A Case Study
Amazon’s Supply chain
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Course:- Supply Chain Management Abhinav Mishra (PGP17157)
Instructor:- Prof. Kunal Ganguly Chandra Prakash (PGP17167)
Date:- 30-03-2018 Navjot Singh Nanda (PGP17183)
Mithilesh Vaddadi (PGP17181)
Table of Contents
Introduction 3
What is Supply Chian Mangement 3
Why It is SCM Important 3
SWOT 4
Copmany’s Background 4
Analysis of Amazon’s Supply Chain 5
Price Differentiated Customers 5
Amazon’s Multi-tier Inventory system 6
Transportation 7
Customer Service Management 7
ANSOFF MATRIX 14
CORPORATE SOCIAL RESPONSIBILITY 15
Online shopping and order tracking 9-10
Warehouse Automation 10
Drones: future logistics 9-10
Recommendations 10-11
Introduction
The concept of e-commerce is accepted very rapidly by the Indian consumer. The biggest drivers for online shopping is shortage of time, availability of a variety of products at a very competitive prices and retailers facing challenge in accommodating variety of stock for the consumers, thus prompting them to resort to e-retailers. A quick overview of India’s Internet penetration shows a user base of approximately 462 million rounding nearly to 35% of the population. The spread, and subsequent adoption of e-commerce, thus, only seems logical. With several reputed brick-and-mortar retailers also offering online services, it seems natural the trend of shopping remotely will scale up substantially. As there is competitive environment in this sector, online retailers try to provide various services such as flexible payment methods, warranties for electronic goods and free home delivery with very competitive prices.
What is Supply Chain Management?
SCM is the management of a network of all business processes and activities involving procurement of raw materials, manufacturing and distribution management of Finished Goods. SCM is also called the art of management of providing the Right Product, At the Right Time, Right Place and at the Right Cost to the Customer.
Why SCM strategy is important for an Organization?
Supply Chain Strategies are the critical backbone to Business Organizations today. Effective Market coverage, Availability of Products at locations that hold the key to revenue recognition depends upon the effectiveness of Supply Chain Strategy rolled out. Very simply stated, when a product is introduced in the market and advertised, the entire market in the country and all the sales counters need to have the product where the customer can buy and take delivery. Any glitch in the product not being available at the right time can result in the drop in customer interest and demand which can be disastrous. Transportation network design and management assume importance to support sales and marketing strategy
SWOT Analysis of Amazon
Company’s Background
Amazon is an American commerce company based in Seattle, Washington, USA. The company used to be only a bookstore, but now it diversified into difference type of products. The goal of Amazon is to provide one stop shop experience where the customer can find everything on Amazon as earth’s biggest selection. Amazon operates as a pure internet retailer that does not have retail store at all while the delivery will be done through Amazon’s networks of distribution centers. This operation makes the company is able to provide wider range of goods and lower cost of products with high quality. Moreover, it is also increase customer satisfaction as it supports customer convenience.
An effective supply chain strategy makes the company is able to respond high level of responsiveness. Amazon balances between cost of distributions and level of services by having the efficient distribution centers and multi-tier inventory networks.
However, there is a competition from substitution brands that provided the same service as Amazon, which are eBay and Flikart.
Analysis of Amazon’s Supply Chain Management:-
Amazon’s SCM has a strategic fit with its competitive strategy of being the retailer of choice for its customers. The combination of multi-tier inventory management, superlative transportation, and highly efficient use of IT (Information Technology), and its wide network of warehouses are all geared towards aligning its SCM with its competitive strategy.
Amazon outsources the storage and distribution of products that are not frequently purchased nor ordered for immediate delivery as well as products where the costs of storing them exceed the marginal returns on their sales.
On the other hand, Amazon stocks the frequently purchased and ordered items in its own warehouses so that it can be responsive to the customer needs as well as not compromise on the delivery times and the lead times. In other words, by segregating its inventory, Amazon is able to be responsive to the customers as well as cut costs or cut slack where it is needed.
Price differentiated customers
Amazon divides its customer segments and follows a price differentiation strategy:-
The various forms of delivery are :-
• One day delivery,
• Free super saver delivery,
• First class delivery, and
• Prime customers delivery.
For all these segments, Amazon offers the customers an option of paying more for faster delivery or retains the traditional lead-time. Coupled with the inventory outsourcing, the customer segmentation into price-differentiated customers offers the company a nimbleness and agility in the market that changes with dynamic fluctuations in demand.
A key aspect of Amazon’s SCM is that it has evolved over the years in response to its growth in the market. For instance, Amazon started off as a bookstore, which acts as an intermediary between the buyers and the sellers and does not stock any product of its own.
Amazon follows a push-pull strategy wherein the inventory is held in a push strategy and the shipment of the orders is done in a pull strategy. Of course, even now, Amazon follows pure pull strategies for items that it does not stock.
Amazon’s multi-tier inventory system
1. The first tier is the aggregation in the distribution centers, which ensures that Amazon holds fewer inventories and responds to demand in a dynamic manner.
2. The next tier is comprised of the partner distribution centers and the wholesalers wherein whenever an ordered product is not available in its own distribution centers; Amazon can rely on its partners and wholesalers to supply the customer with the required product. Further, through the use of sophisticated and real time IT, Amazon is able to leverage efficiencies in its distribution.
3. The third tier is comprised of the networks of third party sellers, publishers, vendors, and manufacturers who ensure that Amazon acts as an intermediary that fulfills orders from customers by linking them to this tier.
Transportation
Amazon provided many choices of delivery to balance cost of transportation and level of service. The company does not have large scale to contact full truckload. So, the company provides free shipping in order to achieve longer lead-time of transportation. This will help company able to reduce cost and achieve economy of scale. However, the company is provided highly responsiveness options as well, which is cost company a lot. Even though the customers are willing to pay higher price to get the products faster, it should not cost anything from Amazon but it is not like that. Amazon cannot utilize its highest benefits of its transportation systems. That is why the company needs to design its supply chain networks to minimize the costs.
Customer Service Management
The achievement of high levels of customer satisfaction and services, are core aspects of the Amazon operational activities. The company achieves the high level of customer service standards through the development of an effective online and physical customer support network. The customer service representatives are trained to provide high levels of technical support to the customers. As an online retail organisation the customer support function is crucial for the company to develop a strong relation with the customers.
Amazon’s Warehouse Management System
In any Supply Chain, Inventory Management and Warehousing form a part of operations intensive function and is one of the key building blocks in the entire chain. Most of the inventory is held at the warehouses as compared to the pipeline, and the efficiency of the warehouse operations will determine the further supply chain efficiency.
A distribution center or a warehouse is the key to the entire model as it holds the inventories and also manages other operations like bundling, packing, labeling, co-packing, kitting, etc. as per buyer requirement. Most of the marketing and buyer’s requirements are met with from the warehouses.
Many factors and elements contribute to successful operations of a distribution center. The time taken to detail the project and build a model taking into account all considerations will go a long way in ensuring operational efficiency of the supply chain.
Physical Infrastructure
The building blocks or operational criteria of an ideal Warehouse Management System includes location, structure, roof height and flooring, design and layout external, utilities and facilities in the premise, internal layout design, storage infrastructure, material handling equipment, lighting and safety equipment and mechanisms, office infrastructure, IT and communications infrastructure, power and backup services and finally accessibility of the location and availability of labor. The list can be exhaustive and depends upon specific needs of each buyer’s business.
Information Technology – A Key Driver of SCM
Supply Chain Management is a broad-based function that encompasses all business and operational processes involved in but not limited to Procurement, Manufacturing, and Finished Goods Transportation, warehousing ; Distribution and Inventory Management.
Global business has been fuelled and enabled by the IT Technology which has redefined all aspects of business today. All businesses today are run on ERP – Enterprise Resource Planning which provides the organizations with tools to manage all the functions including procurement, production, sales, and finance management in seamless and integrated manner.
These software systems like SAP, Oracle, People soft, etc., have taken over and enhanced the business processes that were traditionally being managed manually.
Demand planning, Forecasting, Global procurement management are some of the enabling tools on which the Global procurement strategies are built and managed. The availability of these sophisticated systems has further enabled companies to implement good and cost effective manufacturing practices like JIT, Kanban, VMI, etc.
Online shopping and order tracking
Customers could add any number of products which they wish to buy. The integration of CRM at this stage allows the users to view the products that have been bought by their close networks. And customers could also save a particular product for future purchase. This information’s are saved under the Infomediary model of MIS. Amazon has created the platform of social networking within the website which further offers more interactivity. At this juncture Amazon offers the customers the option of viewing their search histories so that they will be able to select similar products that they wish to buy. This feature has been patented by Amazon on June 28, 2005 thus adding more to the inventory of core competence in its Management information systems. The sign in process of Amazon collects the new user’s information with appropriate fields to be filled which is directly linked to Infomediary model. The next time when a user enters the website of Amazon he /is offered with a set of recommendations of products available in Amazon.
Infomediary model is used by Amazon with the objective of collecting the consumer purchase and personal information which is being critically analyzed and evaluated for initiation of marketing campaigns (Allen, 2009). The information helps Amazon in offering recommendations to the customers on frequently shopped items or visited items. The personal preferences are being asked at the time of registration and recommendations pops up to the customers based on the key words of their areas of interest (Poynter, 2009).
Amazon’s Innovative supply chain
Warehouse Automation:
Amazon acquired a provider of automated and robotic warehouse solutions called Kiva Systems. And in 2015, that company was rebranded as Amazon Robotics. The robots of Amazon Robotics can pick and pack without needing any human assistance, enabling Amazon to complete warehouse activities super-fast. Over the years, Amazon has significantly increased its army of warehouse robots. Its warehouse robots, in fact, have grown at the rate of 15,000 per year from 2015. As of January 2017, Amazon had more than 45,000 warehouse robots, and the robot invasion continues. It had amounts of 15,000 and 30,000 respectively in 2015 and 2016. To date, Amazon’s robotics have been aimed at bringing goods to people for the picking of orders. The next generation of robots will see them picking the orders on their own to reduce the need for human order pickers.
While Amazon has been increasing its army of robots in its warehouses, other online retailers were initially slow to follow. Now, however, robots are catching on both domestically and abroad, for both large facilities, as well as for smaller islands of automation within existing facilities. Autostore is an example of a robotic automation provider that can accommodate such islands of automation.
Drones: One of Amazon’s Futuristic Supply Chain Strategies
Amazon is developing a drone-based delivery system called Amazon Prime Air which would be delivering products under five pounds in locations within 10 miles of Amazon’s fulfillment centers within just 30 minutes or less. As of November 2017 it announced the development of a drone that would self-destruct during flight, if required, to keep people safe. In fact, developing the drone-based delivery system is a major indicator that Amazon is well ahead of other players in the retail industry and it is doing everything possible to leverage all of the latest supply chain technologies to maintain their supply chain the clear market leader.
Recommendations:-
Components and aspects of the SCM of Amazon where improvements can be made. This section identifies those areas and proposes some recommendations that Amazon can follow and implement to make its SCM world class and be a source of sustainable competitive advantage.
1. First, Amazon relies to a great extent on various courier companies. In recent years, Amazons’ brand image has taken a hit because oJBGf the unreliability of the last mile connectivity or the last part of the SCM that is visible to the end consumer.
In other words, while the other components of the SCM seem to be efficient and complementing and supplementing each other. Therefore, Amazon can setup its own transportation and actualize superior last mile delivery by creating its own fleet of delivery vehicles and personnel.
2. The second recommendation has to do with the aspect of “bullwhip”. This means that Amazon can integrate its SCM better and move from a cooperation model with its suppliers to a coordination mode. This would entail a sharing of information between all its partners and suppliers using the latest technology.
Further, this recommendation also entails creation of a unified IT system that can involve all the suppliers and the stakeholders in its SCM and not Amazon alone. This would call for substantial investment as well as a new business model where Amazon does not operate in isolation but instead brings together all the elements and the components of the supply chain under one umbrella.
3. The third and final recommendation has to do with unifying its supply chain less than one gigantic IT system so that there is greater visibility on each component of the supply chain as well as more accountability and transparency in the process. As mentioned elsewhere, Amazon outsources some functions and this leads to accountability issues. Therefore, in line with the central theme of this article, Amazon should integrate its entire supply chain from end to end in one single IT system so that bottlenecks can be identified and suitably acted upon.
As it expands its global footprint, it needs a single source of information wherein it can have visibility right from procurement to end customer delivery. This would also ensure that its problems with last mile delivery are sorted out and customers as well as suppliers along with the employees are linked together in a real time system.
