Amazon's Supply Chain Strategy

Introduction

Supply chain management plays an important role in determining the success and efficiency of an organisation to offer its services and products in the targeted business markets (Crandall et al., 2014). Various studies have indicated that for acquiring more business opportunities in current times, organisations are required to strengthen their supply chain network by eliminating the negative factors affecting it. This current report is based on a case study of Amazon, which is one of the leading online retailers in the world. For this purpose, the report develops an understanding of the supply chain network of the organisation in the business markets of the USA. Along with this, there is also focus on evaluating the transportation aspects of the supply chain management in Amazon in which inbound and outbound approaches are explained and analysed. Further, the report also helps understand the concept and implementation of inventory management system in the supply chain management of the organisation. The report includes the financial parameters of inventory management such as cost-effectiveness and many more. Not only this but, the report also features information about the customer services in Amazon and what approaches are used by the organisation for gaining efficiency in the supply chain. After this, the report presents an analysis of innovative SCM in Amazon and its contribution to operational success.

Evolution of Amazon’s Supply Network

Amazon is considered as the top-notch company in terms of global supply chain management. After its establishment in the year 1994, Amazon’s supply chain network consisted of a few workers and only two warehouses situated in Seattle and Delaware (Mark, 2019). Various studies indicate that during the early years of operation, all the activities in Amazon were carried out manually. Workers had to take the orders manually in the year 1994 till 1999. Not only this but, these workers were also required to carry out manual processing, packaging and shipment activities. During this period, the organisation was promising its consumers for seven day delivery of the products in the USA. Further, it is also found in the studies that in the year 1999, Amazon expanded its business to international markets, which presented the need for the overseas supply chain management. The organisation expanded the operations of supply chain along with targeting the two most prominent countries in Europe, which are the United Kingdom and Germany. This was the time when the organisation commenced working on “Global Supply Chain by Amazon” project. The project also allowed the organisation to add more activities in its supply chain operations such as automated delivery of the products to the end customers, trucking and many others (Mark, 2019). This approach of including more features to the supply chain process provided an advantage to Amazon over the top companies, which were dominating in supply chain and cargo delivery sectors such as FedEx and many more. It can be analysed that along with the time, Amazon vigorously focused on expanding its supply chain network so that more markets can be targeted, which may ultimately enhance the profitability and productivity of the organisation (Wisner et al., 2014). As a consequence, Amazon was reported to have a contribution of 4% in the retail markets of the USA by the year 2018. Broad supply chain networks allowed the organisation to penetrate deeply within the markets and gain excellence.

The above figure presents the basic structure of the supply chain management considered by the Amazon in the US business markets. It can be analysed that along with time, the organisation has developed three ways to manage its supply chain as per the customer needs (Wang, 2017). In comparison to standard shipping, products of Amazon are delivered more rapidly through Prime Now supply chain service.

Evolution of Amazon’s Approach to Transportation

Since the entire business of Amazon is dependent upon the efficiency of its transportation lines; therefore, there has been an intense focus of Jeff Bezos (founder of the company) on shipment delivery means. Various studies show that after the establishment of the company in the year 1994, Amazon did not possess its own transportation channel for the delivery of the parcels to the end customers. Therefore, the organisation was reported to use the postal services, which were offered by the federal government in the USA. It is found that Amazon continued to use US Postal Services until the year 1999 (Belvedere and Grando, 2017). Further, along with the expansion of the business, it became necessary for Amazon to consider new ways for transportation of the products and acquire efficiency in logistics. For this purpose, the organisation focused on enhancing the number of warehouses and hubs so that transportation lines can speed up. Amazon developed a new service Amazon Prime, which are particularly intended to provide faster deliveries of the products. After this, the organisation considered expanding into the global business markets and developed a new delivery network named Dragon Bolt. Launch of this network was found effective in speeding up the delivery of cargos from the markets of India and China to the US. It can be analysed that India and China are the two most prominent countries, where organisations consider developing their manufacturing plants (Stanton, 2017). Therefore, the launch of Dragon Boat significantly improved the efficiency of Amazon to the transportation of products and cargos facilitating the supply chain network of the company. Along with the use of US Postal Services for transportation of goods, Amazon also considered private cargo companies for transportation purposes. Some of these prominent companies include DHL, FedEx and Blue Dart and many others. It is found in many studies that there were certain issues related to the use of third party cargo services for Amazon. During festivals in US markets such as Christmas, Easter, New Year and many others, third party cargo companies could not bear the extreme loads of shipment due to increase in the sale of products of Amazon (Wisner et al., 2014). For this reason, it became highly essential for the company to develop its own transportation system and reduce the dependency over other cargo services in the US. Therefore, the organisation started hiring local drivers in different business markets, which had their own vehicles. This approach was highly admirable for the supply chain efficiency of Amazon, which significantly boosts up transportation efficiency.

The above figure represents the transportation channels, which are considered by Amazon for delivery of its products to the end customers. It can be analysed from the figure that road transportation is mainly accountable for enhancing the efficiency of the business. There are two major approaches to transportation for the company, which includes inbound logistics and outbound logistics (Bryan, 2015). In inbound logistics, Amazon considers making use of trucks and cargo aircraft for delivery of the products from the manufacturing unit to the warehouses of the company. Further, in outbound logistics the organisation consider trucks and other smaller transportation means for delivery of products from warehouse to the end consumer. Further, studies have shown that there are nearly 40 cargo aircraft, which are used by Amazon for transportation. These aircraft deliver the products from China and India to North America. For this purpose, the organisation has undergone leasing contracts with prominent aircraft manufacturers including Boeing and many others (Wisner et al., 2014). This way, it can be understood that over time, Amazon has immensely improved its efficiency in transportation of goods by transforming the delivery means in accordance with the situations and needs.

Amazon’s Inventory Management

Inventory management can be explained as the delivery of the right products for the corresponding customers that too at the right place and time (Mountz et al., 2015). Various empirical studies have revealed that inventory management is one of the crucial business activities in the supply chain of Amazon, which have significant effects on the profitability of the company. In current times, Amazon is a considerably large range of products as well as services, which are offered to the end customers in the business markets of USA (Crandall et al., 2014). Therefore, the organisation has developed and deployed an effective inventory management model so that the expectations of the customers can be met by delivering the right products. The efficiency gained by Amazon in inventory management is also accountable for enhancing the trust of the customers and increasing the probabilities for more business in future. Amazon is the largest company in North America in the fields of online retail. For this reason, the organisation is supposed to develop an effective system through which inventories can be managed effectively even in large quantities. The study reveals that Amazon has developed a Vendor Central System. This system allows the suppliers from all over the world to create the seller's account and promote their products over the official website of Amazon.

The above figure is helpful in understanding the typical three-tier inventory model, which has been developed and implemented by Amazon in the business markets of the USA. It can be analysed from the figure that there is a vast network of the suppliers, which includes wholesalers, vendors, publishers, manufacturers and many others (Chopra and Sodhi, 2014). Along with this, Amazon DC (distribution centres) are also connected to the inventory management of the company, which sale the products specifically manufactured by Amazon such as Kindle, Alexa technology and many others. It can be said that information regarding the inventories from these suppliers is stored in the server of the company, which automatically gets updated, whenever a purchase deal is carried out. Further, the organisation displays all the products sold by the suppliers on the web platform of the company, which is accessed by the consumers. This way, the multi-tier model of inventory management is followed in Amazon, which is accountable for bringing efficiency to the company. Further, it is also found in the studies that Amazon has developed another method (FBA) for the sellers through which they can directly sell their products to the customers by paying the standards charges and fees to the company. In the USA, Amazon takes fees of $1 for every shipment sent by the sellers to the customers. Other suppliers associated with the supply chain management of Amazon are required to develop a contract for long term business for which the organisation has set standard fees. Along with this, it is found in the case study that inventory management is also a source to generate the finances for Amazon. The organisation has set fulfilment charges, which are required to be paid by the suppliers in exchange of the services such as packaging of the ordered products, picking of orders, shipping, handling and customer services including products return and many others (Mark, 2019). It is found that the organisation has set standard size and oversize product fess system for which maximum fees of $4.71 and $137.32 is charged respectively as shown in the figure below.

Not only this but, it is also found that Amazon also takes charges for monthly stock keeping in its warehouses from the suppliers. Along with the sale of the products, it is also a noticeable way for the company to generate finance through stock keeping. The study indicates that for standard size products, Amazon takes charges of $0.64 per cubic foot from January to September (Mark, 2019). The company takes higher fees of $2.40 per cubic foot from the suppliers for keeping the stock from October to December. Similarly, fees for stock-keeping are also developed for oversized products, which are $0.48 per cubic foot and $2.40 for the months January to September and October to December respectively. This way, it can be analysed that stock keeping units act as an asset to Amazon for enhancing its profitability and financial excellence in the business markets of the USA. Considering the impacts of stock-keeping on the efficiency of the supply chain management of Amazon, it can be said that finances generated through the stock-keeping units, reduce the cost of supply chain management. This cost could be much high if the organisation would have ignored it. With this approach, Amazon saves millions of dollars while operating in the business markets of USA (Crandall et al., 2014). Not only this but, it is also found in the studies that stock keeping units allow the organisation to fulfil the demands of the customers in less time. The study indicates that stock keeping units act as a reserve for Amazon, where the organisation can store the products in bulk amounts. This way, scenarios of product crisis can be handled with ease in the organisation. From the above analysis, it can be said that there is an immense contribution of stock-keeping units in the supply chain management of the organisation. Along with stock-keeping units, the efficiency of supply chain management can also be evaluated with the inventory turnover ratio. In management studies, it is found that the inventory turnover ratio can be obtained after the division of total sales by average inventory.

In the case study, it is explained that Amazon generated total revenue of $106110 million in the year 2017 in North America. Not only this but, it is also found that fulfilment expenses of Amazon in the year 2017 was $25249 million (Mark, 2019). From the above information, the inventory turnover ratio for Amazon can be determined through the division of sale figure by fulfilment expenses, which come out to be 4.20. Further, it is also found in the study that the positive value of inventory turnover ratio indicates the growth and financial gain for a company. Since Amazon has a significantly high value of inventory turnover ratio; therefore, it can be said that the organisation has positive outcomes on inventory. Considering the significance of inventory turnover ratio to the supply chain management in Amazon, it is found that higher sales indicate the positive trends (Wisner et al., 2014). Therefore, supply chain management of the organisation can be said facilitating the supply chain network as well as the growth of Amazon in the business markets of the US.

Amazon’s Customer Service

As far as the importance of customer service is considered for Amazon, various empirical studies in management indicate that the business of the organisation is entirely dependent upon the efficient customer services offered in the markets of USA. In addition, it can also be understood that customer service of Amazon determines the profitability of the organisation and the future business opportunities (Crandall et al., 2014). Services, which are designed for the customers in Amazon, have high influence over their loyalty, satisfaction level and commitment towards the brand. Along with the time, Amazon has emerged as the most committed organisation, which put immense efforts to enhance the experiences of its customers through class services. This could be the prominent reason why there are over one billion customers in the world, who have downloaded its mobile phone application. Not only this, but the organisation also offer several other services to its customers such as streaming video technology such as Amazon Prime and many others (Wild, 2017). Considering the services, which have been developed in the organisation in recent years for enhancing the experiences of its customers, it is found that services of product tracking, easy return and many others are prominent in the business of Amazon in US business markets. The customer can easily return the purchased products event after their trial if they find it inappropriate. This service has been launched shortly by the organisation. Before easy return, the organisation was reported to accept the return only in the cases of product damage or miss-delivery. Many empirical studies suggest that Amazon also focus on its supply chain services to add values to its customer services (Muller, 2011). In recent years, strategic management within the organisation has launched three major types of product delivery services, which are shown in figure 1. These services are explained in the following manner.

Standard delivery services: This is one of the most used customer service belonging to supply chain management of Amazon. The study shows that the organisation delivers its products within 7 working days in the US business markets through standard delivery services (Axsäter, 2015). The reason behind the high scale use of this service is its cost-effectiveness. In comparison to the other two services offered in the supply chain management of Amazon, standard delivery has nominal shipping charges over the sale of the products.

Same day delivery services: It is another prominent customer service, which is offered in supply chain management of Amazon to the customers. In this service, the organisation promises its customers to deliver the products on the same day when the order for purchase is placed (Crandall et al., 2014). It can be analysed that reduced time of product delivery enhances the satisfaction level of the customers, which also increases the probabilities for future purchases.

Prime now services: This is the most advanced supply chain service, which is developed by Amazon for its customers. Not only is this but, Prime now service also the most expensive service of the company (Wild, 2017). For this reason, only upper-middle-class and elite class customers make use of this service for instant delivery of the products. The study also reveals that Prime Now service is offered by Amazon to the customers that live in urban areas of the US only due to the convenience of product delivery and faster transportation means.

From the analysis of the above-described customer services, it can be said that the three customer services have immense contribution in enhancing the efficiency of the supply chain management in Amazon (Wisner et al., 2014). With these services, the organisations easily fulfil the expectations of its customers, which ultimately result in the enhancement of their trust and satisfaction. Hence, services in supply chain management contribute to the organisation's excellence in its business markets in the US.

Amazon’s Success through Innovative SCM

Innovative supply chain management can be understood as an approach in which an organisation constantly focuses on improvising its supply chain through innovation. It is found in many studies that innovative supply chain management is highly essential for the organisations in the online retail industry as their entire business is based on the faster delivery of the products to the customers (Wisner et al., 2014). Innovative supply chain management is also considered as the sole factor behind the success of Amazon in US business markets due to following reasons.

It is found in the studies that earlier Amazon used to consider third party organisations for transportation of products from China and India to America. Afterwards, the organisation created its own transportation lines by purchasing cargo aircraft (Relph ‎and Milner, 2015). This innovative idea of the organisation enhanced the efficiency of the supply chain management of Amazon. As a consequence, the organisation significantly improved inbound and outbound logistics resulting in faster delivery of the material.

Further, the studies are also helpful in understanding that Amazon is using various automated technologies in its supply chain management so that actives such as packaging of products and many others can be finished in less time. For this purpose, Amazon is also using robots and artificial intelligence technology. This innovative technology is accountable for processing the orders placed by the customers in comparatively less time than manual processing. As a result, Amazon has significantly improvised its supply chain management and has paced up the delivery of its products to the customers.

Amazon has also used innovative technology for managing orders for products delivery. For this purpose, the organisation has developed virtual platforms and servers, which can store large amounts of data and process it in less time (Wang, 2017). Use of cloud computing and many other innovative technologies has allowed Amazon to connect with its customers, suppliers and other stakeholders.

Conclusion

The above report is based on a case study about the supply chain management of Amazon. It can be concluded from the report that along with the time, the organisation has immensely improved its supply chain network by developing its own transportation means. Not only has this but, the organisation also automated its supply chain network in US business markets. Along with this, Amazon has also focused on transportation to improve the efficiency of its supply chain management system. After analysis of the financial information, it can be said that inventory turnover ratio is positive for the organisation, which indicates the effectiveness of supply chain management of the company. Not only this but, it is also found that an innovative approach to supply chain management such as the use of robots and many others, is the reason behind the success of Amazon in the business markets.

References

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