developments, Amazon is able to create a “personalized buying experience” (Howen, 2014) which aims at having similar effects as offered at physical retail stores. Amazon achieves this by displaying and suggesting items which are related to recent purchases by the customer or browsing results.

3.6.4 Time to market The most beneficial advantages for businesses who are also or solely E-Businesses, is their product's time to the market. As Amazon introduces its products by making them available online, the introduction of new items or services happens much faster than for retailers that use physical channels.

3.6.5 Returnability Returnability for E-Businesses represents another trade-off for consumers. The risk for returns of products which have been purchased online, is much higher as consumers are not able to physically touch a product before purchasing it. Generally speaking, returning items to retail stores, is much easier in comparison to online stores.

In terms of customer service, Amazon performs especially well due to its unique product variety and availability, its personalized customer experience and a short time to the market. In order to further increase the level of customer satisfaction and service, Amazon might optimize its response time as well as returnability, which can be more difficult to complete in comparison to companies which possess physical retail stores.

3.7 Supplier Code of Conduct As Amazon is currently the largest E-retailer world-wide, the company has various partnerships and agreements with its suppliers and other third parties from varying sectors. Although Amazon performs regular quality controls and audits, it is a challenge for the company to ensure ethical behavior as well as accurate face-to- face supervision of all processes at all time.

As stated by Amazon, each site audit contains the inspection and analysis of the following factors which are listed below:

• the site and any living quarters

• confidential worker interviews which are conducted without management presence

• review and analysis of site documents to assess workers' age, contracts, compensation, working hours and workplace conditions

• audit and review of current licenses and any past compliance issues

• identification of areas for improvement and development of a remediation plan (Amazon.com, 2016).

The company has introduced its “Supplier Code of Standards and Responsibilities”, which, according to Misch aims to ensure high performance in the fields of “service, business practices and conduct” (Misch, 2014) among all supply partners.

This general Code of Conduct was developed as Amazon is dedicated to manage its overall business in a morally stable and ethical way and thereby corporate with partners which aim to achieve similar values (Amazon. Com, 2016). As directly retrieved from Amazons' Supply Chain Standards, the five key areas of the document are:

• Health and safety in production areas and any living quarters

• The right to legal wages and benefits

• Appropriate working hours and overtime pay

• Prevention of child labor or forced labor

• Fair and ethical treatment, including non-discrimination.

A complete version of the Supplier Code of Conduct from Amazon can be found attached in Appendix 3.

4 Amazon's Competition

When Ali positioned himself towards Amazon and its competitors, he firstly mentioned that trying to catch up with Amazon will most likely result in financial ruin and disaster for companies (Ali, 2015). Reasons for this assumption as well as an overview over most prominent competitors of Amazon will be therefore given in the following chapter.

As generally analyzed by Laudon et al., Amazon's competitors are typically offline retailers, E-businesses or companies which have an online and offline presence (Laudon et al., 2014). Competing with Amazon is a challenge for various companies who serve different sectors and focus on numerous target markets. One explanation for the pressure which Amazon has on companies in general can be briefly explained by “The Amazon effect”.

This phenomenon can be best described by referring to Jim Tompkins, who is the president of Tompkins International and an industry expert in the retail sector. In his opinion, Amazon has a specific impact on the industry, which many observers and organizations are not clearly aware of. He addresses these companies by evaluating that Amazon is presently setting standards for customers.

This means that Amazon is able to rule what customer satisfaction requirements for the retail industry – especially E-Commerce – are now (Tompkins, n.d.). The Two main requirement standards which Tompkins specifically considers, are firstly free shipping and free return, implying that now customers expect no additional delivery costs charged by any company. Furthermore Tompkins mentions the speed of delivery which Amazon has, meaning that customers today are most probably not going to order anything from an online store if the order fulfillment takes longer than one or two days (Tompkins, n.d.). Another challenge for Amazon's competitors which Tompkins refers to when evaluating Amazons leading market position, is their distribution network. Having started with scattered fulfillment centers and warehouses and therefore a great distance to customers, Tompkins evaluates that today the majority of Amazon's distribution centers are located within 200 miles of major metropolitan areas (Tompkins, n.d.). Overall, the retail expert concludes that competing with Amazon is only possible if one of their four strengths can be beaten,

namely price, selection, experience and convenience. Moreover Tompkins assumes, that physical retailers might eventually have a competitive advantage over Amazon if they are able to combine their physical strengths with an E-Commerce presence. As pointed out by Simpson, retail analyst Schachter states that Amazon has a competitive advantage over most of its competitors. In financial terms he adds that: “26 cents out of every $1 spent online in the US in 2015 ended up in Amazon’s coffers” (Simpson, 2016). Furthermore, Schater adds that when looking closely at every additional dollar US citizens spent online in comparison to 2014, 51 cents were spent on Amazon.

As pointed out by the Forbes magazine, Amazon's main competitors operate three general segments, more precisely media, electronics and other merchandise (Forbes, 2014). Nevertheless, a more detailed overview over Amazons' most prominent competitor types is given in Table 5 below.

Table 5: Amazon's Competitors

As mentioned by Cellan-Jones, Google's former CEO Eric Schmidt analyzed that Amazon is currently the biggest and most important threat as a search engine for Google (Cellan-Jones, 2014). Furthermore he states that Amazon is clearly positioned in the commerce sector but has the ability to answer consumer's questions and fulfill requests similar to Google. Moreover, Google and Amazon have various features and services, which have equal functions. One example is the comparison between Google Checkout and Amazon Payment services. Both are

furthermore direct competitors to PayPal, which belongs to eBay. Despite the fact that Amazon and Google target different consumers and enhance different processes, both of them aim to be „the gatekeepers of e-commerce“(Shmults, 2013). Google is not Amazon's current most prominent competitor but is estimated to become the company's biggest future enemy as Google is able to sell anything it wishes to.

Google, Amazon and eBay add up to the trio of E-commerce which unites the three most successful E-retailers nowadays in spite of the fact that they differ significantly in their business structure and approach. However, analyzed by the University of San Francisco, The Business Insider analyzed that Amazon has had the strongest financial performance out of the three mentioned as it has generated more revenue alone than its 10 closest online competitors in 2015 (University of San Francisco, 2016).

Moreover, when directly comparing the companies' revenues in the first five years of operations, it can be seen, that Amazon has had the fastest growth out of these three companies.

According to their historical financial results, eBay generated 0,4 billion US $ from 1995 to 2000, Google's revenues from 1998 to 2003 added up to 1,5 billion US $ and Amazon generated 2,8 billion US $ starting in 1995 until 2000 (Statista - the statistical portal, n.d.).

Walmart is Amazon's biggest rival in the retail sector as both companies are equally classified as retail giants. The direct competition between both is mainly based on their pricing strategies, accessibility and responsiveness. Furthermore, this competition primarily exists in the United States. According to Peter Fader, a marketing professor from The Wharton Business School of the University of Pennsylvania, it is positive that today Amazon and Walmart are often used in the same context. As further evaluated by Kelleher, this comparison is surprising to many industry experts as until few years ago, Walmart was often referred to as “the undisputed ruler of retail”(Kelleher, 2015). The author adds that only four years ago the revenue of Walmart was 16 times the revenue of Amazon. However shortly after Amazon managed to grow and thereby surpass Walmart's retail strategy (Kelleher,

2015). Consequently, in 2015, Amazon was worth 244 billion US $ whereas Walmart's value totaled 206 billion US $. Nevertheless, one big advantage Walmart has over Amazon is the ability of the retailer to let consumers fully examine products before the actual purchase, meaning that customers may physically feel and touch products before the buying decision. Amazon reacted to this by introducing “Look inside” which allows potential buyers to browse through a limited number of pages of books which they might purchase.

Having taken Walmart as a representative for physical offline retailers, consumers generally tend to buy commodities, which are of instant need, in physical retail outlets. Nevertheless Amazon has gained increased market power over the past years which makes it generally more difficult for offline retailers. Amazon's strategy around a big selection at low prices makes it very tough for traditional retailers to catch up without having to implement radical changes.

As previously mentioned in Chapter 3.5.7 “Amazon's Logistics”, Amazon has been working on a company-owned logistics network in order to overcome constraints, which are faced when working together with third parties. This makes Amazon a potential threat for transportation providers as DHL, UPS and FedEx. Nevertheless, as formerly analyzed, Amazon distances itself from the statement to see transportation and delivery providers as competitors as they do not intend to fully replace them.

Amazon's main competitive advantage in comparison to iTunes, Netflix, IBM and Apple is the fact that Amazon is able to unite every service that the mentioned companies provide. Amazon handles corporate data service requests with AWS which is similar to IBM's business approach. Furthermore, Amazon produces products such as its Kindle and gives Prime subscribers the possibility to access audio and video streaming on the website.

This means that features which are in the main focus of iTunes, Netflix, Apple and IBM are covered extremely well by Amazon whilst remaining a B2C selling platform. Amazon represents a package of various features which are valued by its customers as they may receive all services at once whilst only accessing one single website.

4.1 Gartner List Gartner, Inc. introduces itself as “the world's leading information technology research and advisory company” (Gartner, Inc.,n.d.). The company regularly publishes research papers discussing present IT innovations and issues. According to Cearley, Gartner's most popular research papers are its Top 10 Technology Trend Reports (Cearley, 2016). Among the other most popular and relevant research papers published by the company, is The Gartner Supply Chain Top 25 which contains a ranking of the 25 world-wide supply chain leaders and identifies success factors of those (Aronow et al., 2015). The purpose of this ranking is the identification of world leaders, to show the importance of the supply chain industry in general and the visualization of factors which could be improved by mentioned companies in the future. Furthermore, as analyzed by Aronow et al., this report is “intended to be a lightning rod and foundation for vigorous debate about what constitutes leadership and supply chain excellence” (Aronow et al., 2015).

This list is based on an overall financial performance assessment as well as peer and analyst votes of specifically chosen industry experts. In order to achieve a high ranking, a company has to outperform its competitors in additional performance measures such as Inventory turnover, Revenue growth and ROA. The reason for their 50/50-assessment approach is, according to Gartner that an evaluation of success and performance has to be based on past as well as potential future performance. Public financial data may therefore give information about past performance whereas industry experts may predict future outcomes by critically evaluating the current overall company performance (Gartner, Inc, n.d.). In 2015, the 11th Supply Chain Top 25 report has been published by Gartner's, placing Amazon first this year and furthermore in the Top 5 for the fifth time. The only companies which outperformed Amazon are Supply Chain Masters Apple and P&G, which were both ranked among the Top 5 of the list for the past 9 years and therefore became the Masters of the industry. Figure 9 below gives an insight into Gartner's Top 5 companies listed the Supply Chain ranking.

Figure 9: The Gartner Supply Chain Top 5 for 2015 (Aronow et al., The Gartner Supply Chain Top 25 for 2015, 2015)

For Gartner, Amazon is characterized by its „out-of-the-box moves“ (Gartner, Inc., n.d.). The company's revenue growth in comparison to its direct competitors totaled 21,7 % whereas its average return on assets amounted to 0%.

This figure however occurred, as Amazon, again, heavily invested into their future capabilities and products.

4.2 Top 50 E-retailers As previously mentioned in Chapter 2.1.2 “Top 250 retailers worldwide” , Deloitte has published its Top 50 E-retailers 2016 analysis whilst clarifying that often E- Commerce and physical retailers are viewed as threats to each other nowadays. Nevertheless the company further analyzed that an integration between online and offline business would typically enhance companies' performances whilst additionally improving customer satisfaction (Deloitte, 2015). The overall ranking by Deloitte was based on financial figures of the fiscal year 2014. The Top 20 performers are shown in Figure 10 below. According to Deloitte, Amazon is the greatest and most successful E-retailer with a E-Commerce growth rate of 15% compared to the previous period and E-Commerce retail sales totaling 70 billion US $. Furthermore, there are only five pure-play E-businesses among the Top 20,

implying that slowly, increased emphasis is put on combining online and offline business into an omnichannel approach.

Figure 10: Top 20 e-retailers (Deloitte, Global Powers of Retailing 2015, Navigating the new digital divide, 2015)

4.3 The Q Ratio As analyzed in the previous Chapter, Amazon is part of various industries, where competition is really intense which is mostly characterized by price pressure, excess store capacity, and a continuously increasing shift towards online retailing (Deloitte, 2015). According to Deloitte retailers that desire to grow need to stand out against their direct competitors by developing a strong brand and offering high-quality shopping experiences (Deloitte, 2015). In order to better understand differentiating factors and competitive advantages, the Q ratio was developed. This ratio is a part of Deloitte's “Global Powers of Retailing 2016” - report and shows the proportion of

“a publicly traded company's market capitalization to the value of its tangible assets” (Deloitte,2015).

If this calculated figure is greater than 1, the value which the company reached, was partially generated by using its non-tangible assets (Deloitte, 2015). Non-tangible assets in this case may include brand equity, innovation, customer experience and market dominance. Therefore, the greater the Q ratio is, the more value of a company has been created through these assets.

A Q ratio lower than 1 is not worthwhile for companies as this implies that certain businesses are not able to generate their value by efficiently using non-tangible assets. As it can bee seen in Figure 11 below, Amazon is currently on Rank 5 of the Q ratio ranking. It is especially interesting to see that Amazons' main competitors which have been analyzed in Chapter 4 “Amazon's Competition” are not within the Top 10, showing, that Amazon is using its non-tangible assets much more efficiently than Wal-Mart, eBay and Apple. As Deloitte concludes its analysis, the differentiating factor of the Top 10 retailers by Q ratio, is the ability of their brand to perform high and generate revenue regardless of the distribution and advertising channels which they use in order to reach customers (Deloitte, 2016).

Figure 11: Top 10 retailers by Q ratio (Deloitte, Global Powers of Retailing 2016, Navigating the new digital divide, 2015)

5 Discussion and Analysis The following part of this study focuses on the overall analysis and discussion of previously identified particularities of the retail industry and Amazon's position in it. Along with a supply chain-centered SWOT analysis, Amazon is furthermore analyzed by applying Porter's five forces. Lastly, Amazon’s global value chain will be discussed.

5.1 SWOT Analysis There are various methods based on different factors which may be used in order to analyze and assess the strategic position as well as performance of a company. One of the most popular evaluation and planning models is the SWOT Analysis which critically assesses a company based on internal aspects, namely strengths and weaknesses as well as external factors, more precisely opportunities and threats.

In this part, strengths, weaknesses, opportunities and threats of Amazon and its supply chain will therefore be identified and further visualized in Figure 12 below.

Figure 12: SWOT Analysis Amazon's Supply Chain

5.2 Porter's Five Forces One model which critically analyzes a company as well as its position in the industry based on its competitive environment, is Porter's five forces model. This model determines how well a specific company is able to continuously compete in an established marketplace. The model critically assesses a company based on threat of substitute products, threat of new entrants, bargaining power of suppliers, bargaining power of customers and rivalry within the industry (Porter, 1979).

In this part of this research, Amazon is therefore analyzed based on previously named factors in order to further point out the company's position in the E- Commerce as well as retail industry.

5.2.1 Threat of Substitute Products or Services Generally, the threat of substitutes is very high for Amazon as numerous alternative online and offline companies offer the same products and services as the company itself. One way for Amazon to limit this specific threat, is the development of own products, services and procedures which are unique on the market or in the industry. Another strategic approach, which is highly beneficial for Amazon, is the fact that the company does not solely focus on one specific product category. Therefore the probability of finding a product on Amazon is very high. Lastly, Amazon may eliminate potential competitors by offering high customer service and by relying heavily on customer loyalty.

5.2.2 Threat of New Entrants Entry barriers into the E-Commerce industry are relatively low for start-ups as well as physical retailers that wish to expand and therefore develop an online presence. However, considering Amazon's size and product variety as well as supply chain advancements, the threat of new entrants is relatively low as it is close to impossible for other companies to reach the same level of performance. This means that companies might easily enter E-Commerce, but may hardly reach a significant level which might be of significance to Amazon. Differentiating factors in this context are especially product variety, inventory levels, customer loyalty and customer experience. A new entrant would only become dangerous for Amazon if this company would be able to develop technologies which Amazon and other competitors do not possess.

5.2.3 Bargaining Power of Customers For Amazon marketplace, bargaining power of customers and buyers is very high. This is directly related to Amazon's competition as consumers have a very broad choice on where to buy desired products.

This implies that consumers may easily use a different website or visit another physical retailer if Amazon does not sell a specific item or offers it at a high price.

5.2.4 Bargaining Power of Suppliers As much as Amazon is dependent on its suppliers, suppliers are equally dependent on Amazon, making bargaining power for them relatively low. Amazon works together with suppliers in order to deliver or to drop-ship items to consumers. The other way around, suppliers often require the help of Amazon to achieve relevant sales figures and to increase company awareness. Nevertheless, Amazon does not solely rely on one supplier per product category but has the choice over numerous product and service providers.

5.2.5 Competitive Rivalry within the industry As previously discussed in Chapter 4 “Amazon's Competition”, Amazon has spread into numerous different industries. As Amazon does not specialize in one specific product or service category, the number of competitors is especially high as well as rivalry amongst them. This rivalry and competitive threat results in high pressure on companies to constantly develop new products and offer new services.

5.3 Global Value Chain Analysis According to the Global Value Chains Initiative by Duke University, a value chain comprises the sum of activities, which are performed by a company and its employees from product conception to product usage. The analysis of value chains is especially significant as numerous companies operate in an international context, implying that involved parties are directly influencing each other whilst being located at different places. The analysis of Global Value Chains is an approach that critically assesses the overall structure of global industries (Duke University, n.d.).

In order to provide an analysis example from the industry, the following two chapters shortly classify, discuss and analyze the global value chain of Amazon.

5.3.1 Global Value Chain Classifications According to Gereffi et al., the overall functionalities as well as capabilities of a supply and value chain may be assessed by classifying the underlying chain concept into one of the following five types which are shortly explained and contrasted below (Gereffi et al., 2005).

Table 6: Global Value Chain Classification (Gereffi et al., The governance of global value chains, 2005)

Primarily Amazon's value chain is highly captive in its nature as Amazon represents the lead firm which works together with numerous external suppliers that participate in the business without being owned by Amazon itself. However, due to various platforms which also belong to Amazon, as Zappos and Audible Inc., Amazon is highly hierarchical as the company itself keeps control over its subsidiaries whilst constantly expanding. Another hierarchical relationship is the one between Amazon and its facilities. Nevertheless, it is significant to underly that whilst Amazon's unique supply chain is mainly captive as well as hierarchical; it also has features of a market as well as relational chain. One example would be Amazon's relationship to its third- party sellers that use Amazon as a marketplace. As a seller-registration on Amazon is easy and linkages between these sellers and Amazon are relatively weak, this represents a chain fragment, which may be classified as a market value chain. This may be further explained by the limited control, which Amazon has over these sellers. Furthermore, the relationship with its logistics partners is highly relational. Typically these partnerships are of enduring nature and moreover based on long- lasting contracts.

5.3.2 Porter's Global Value Chain The Global Value Chain model was developed by Porter in 1985. It mainly describes and analyzes how value is created in a company through its value chain. More precisely, this framework analyzes activities, which are performed by a company and identifies how much value may be added to the firm by those activities. This analysis

typically leads to the detection of possible fields of improvement as well as potential competitive advantage in comparison to rivaling companies. In order to analyze a value chain, primary activities as well as supporting activities play a major role. Primary activities are activities and processes which have direct and immediate effects on the value creation of a firm whereas support activities have an impact on primary activities and therefore an indirect effect on value creation (Porter, 1985). A visualization of Porter's Global Value Chain framework is given in Figure 13 below whereas Table 7 critically assesses Amazon based on the significant variables.

Figure 13: Porter's Global Value Chain (Porter, M. (1985). Competitive advantage. New York: Free Press)

Activity Amazon's Performance - receives large quantities of items from international suppliers - products bought at lowest possible price - to control inbound logistics: regular quality and inventory Inbound Logistics controls, customer feedback - no long term arrangements with suppliers - no dependency on suppliers - allowance for direct competition between suppliers - two main operation segments: North America and International Operations - Marketplace, Prime, AWS - convenient 24 hours – operations as well as 30 days-return policy - dependency on third parties - future outlook: Amazon's Logistics Network Plan with own trucks, planes and a possible airport acquisition Outbound Logistics - highly committed investments - currently weakest part in supply chain - continuous increase of number of warehouses to decrease outbound transportation costs - commitment to price leadership Marketing and Sales - discounts on price and shipping prior seasonal peaks - immense use of SEO as well as collaborative filtering - 24 hours accessibility - 30 day-return policy Service - customer-centric approach - dedicated service pre, during and post purchase - highly advanced technological infrastructure Firm Infrastructure - use of a single platform - customer data available to all business units along the chain - dedicated company culture Human Resources - provision of employee benefits - desire to acquire highly skilled employees - high investments into technological as well as research Technology development Development - in possession of largest online retailing technology - facilities placed in different areas to ensure closeness to Procurement customers - fast order processing due to highly advanced infrastructure Table 7: Amazon's Global Value Chain

6 Conclusion

After having critically reviewed and analyzed the E-Commerce sector as well as Amazon as a representative company, the following part of this paper answers the central research question concerning Amazon's ability to differentiate itself from its competitors and the significance of its supply chain strategy.

Furthermore, potential expansion and development opportunities of Amazon are discussed and a stand will be taken on the title “To E or not to Be” in order to clarify if a modern business supply chain in the 21st century might be stable and successful without having to develop an E-Commerce stream.

One of the particularities of the retail industry is almost perfect information among most dimensions and stakeholders. Based on this nearly flawless information flow and availability, consumers typically put high emphasis on selection, price, service, availability and convenience when purchasing goods online or electronically. When looking at Amazon, it becomes apparent that the company is able to unite all of the attributes mentioned above, more specifically, this highly diverse and unique organization is market leader in most of those areas. Furthermore, Amazon has identified the significance of an integrated supply chain and logistics department and has successfully built on these factors in order to create a competitive advantage. The company is able to satisfy its four main customers, namely consumers, sellers, enterprises and content creators by successfully identifying their requirements and needs and by following various trends. Amazon's steadily changing and growing product range as well as its enormous music and audio data base are two of the main competitive advantages over rivaling companies Amazon currently has. Furthermore, Amazon is targeting and serving a world-wide market, including almost all continents and emerging markets such as the BRIC countries.

Amazon is an unpredictable participant of the retail industry as it might generally spread into any sector in the future. Many companies which are dealing with Amazon as a competitor today, firstly did not identify the company as a threat as it initially started as a bookstore. Today, Amazon's product and service range exceeds

the portfolio of most organizations that position themselves in an industry which Amazon also serves.

The company's warehouses are filled with items which are able to satisfy any customer need and requirement as convenient and cheap as capitalism allows.

Low prices which are possible due to the flywheel strategy, attract an immense number of potential consumers who value Amazon's product variety and availability. Thereby Amazon also profits highly from competitors that charger higher prices for products in order to reach a high margin.

Moreover, Anticipatory Shopping and the Dash Button both aim at satisfying consumers before the need for a product is even given. These strategic developments of Amazon make it an exceptional player of the retail industry. With its numerous features, innovations and developments, Amazon is therefore able to differentiate itself from its competitors, ensuring a high level of customer service.

Amazon is furthermore beating competition as the company is able to successfully detect inefficiencies in its supply chain as well as product range. In cases where inefficiencies or product gaps are detected, Amazon invests highly into research as well as product development. As a result fast, sustainable and ongoing innovative, mostly technological solution for the underlying issue are found and executed. Often Amazon thereby establishes new complementary online platforms which furthermore solve present issues and secondly always bring new ideas and products to the market. This circle is an ongoing process. In contrast to most competitors, Amazon is not solely finance-driven but mostly profits from constant re-investing into new developments, products and services. Amazon is actively changing the retail and E-Commerce sector as well as industry standards and is thereby able to put pressure on competitors which are forced to constantly optimize internal and external operations in order to remain relevant for consumers.

Previously discussed factors and mechanisms may result in the assumption that Amazon has reached a monopoly position in the retail, especially E-Commerce, industry. However, monopolists are typically companies which are not endangered

by competitors and furthermore able to increase prices any time independent of the level of demand elasticity.

Amazon does not fit into the traditional view of a monopoly as consumers have various alternatives but tend to turn to Amazon because of low prices and fast delivery. Therefore Amazon has not only revolutionized the retail industry and supply chain management, but furthermore has developed a new definition of monopolist which is not only beneficial to the company but mainly to consumers.

Amazon's efficient and structured supply chain unites most main success drivers of the company. Furthermore Amazon stocks core products at company-owned warehouses and manages core competencies itself whilst successfully outsourcing non-core services as well as overcoming the need to store less popular products. Amazon has one of the widest product ranges on the Internet which makes it “The Everything Store” and it is furthermore characterized by its unique Chaotic Storage approach. However, a Chaotic Storage model is not purely disorganized in its nature and can therefore only exist if the dimensions it is based on are arranged, planned and in line. Potential consumers who want to purchase a specific item typically look for large product variety, low prices, instant availability, reliable sellers and fast delivery. Amazon is able to satisfy all of the named requirements with its supply chain. As previously detected, Amazon's supply chain is characterized by agility, adaptability and alignment whereas the biggest advantage occurs from the chain's agility. Due to this significant characteristic as well as an IT system which is highly sensitive to changes, Amazon is able to quickly react to industry changes as well as potential opportunities and threats.

This furthermore allows Amazon to follow industry trends. Moreover, once potential points of improvement are identified, Amazon reacts quickly and implements instant modifications and changes of existing systems and procedures.

The retail industry in its original offline nature has been existing for decades without the Internet or related technologies. Nevertheless, the current research project as well as numerous previously published papers mainly demonstrate that companies who have an Internet presence and platform today have various competitive advantages in comparison to physical retailers who solely operate offline. In a

generation where the Internet is the first destination for many kinds of requests or questions by consumers, Amazon increasingly benefits from this ongoing trend and continues to successfully surf on this wave.

Overall, “To E or not to Be” is a statement which is difficult to conclude upon by only considering Amazon's economic strategy.

The title of this research generally assumes that in the near as well as far future, organizations which do not spread into the online world, might have difficulties in keeping their business at a stable level as the retail as well as supply chain industry is highly mobile in its nature. Competing with Amazon on a supply chain level which is characterized by a constant flow of new products, suppliers, customers and promotions, is therefore not only a challenge for other E-Businesses, but mainly for the offline world. The omnichannel approach which is practiced by numerous companies today, is therefore not necessarily chosen voluntarily but partially the result of the desire and need to remain relevant for consumers and to adhere to the increasing demands due to the constantly rising level of globalization. With its various innovations and the large amount of capital invested into R&D, Amazon puts substantial pressure on offline sellers. As previously mentioned in this study, Amazon will most likely be able to integrate 85% of all products available world-wide into their product range soon, making it close to impossible for physical retailers and their supply chains to catch up. The future of the retail industry in general and Amazon in particular is difficult to forecast and therefore unpredictable, exciting, dangerous and interesting. One might predict that Amazon may become the Walmart of the Internet one day, having an excessive amount of products in its range and suffering from its size. In order to develop in a positive way, Amazon should therefore furthermore focus on high customer service and distance itself from foreign product sourcing, unethical treatment of supplies as well as unlawful environmental practices. Special emphasis should furthermore be put on Corporate Social Responsibility, financial stability and lastly onto ongoing expansion without risking uncontrollable growth by continuously introducing new product lines to the company.

6.1 Implications and Recommendations As Amazon is known for large investments into Research & Development, the company has numerous possibilities to expand and to serve a larger number of markets and thereby become more unique and relevant. These opportunities, which were identified in Chapter 5.1 “SWOT Analysis” of this paper, will be discussed in the following part of this research. Firstly, further collaborations with the public sector could be an advantage for Amazon. A current collaboration with the British Library involves the digitization of antic books which were hardly available to public. In order to make these easier to access to a larger quantity of people, Amazon collaborated with the library in order to publish the books on their Kindle devise. By this manner, Amazon does not only facilitate access to desirable documents and therefore satisfies customers, but is also able to sustainably bind specific customers to their company's product development, the Kindle.

As currently Amazon's supply chain is not especially sustainable nor environmentally-friendly, Amazon may furthermore focus on Green Retailing in the future. This may be achieved by implementing recyclable packaging as well as energy-saving standards in company-owned facilities. Another possible expansion of Amazon might take place in the B2B sector. Amazon Business, the B2B version of Amazon is mainly focused on selling products and services to businesses and thereby promises price discounts, faster delivery as well as business analytic services. By establishing more contracts with businesses, Amazon could therefore successfully build more long-lasting relationships which would increase publicity for Amazon and ease operations for partner businesses. One possible product development which might be imaginable, would be Amazon Cable. Currently, Internet access is not ensured in all countries nor continents around the globe. Nevertheless, in order to reach Amazon, an Internet connection is required. Therefore it would be helpful for Amazon to work together with telecommunication providers in order to further spread and enter the cable development sector. This could allow more consumers to access the platform. One of Amazon's most successful and effective supply chain decisions was the strategic acquisition of KIVA.

This investments has optimized Amazon's inventory handling as well as warehouse management and fulfills one of the company's main goals, namely the reduction of human intervention needed in its supply chain. As the robot is currently only programmed for the collection of items out of the Chaotic Storage, Amazon is currently working on the advancement of a robot which might be able to undertake the company's picking and packing process.

Future plans for reorder points which instantly react in real time, are another proof for Amazon's constant strive towards the optimization of its supply chain.

Its own logistics network is one of the greatest achievements of Amazon which is aiming at the reduction of dependence on third parties. Acquiring airport Frankfurt Hahn would furthermore allow Amazon to increase efficient operations across Europe. Additionally, it would give the company an enormous competitive advantage in comparison to rivaling companies.

6.2 Limitations The retailing sector is a highly mobile industry which constantly changes and develops as new innovations and business models are introduced. The same advancement may be noted for SCM Applications and Amazon as a representative company.

Due to the complexity and variety of previous research, only a limited number of existing papers were able to be reviewed and taken into account for this research paper. The mentioned reports by MasterCard, Gartner Inc. and Deloitte were chosen out of the pool of existing literature for the purpose of evaluation to gain current significant industry insights, which were highly relevant for this paper.

Two additional obstacles which were faced while composing this research paper, were restrictions in time frame and budget. Another main limitation may be explained by restricted contact to relevant people and limited access to significant organizations and documents as they are held confidential. For example, internal company reports by Amazon were not made available for investigation and requests for further information and company insights were turned down by the organization.

Therefore, qualitative research in the form of interviews was not possible as communication with desirable discussion partners was restricted. Furthermore, a survey was not conducted as the accessible sample of potential participants was not suitable to result in an informative outcome. More specifically, the reachable respondents are generally no industry experts that would be able to provide unique industry insights. As primary data was not acquired for this research paper, it is mainly based on various secondary data sources. Therefore, possible limitations that arise from reliability concerns of existing literature are circumvented and minimized to the best knowledge of the researcher. Special emphasis was put on the consideration of reliable sources.

6.3 Directions for Future Research The topic which was discussed in the underlying study is very broad and therefore has the potential to be further researched in a more extensive way. By this manner relationships, connections and linkages among previously discussed factors and dimensions might be clarified. Especially as this study solely relies on data which was generated through previous research projects, it may be argued that further research is needed as the underlying study in its nature is not extensive in every aspect as indicated by the limitations. The recommended research approach should therefore be characterized by a larger number of sources as well as the generation of primary data. By this manner, a more detailed insight into the industry could be given and more accurate conclusions could be reached.

Furthermore, all topics which were discussed in this study, more precisely the retail industry, E-Commerce, supply chains and Amazon as a representative company, are not stable in their nature and thereby constantly developing and expanding. Due to this ever-evolving and ever-changing nature of the industry, this paper is focused on, one must assume that research on similar topics will never cease, as everyday new questions both arise and are answered by researchers around the world. Another aspect which is especially significant in this research context, is the emergence and development of the Internet. It is therefore recommended to further study the online behavior and presence of consumers as well as companies as the Internet trend will further develop in the future.

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Appendices

Appendix 1 Amazon Q4 2015 Financial Results

AMAZON.COM ANNOUNCES FOURTH QUARTER SALES UP 22% TO $35.7 BILLION

SEATTLE—(BUSINESS WIRE)—January 28, 2016—Amazon.com, Inc. (NASDAQ: AMZN) today announced financial results for its fourth quarter ended December 31, 2015.

Operating cash flow increased 74% to $11.9 billion for the trailing twelve months, compared with $6.8 billion for the trailing twelve months ended December 31, 2014. Free cash flow increased to $7.3 billion for the trailing twelve months, compared with $1.9 billion for the trailing twelve months ended December 31, 2014. Free cash flow less lease principal repayments increased to $4.7 billion for the trailing twelve months, compared with $529 million for the trailing twelve months ended December 31, 2014. Free cash flow less finance lease principal repayments and assets acquired under capital leases increased to $2.5 billion for the trailing twelve months, compared with an outflow of $2.2 billion for the trailing twelve months ended December 31, 2014.

Common shares outstanding plus shares underlying stock-based awards totaled 490 million on December 31, 2015, compared with 483 million one year ago.

Fourth Quarter 2015

Net sales increased 22% to $35.7 billion in the fourth quarter, compared with $29.3 billion in fourth quarter 2014. Excluding the $1.2 billion unfavorable impact from year-over-year changes in foreign exchange rates throughout the quarter, net sales increased 26% compared with fourth quarter 2014.

Operating income increased 88% to $1.1 billion in the fourth quarter, compared with operating income of $591 million in fourth quarter 2014.

Net income was $482 million in the fourth quarter, or $1.00 per diluted share, compared with net income of $214 million, or $0.45 per diluted share, in fourth quarter 2014.

Full Year 2015

Net sales increased 20% to $107.0 billion, compared with $89.0 billion in 2014. Excluding the $5.2 billion unfavorable impact from year-over-year changes in foreign exchange rates throughout the year, net sales increased 26% compared with 2014.

Operating income was $2.2 billion, compared with operating income of $178 million in 2014.

Net income was $596 million, or $1.25 per diluted share, compared with net loss of $241 million, or $0.52 per diluted share, in 2014.

“Twenty years ago, I was driving the packages to the post office myself and hoping we might one day afford a forklift. This year, we pass $100 billion in annual sales and serve 300 million customers,” said Jeff Bezos, founder and CEO of Amazon.com. “And still, measured by the dynamism we see everywhere in the marketplace and by the ever-expanding opportunities we see to invent on behalf of customers, it feels every bit like Day 1.”

Highlights

• Fire TV remains the #1 best-selling streaming media player in the U.S., having added over 1,000 new apps, channels, and games since September, including NBC, NBC Sports, Watch HGTV, Watch Food Network, and Watch Travel Channel.

• The $50 Fire tablet has been the #1 best-selling, most gifted, and most wished-for product across all items available on Amazon.com since its introduction 19 weeks ago.

• The Alexa Skills Kit and Alexa Voice Service continue to attract innovative companies, with Ford, Invoxia, Vivint, Alarm.com, and Ooma announcing plans to integrate their products and services with Alexa. In addition, Alexa continues to get smarter with new features, including local search from Yelp,

news sources from CNN and Bloomberg, enhanced IFTTT support, new alarm tones, and customized sports updates.

• Last quarter, developers added over 100 new capabilities to Alexa-enabled devices. Amazon Echo and Fire TV customers can now play Jeopardy!, get stock quotes with Fidelity, hear headlines from The Huffington Post, exercise with a seven-minute workout, and test their Star Wars knowledge with a trivia quiz from Disney.

• Amazon announced the first devices available with Amazon Dash Replenishment Service, including products from Brother, GE, and Gmate. Additionally, new brands and devices have joined the Dash Replenishment program, including Purell and Whirlpool.

• In 2015, worldwide paid Prime memberships increased 51% — 47% in the U.S. and even faster outside the U.S.

• Prime Video continues to grow internationally with nearly double the streaming customers compared with fourth quarter 2014.

• The Prime-exclusive Original Series Mozart in the Jungle received two Golden Globes for Best Television Series - Musical or Comedy and Best Performance by an Actor in a Television Series - Musical or Comedy (Gael García Bernal).

• Over the holidays Prime members made The Man in The High Castle the most watched series on Prime Video by 4.5x. The Amazon Original Series received outstanding critical acclaim, including USA Today calling it the “best new drama of the season.”

• The second season of hit show Transparent was named as one of the top television series of 2015 by The New York Times, Variety, IndieWire, and The New Yorker.

• Amazon Studios released its first Original Movie Chi-Raq, directed by Spike Lee, to rave reviews. The film has been included in 2015 “Best Films” lists from LA Weekly, The New Yorker, The Washington Post, Los Angeles Times, Slant, and Vulture.

• Amazon launched the Streaming Partners Program, an over-the-top streaming

subscription program that gives Prime members the option to add SHOWTIME, STARZ, and dozens more video subscriptions to their Prime membership.

• In the fourth quarter, Prime Music streaming hours more than tripled in the U.S. compared with fourth quarter 2014.

• Prime Music launched in Germany and Japan, offering Prime members more than one million songs and hundreds of playlists at no additional cost to their membership.

• Since launching in December 2014 with one location, Prime Now has grown to more than 25 metropolitan areas across the U.S., U.K., Italy, and Japan.

• Prime Same Day launched in the U.K. and Germany, offering Prime members unlimited free same-day delivery on a million items.

• Amazon Pantry launched in the U.K., allowing Prime members to purchase daily essentials in everyday sizes and have items delivered for a low, flat-rate fee.

• In 2015, Fulfillment by Amazon (FBA) shipped over one billion units on behalf of sellers. The number of active sellers using FBA grew more than 50%.

• In the fourth quarter, FBA units represented nearly 50% of total third-party units.

• Payment volume from Pay with Amazon grew more than 150% year-over-year in 2015, giving Amazon shoppers a secure way to pay on thousands of websites using information already stored in their Amazon accounts.

• Amazon China launched the Amazon Global Store (AGS) 2.0 customer experience, which provides customers an easier and more convenient shopping experience through single login, unified shopping cart, and local payment. Additionally, AGS selection has grown to over nine million items.

• Amazon.in was the top e-commerce site in India throughout the fourth quarter, including the busy Diwali shopping season, according to global analytics firm comScore.

• Downloads of the Amazon.in mobile shopping app grew faster in the fourth quarter than any other e-commerce app in India, according to app analytics firm App Annie.

• Sellers on Amazon.in sold more in the fourth quarter than in all four quarters combined in 2014.

• Amazon Fashion, East Dane, and MyHabit return as the lead sponsor for the second season of New York Fashion Week: Men’s, hosted by The Council of Fashion Designers of America.

• Amazon Launchpad, a program that helps startups launch, market, and distribute their products, has worked with leading venture capital firms, startup accelerators, and crowd-funding platforms to help more than 500 startups launch over 750 products in the U.S., U.K., and China.

• Amazon entered into an agreement to support the construction and operation of Amazon Wind Farm U.S. Central, which is expected to generate approximately 320,000 megawatt hours (MWh) of wind energy on an annualbasis. Amazon Wind Farm U.S. Central, combined with Amazon’s previously announced projects, Amazon Wind Farm Fowler Ridge, Amazon Solar Farm U.S. East in Virginia, and Amazon Wind Farm U.S. East in North Carolina, will be responsible for delivering more than 1.6 million MWh of additional renewable energy annually, roughly equivalent to the amount of energy required to power 150,000 U.S. homes for a year.

• Only eight months after launch, Amazon Business, a marketplace with features and benefits tailored to businesses, serves more than 200,000 businesses ranging from small businesses to Fortune 500 companies.

• Amazon Web Services (AWS) announced the launch of its Asia Pacific (Seoul) Region in Korea and its plans to open a new region in Canada. The AWS Cloud is now available from 32 Availability Zones across 12 geographic regions worldwide, with another five AWS Regions (and 11 Availability Zones) in Canada, China, India, Ohio, and the U.K. expected to be available in the coming year.

• AWS announced the general availability of Amazon WorkMail, a secure, managed business email and calendaring service with support for existing desktop and mobile email clients.

• AWS announced the general availability of AWS IoT, a managed cloud platform

that lets billions of connected devices — such as mobile phones, cars, factory floors, aircraft engines, sensor grids, and more — easily and securely interact with cloud applications and other devices. AWS IoT can support trillions of messages, and can process, route, and keep track of those messages to AWS endpoints and other devices reliably and securely, even when the devices aren’t connected.

• AWS announced AWS Certificate Manager (ACM), a new service that enables customers to easily provision, manage, and deploy Secure Sockets Layer/Transport Layer Security (SSL/TLS) certificates for use with AWS services. SSL/TLS certificates are used to secure network communications and establish the identity of websites over the Internet. Certificates, which typically cost between $45 and $499, are provided to AWS customers free of charge through ACM and are verified by Amazon’s certificate authority, Amazon Trust Services.

• AWS launched EC2 Scheduled Reserved Instances, allowing customers to reserve capacity for their applications that run on a part-time, recurring basis with a daily, weekly, or monthly schedule over the course of a one-year term.

• AWS announced 722 significant new services and features in 2015, a 40% increase over 2014.

• Financial Guidance

• The following forward-looking statements reflect Amazon.com’s expectations as of January 28, 2016, and are subject to substantial uncertainty. Our results are inherently unpredictable and may be materially affected by many factors, such as fluctuations in foreign exchange rates, changes in global economic conditions and customer spending, world events, the rate of growth of the Internet and online commerce, and the various factors detailed below.

• First Quarter 2016 Guidance

• Net sales are expected to be between $26.5 billion and $29.0 billion, or to grow between 17% and 28% compared with

• first quarter 2015.

• Operating income is expected to be between $100 million and $700 million, compared with $255 million in first

• quarter 2015.

• This guidance includes approximately $600 million for stock-based compensation and other operating expense

• (income), net. It assumes, among other things, that no additional business acquisitions, investments, restructurings, or legal settlements are concluded and that there are no further revisions to stock-based compensation estimates.

A conference call will be webcast live today at 2:00 p.m. PT/5:00 p.m. ET, and will be available for at least three months at www.amazon.com/ir. This call will contain forward-looking statements and other material information regarding the Company’s financial and operating results. These forward-looking statements are inherently difficult to predict. Actual results could differ materially for a variety of reasons, including, in addition to the factors discussed above, the amount that Amazon.com invests in new business opportunities and the timing of those investments, the mix of products sold to customers, the mix of net sales derived from products as compared with services, the extent to which we owe income taxes, competition, management of growth, potential fluctuations in operating results, international growth and expansion, the outcomes of legal proceedings and claims, fulfillment, sortation, delivery, and data center optimization, risks of inventory management, seasonality, the degree to which the Company enters into, maintains, and develops commercial agreements, acquisitions and strategic transactions, payments risks, and risks of fulfillment throughput and productivity. Other risks and uncertainties include, among others, risks related to new products, services, and technologies, system interruptions, government regulation and taxation, and fraud. In addition, the current global economic climate amplifies many of these risks. More information about factors that potentially could affect Amazon.com’s financial results is included in Amazon.com’s filings with the Securities and Exchange Commission (“SEC”), including its most recent Annual Report on Form 10-K and subsequent filings.

Our investor relations website is www.amazon.com/ir and we encourage investors

to use it as a way of easily finding information about us. We promptly make available on this website, free of charge, the reports that we file or furnish with the SEC, corporate governance information (including our Code of Business Conduct and Ethics), and select press releases and social media postings, which may contain material information about us, and you may subscribe to be notified of new information posted to this site.

About Amazon

Amazon.com opened on the World Wide Web in July 1995. The company is guided by four principles: customer obsession rather than competitor focus, passion for invention, commitment to operational excellence, and long-term thinking. Customer reviews, 1-Click shopping, personalized recommendations, Prime, Fulfillment by Amazon, AWS, Kindle Direct Publishing, Kindle, Fire tablets, Fire TV, Amazon Echo, and Alexa are some of the products and services pioneered by Amazon. For more information, visit www.amazon.com/about.

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Amazon.com, Inc.

Certain Definitions

Customer Accounts

• References to customers mean customer accounts, which are unique e-mail addresses, established either when a customer places an order or when a customer orders from other sellers on our websites. Customer accounts exclude certain customers, including customers associated with certain of our acquisitions, Amazon Payments customers, AWS customers, and the customers of select companies with whom we have a technology alliance or marketing and promotional relationship. Customers are considered active when they have placed an order during the preceding twelve-month period.

Seller Accounts

• References to sellers means seller accounts, which are established when a seller receives an order from a customer account. Sellers are considered active when they have received an order from a customer during the preceding twelve- month period.

AWS Customers

References to AWS customers mean unique AWS customer accounts, which are unique e-mail addresses that are eligible to use AWS services. This includes AWS accounts in the AWS free tier. Multiple users accessing AWS services via one account are counted as a single account. Customers are considered active when they have had AWS usage activity during the preceding one-month period.

Units

References to units mean physical and digital units sold (net of returns and cancellations) by us and sellers at Amazon domains worldwide — for example www.amazon.com, www.amazon.co.uk, www.amazon.de, www.amazon.co.jp, www.amazon.fr, www.amazon.ca, www.amazon.cn, www.amazon.it, www.amazon.es, www.amazon.com.br, www.amazon.in, www.amazon.com.mx,

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www.amazon.com.au, www.amazon.nl, www.diapers.com, www.shopbop.com and www.zappos.com — as well as Amazon-owned items sold through non-Amazon domains. Units sold are paid units and do not include units associated with AWS, certain acquisitions, rental businesses, or advertising businesses, or Amazon gift cards.

Contacts:

Amazon.com Investor Relations Phil Hardin, 206/266-2171 www.amazon.com/ir

Amazon.com Public Relations Ty Rogers, 206/266-7180 www.amazon.com/pr

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Appendix 2 MWVL Overview Amazon facilities

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Appendix 3 Amazon Supplier Code of Conduct Guiding Principle. Our suppliers’ business and labor practices must comply with all applicable laws, as well as the requirements and principles of this Supplier Code. Suppliers must comply with the standards of this Supplier Code even when this Supplier Code exceeds the requirements of applicable law.

Child Labor. Amazon will not tolerate the use of child labor. Our suppliers must engage workers whose age is the greater of: (i) 15, (ii) the age of completion of compulsory education, or (iii) the minimum age to work in the country where work is performed. Furthermore, workers under the age of 18 must not perform hazardous work. Amazon supports the development of legitimate workplace apprenticeship programs that comply with applicable laws and this Supplier Code.

Involuntary Labor, Human Trafficking, and Slavery. Our suppliers must not use forced labor - slave, prison, indentured, bonded, or otherwise. Our suppliers must not traffic workers or in any other way exploit workers by means of threat, force, coercion, abduction, or fraud. Working must be voluntary, and workers must be free to leave work and terminate their employment or other work status with reasonable notice. Our suppliers must bear or reimburse to their workers the cost of all excessive recruiting, hiring, or other similar fees charged to workers, and all fees and expenses charged to workers must be disclosed to Amazon and the workers in advance. Our suppliers must not require workers to surrender government issued identification, passports, or work permits as a condition of working, and our suppliers may only temporarily hold onto such documents to the extent reasonably necessary to complete legitimate administrative and immigration processing. Workers must be given clear, understandable contracts regarding the terms and conditions of their engagement in a language understood by the worker. Suppliers must ensure that each of its staffing or recruiting agencies comply with this Supplier Code and with the more stringent of the

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applicable laws of the country where work is performed and the worker’s home country.

Safety and Health. Our suppliers must provide workers with a safe and healthy work environment, and suppliers must, at a minimum, comply with applicable laws regarding working conditions and with the standards below.

Occupational Safety. Suppliers must educate workers on safety procedures and also control worker exposure to potential physical safety hazards by implementing physical guards, barriers, and/or engineering and administrative controls. Workers must be informed and receive appropriate education in advance if they will be working with (or otherwise exposed to) hazardous or dangerous conditions or materials. In addition, workers must be given appropriate personal protective equipment and educated and trained on the proper use of such equipment. Suppliers must manage, track, and report occupational injuries and illnesses.

Physically Demanding Work. Suppliers must continually identify, evaluate, and control physically demanding tasks to ensure that worker health and safety is not jeopardized.

Emergency Preparedness and Response. Suppliers must identify and plan for emergency situations and implement and train their workers on response systems, including emergency reporting, alarm systems, worker notification and evacuation procedures, worker training and drills, first-aid supplies, fire detection and suppression equipment, and unblocked exit facilities.

Machine Safeguarding. Suppliers must implement a regular machinery maintenance program. Production and other machinery must be routinely evaluated for safety hazards.

Sanitation and Housing. Workers must be provided with reasonable access to clean toilet facilities and potable drinking water. If suppliers provide a

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canteen or other food accommodations, they must include sanitary food preparation, storage, and eating accommodations. If suppliers provide residential facilities for their workers, they must provide clean and safe accommodations. In such residential facilities, workers must be provided with emergency egresses, reasonable and secure personal space, entry and exit privileges, reasonable access to hot water for bathing, adequate heat and ventilation, and reasonable transportation to and from work facilities (if not reasonably accessible by walking).

Wages and Benefits. Our suppliers must pay their workers in a timely manner and provide compensation (including overtime pay and benefits) that, at a minimum, satisfy applicable laws. Suppliers must provide to their workers the basis on which workers are being paid in a timely manner via pay stub or similar documentation. Deductions from wages as a disciplinary measure are not permitted.

Working Hours. Except in unusual or emergency situations, (i) suppliers must not require a worker to work more than 60 hours per week, including overtime, and (ii) each worker must be entitled to at least one day off for every seven-day work period. In all circumstances, working hours must not exceed the maximum amount permitted by law.

Anti-discrimination. Conditions of working must be based on an individual’s ability to do the job, not on personal characteristics or beliefs. Our suppliers must not discriminate on the basis of race, color, national origin, gender, sexual orientation, religion, disability, age, political opinion, pregnancy, marital or family status, or similar factors in hiring and working practices such as job applications, promotions, job assignments, training, wages, benefits, and termination. Suppliers must not subject workers or applicants to medical tests that could be used in a discriminatory manner.

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Fair Treatment. All workers must be treated with respect and dignity. Our suppliers must not engage in or permit physical, verbal, or psychological abuse or coercion, including threats of violence, sexual harassment, or unreasonable restrictions on entering or exiting work and residential facilities. Workers must be free to voice their concerns to Amazon or its auditors, and allowed to participate in the Amazon audit process, without fear of retaliation by supplier management.

Immigration Compliance. Our suppliers may only engage workers who have a legal right to work. If suppliers engage foreign or migrant workers, such workers must be engaged in full compliance with the immigration and labor laws of the host country.

Freedom of Association. Our suppliers must respect the rights of workers to establish and join a legal organization of their own selection. Workers must not be penalized or subjected to harassment or intimidation for the non- violent exercise of their right to join or refrain from joining such legal organizations.

Ethical Behavior

No Bribery. Our suppliers must not offer nor accept bribes or other means of obtaining undue or improper advantages to anyone for any reason, whether in dealings with governments or the private sector. Our suppliers must not induce Amazon employees to violate our Code of Business Conduct and Ethics.

Anti-Corruption. Suppliers must comply with applicable anti-corruption laws, including the United States Foreign Corrupt Practices Act and the United Kingdom Bribery Act, and not offer anything of value, either directly or indirectly, to government officials in order to obtain or retain business. Suppliers must not make illegal payments to government officials themselves or through a third party. Suppliers who are conducting business with the

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government officials of any country must follow Amazon's guidance on the law governing payments and gifts to governmental officials.

Whistleblower Protections. Suppliers must protect worker whistleblower confidentiality and prohibit retaliation against workers who report workplace grievances. Suppliers must create a mechanism for workers to submit their grievances anonymously.

Management Systems. Suppliers must adopt a management system to ensure compliance with applicable laws and this Supplier Code and to facilitate continual improvement.

Management Accountability and Responsibility. Suppliers must have designated representatives responsible for implementing management systems and programs that oversee compliance with applicable laws as well as this Supplier Code. Senior management must routinely review and assess the quality and efficiency of the management systems and programs. Amazon also expects our suppliers to hold their suppliers and subcontractors to the standards and practices covered by this Supplier Code.

Risk Management. Suppliers must establish a process to identify the environmental, health, safety, and ethical risks associated with their operational and labor practices. In addition, management must develop appropriate processes to control identified risks and ensure regulatory compliance.

Training. Management must maintain appropriate training programs for managers and workers to implement the standards in this Supplier Code and to comply with applicable legal requirements.

Communication and Worker Feedback. Suppliers must clearly and accurately communicate and educate workers about Amazon policies, practices, and expectations. Amazon may require suppliers to post this Supplier Code in a

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location accessible to their workers (translated into the appropriate local language(s)). In addition, Amazon encourages suppliers to partner with us to implement a process to assess workers' understanding of the standards and practices covered by this Supplier Code.

Documentation and Records. Suppliers must create, retain, and dispose of business records in full compliance with applicable legal requirements along with appropriate confidentiality to protect privacy.

Environment. Our suppliers must comply with applicable environmental laws. Amazon encourages our suppliers to implement systems that are designed to minimize the impact on the environment by the supply chain system, the production process, and the products themselves.

Environmental Permits and Recordkeeping. Suppliers must obtain and keep current all required environmental permits, approvals, and registrations and follow applicable operational and reporting requirements.

Effective Management and Disposal of Hazardous Substances. Suppliers must effectively identify and manage the safe handling, movement, storage, and disposal of chemicals and other substances that pose a threat to the environment, including providing workers with appropriate training on the safe-handling and disposal of hazardous substances. Suppliers must also monitor and control wastewater or solid waste generated from operations before disposing in accordance with applicable laws. In addition, suppliers must characterize, monitor, control, and treat regulated air emissions before discharging in accordance with applicable laws.

Continuous Improvement. Amazon encourages our suppliers to continuously improve and reduce waste. Amazon welcomes suggestions and feedback from its suppliers to improve Amazon's own operations and processes.

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Conflict Minerals. Amazon is committed to avoiding the use of minerals that have fueled conflict in the Democratic Republic of the Congo or an adjoining country. We expect suppliers to support our effort to identify the origin of designated minerals used in our products.

Corrective Action. Suppliers’ compliance with this Supplier Code is subject to Amazon’s review, including third-party auditing of work and residential facilities and conducting confidential worker interviews. Suppliers must provide prompt access to their facilities and workers during any audit. We require suppliers to promptly provide a detailed remediation plan and take corrective actions for deviations from this Supplier Code, and Amazon will track suppliers’ remediation efforts. Amazon may (without liability) terminate its relationships with any supplier found to be in violation of this Supplier Code, including for denying prompt access to our auditors.

Supplier Code Last Updated: November 24, 2014. Amazon employees who manage our manufacturing supply chain receive training on our Supplier Code and audit requirements. Amazon also has a training program for our manufacturers on our Supplier Code and supply chain standards. Our independent third-party auditors periodically conduct both unannounced and announced on-site audits of our manufacturers. Amazon aspires to audit our manufacturers before Amazon begins ordering products, and we require all of our suppliers to meet the standards in our Supplier Code as a condition of doing business with us. Amazon's manufacturing purchasing agreements require our suppliers to comply with supply chain standards, which, among other things, include laws regarding slavery and human trafficking. Amazon employees are subject to internal accountability standards, which include disciplinary measures up to and including termination, for failing to follow Amazon requirements regarding our audits.

*Formerly referred to as Supplier Code of Standards and Responsibilities.

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