Amazon.Com Has Come a Long Way Since Its Founder and Chief Executive Officer, Jeff Bezos, Envisioned the Company As a Virtual Bookstore
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Amazon.com has come a long way since its founder and chief executive officer, Jeff Bezos, envisioned the company as a virtual bookstore. It has evolved into an online retail giant that generated US $74.45 billion in revenues in 2013, much of that coming from its support of more than two million companies that used Amazon to sell their products online and distribute them to customers. Under the company's various programs, Amazon not only provides its customers with a means of advertising and selling their products, but also offers to store those products in its fulfillment centers; pick, pack, and ship them; and provide customer service, including handling returns. Amazon keeps the most popular products in inventory. This gives Amazon an advantage that its rivals find hard to replicate. Manages and ships not only its own inventory but that of other retailers such as Eddie Bauer and Target, giving it an economy of scale that dwarfs its rivals. As it stands, Amazon can currently ship some 10 million products, compared with Walmart's 500,000 In the process of developing its network to support those services, Amazon has built out an infrastructure that by one recent account now includes 145 warehouses around the world (84 in the United States, four in Canada, 29 in Europe, 15 in China, 10 in Japan, and seven in India), which collectively account for more than 40 million square feet of space. Amazon has also has made substantial INVESTMENTS in material handling systems, including the acquisition of Kiva Systems for $775 million in 2012.1 Kiva, now a wholly owned subsidiary of Amazon, designs robots, software, workstations, and other hardware that has been used in the distribution facilities of companies such as Staples, Office Depot, and The Gap. The systems produced by Kiva are expected to be an integral part of the distribution network now being developed by Amazon. Amazon has also made major INVESTMENTS in cloud computing. At the same time, the company has been developing transportation capabilities to support its Amazon Fresh same-day grocery business. Much of Amazon's recent growth has been fueled by its Amazon Prime program and Amazon Supply operations. Amazon Prime, which offers "free" two- day delivery to its more than 27 million subscribers for US $99 dollars per year, doesn't come close to recovering Amazon's related transportation costs, but on average Amazon Prime customers buy twice as much merchandise per year as do other customers. 2 Amazon Supply, which provides a marketplace for thousands of industrial suppliers, represents a major move by the retailer into the business-to-business space. Amazon advertises it as offering 750,000 "essential" products for business and industry, with free two-day shipping for orders of US $50 or more and a 365-day return policy. Amazon's increasing presence in this industrial space poses a real threat to incumbents such as W.W. Grainger and Fastenal. • warehouse management • transportation management • inbound and outbound shipping • demand forecasts • inventory planning Amazon.com strategy of inventory management • In 1999, Amazon had ten warehouses after adding new six warehouses which increased capacity became over five million square feet. • To develop its network, Amazon has built out an infrastructure that includes 145 warehouses around the world (84 in the United States, four in Canada, 29 in Europe, 15 in China, 10 in Japan, and seven in India), which collectively account for more than 40 mn square ft of space. • very well maintained and fully computerised inventory system which led to easiness in dealing with management inventory • In addition Newton (2001) found that product distribution from merchant to consumers would influence consumer decision to order next items. • by increasing the number of inventory, Amazon increased availability to satisfy customers • In addition, by adding several new facilities, Amazon could increase its outbound transport performance by reducing the distance and delivery time as the warehouses were closely located to customers' houses or offices. • By stocking a wide range of items and managing its own inventory as well as adding several warehouses, consequently Amazon could increase cost responsiveness in order to satisfy customers • supply chain responsiveness is a capability to: a. respond to wide range of demand b. fulfil order in short lead times c. manage a huge variety of items d. develop highly innovative items e. provide a high level of service f. manage supply uncertainty • overall, increasing inventory on the basis of speculation and increasing in the number of warehouses without improvement in dealing with inventory led Amazon did not achieve successful in managing the inventory in 1999. • In holiday season 2000, Amazon tried to increase efficiency of inventory management. Pillai (2004) highlighted several decisions they made such as: a. Reduced the number of inventory based on demand uncertainty b. Increased range of product offering c. Increased of efficiency of logistic by deciding which distribution centre should stock particular inventory by considering demand of distribution centre region. d. Bought the books from publishers instead distributors to get a good margin e. Developed new software to accommodate region demand to assist decision which distribution centre should stock products. f. Reduce split shipment by reducing order which were delivered from different warehouses and stocking several items which customer usually buy together in one point. g. Outsourcing shipping activities • In 2000, Amazon also improved itsinventory management performance through location postponement. In location postponement, inventory could be centralized in one strategic location where it could be transported to possible destinations when demand is coming • When holding service levels is steady, location postponement can reduce safety stock • Amazon has reinvented customer experience and expectations through supply chain innovation, enabling it to ship packages to customers within minutes of a received order while realizing significant savings over a traditional labor-intensive distribution center. By strategically placing distribution centers and leveraging revolutionary technology like Kiva Systems, Amazon can cost-effectively deliver goods to the vast majority of U.S. households within 48 hours for little to no shipping cost. Amazon’s innovation has enabled it to significantly increase its market share while putting enormous pressure on competitors. • In the supply system of Amazon, there is a unique approach about how they handle their customers which they describes it as starting with the customer and moving backwards.as depicted in the diagram above they are customer focus and they are frugal which means, they spend much money on things or items customers really like and lastly they are very innovative in their supplynetworks where they constantly, brings in new technology to assist with their supply chain network. The customer centric nature and the success has also been partially dependent and their largeness and corporate image. Amazon from its beginning have acquired some many companies which includes mdb, Lexcycle,askville,buy.vip,shelfari,smallparts,woot,cdnow,zappos,alexa,a udible,pets.com and others.The replenishment strategy of Amazon reflects mostly with understanding customers needs first and formost. They do their stocking and inventory with customer preference than have more variety of goods and than lower cost. • The diagram above illustrates the total supply networks of the global retail giant Amazon. Step 1 shows when the customer places an order in wherever location he may be. The order is than assigned to the closest of the seven major distribution centers in the United States of America .The next step is as shown in the diagram indicates that the order is been shown red in the person whose item is ordered in the warehouse it than creates ride conveyors through DC, the items is been sorted out by a bar code and than the creates arrives at the central point and bar codes of the products matched with orders, the items sorted are than sorted automatically into ne of the many boxes chutes into a box. As shown in the diagram the bar code identifies customers order and than the customer order is packed taped and weighed. The taped and weighed boxes are shipped by the United Parcel Services and sent to customer between seven days. From Scratch: Amazon Keeps Supply Chain Close To Home Amazon's supply-chain applications communicate in real time, a rarity when most companies have to integrate a variety of software tools and manual processes such as phone and fax orders. • Amazon's supply chain is so tightly integrated that when an online customer buys a couple of books and a CD, the order-management system communicates with inventory- and warehouse-management systems to find the optimal distribution center or centers for fulfilling the order. The customer knows in less than a minute how long it will take to ship the items and whether they will come in one package or separately. • Amazon, which spends about $200 million a year on business technology, last year launched a business unit to resell its Web-commerce and back-end fulfillment services to retailers. And it continues to seek technical advantages in its supply chain. For instance, certain Amazon applications can use radio-frequency identification technology, and the online retailer will turn on the capability when it's needed, Wilke says. "RFID is most useful when you have one of a number of conditions: if you have poor inventory accuracy, if you have a high shrink rate, or if you have a need for more real- time information." RFID isn't a priority because those aren't problems for Amazon today. • "RFID will add the most value to us when it's used on every item," rather than on cases and pallets, as Wal-Mart Stores Inc. and Target Corp. are planning.