Bezos
Video case 15: Amazon: Delivering the Goods… Millions of Times a Day
“The new economy means that the balance of power has shifted toward the consumer,” explains Jeff Bezos, CEO of Amazon.com, Inc. The global online retailer is a pioneer of fast, convenient, low-cost virtual shopping that has attracted millions of consumers. Of course, while Amazon has changed the way many people shop, the company still faces the traditional and daunting task of creating a seamless flow of deliveries to its customers—often millions of times each day.
Amazon Video Case:
THE COMPANY:
Bezos started Amazon.com with a simple idea: to use the Internet to transform book buying into the fastest, easiest, and most enjoyable shopping experience possible. The company was incorporated in 1994 and opened its virtual doors in July 1995. At the forefront of a huge growth of dot-com businesses, Amazon pursued a get-big-fast business strategy. Sales grew rapidly and Amazon began adding products and services other than books. In fact,
Amazon soon set its goal on being the world’s most customer-centric company, where customers can find and discover anything they might want to buy online.
Today Amazon claims to have the “Earth’s Biggest Selection™” of products and services in the following categories: Books; Movies, Music & Games; Digital Downloads; Kindle; Computers & Office; Electronics; Home & Garden; Grocery, Health & Beauty; Toys, Kids & Baby; Clothing, Shoes & Jewelry; Sports & Outdoors; and Tools, Auto & Industrial. Other services allow customers to:
Search for a product or brand using all or part of its name.
Place orders with one click using the “Buy Now with 1-Click” button.
Receive personalized recommendations based on past purchases through opt-in e-mails.
These products and services have attracted millions of people around the globe. This has made Amazon.com, along with its international sites in Austria, Canada, the United Kingdom, Germany, Japan, France, and China, the leading online retailer.
SUPPLY CHAIN AND LOGISTICS MANAGEMENT AT AMAZON.COM
What happens after an order is submitted on Amazon’s website but before it arrives at the customer’s door? A lot. Amazon.com maintains huge distribution, or “fulfillment,” centers where it keeps inventory of millions of products. This is one of the key differences between Amazon.com and some of its competitors—it actually stocks products. So Amazon must manage the flow of products from its 15 million suppliers to its distribution and customer service centers with the flow of customer orders from the distribution centers to individuals’ homes or offices.
The process begins with the suppliers. “Amazon’s goal is to collaborate with our suppliers to increase efficiencies and improve inventory turnover,” explains Amazon’s vice
400
401
president of supply chain. “We want to bring to suppliers the kind of interactive relationship that has inspired customers to shop with us.” For example, Amazon is using software to more accurately forecast purchasing patterns by region, which allows it to give its suppliers better information about delivery dates and volumes. Before the development of this software, 12 percent of incoming inventory was sent to the wrong location, leading to lost time and delayed orders. Now only 4 percent of the incoming inventory is mishandled.
At the same time, Amazon has been improving the part of the process that sorts the products into the individual orders. Amazon’s senior vice president of operations says, “We spent the whole year really focused on increasing productivity.” Again, technology has been essential. According to the senior vice president of operations, “The speed at which telecommunications networks allow us to pass information back and forth has enabled us to do the real-time work that we keep talking about. In the past, it would have taken too long to get this many items through a system.” Once the order is in the system, computers ensure that all items are included in the box before it is taped and labeled. A network of trucks and regional postal hubs then concludes the process with delivery of the order.
The success of Amazon’s logistics and supply chain management activities may be most evident during the year-end holiday shopping season. Amazon received orders for 37.9 million items between November 9 and December 21 one year, including orders for 450,000 Harry Potter books and products, and orders for 36,000 items placed just before the holiday delivery deadline. Well over 99 percent of the orders were shipped and delivered on time.
AMAZON’S CHALLENGES:
Several sales growth options are possible for Amazon. First, it can continue to pursue growth through sales of hundreds of thousands of electronic books, magazines, and newspapers through its new Kindle devices and store.
Second, Amazon can continue its expansion into new product and service categories. Recently, it launched its Outdoor Recreation store—the latest in over a dozen such categories. This approach would prevent Amazon from becoming a niche merchant and position it as a true online retail department store. Third, Amazon can increase the availability of products from other retailers through its Amazon WebStore. These retailers can create a customized, branded website that uses Amazon eCommerce technology. Finally, Amazon can pursue a strategy of providing access to its existing operations for other retailers through its Fulfillment by Amazon (FBA) service.
Online retailers store their products at Amazon’s distribution centers and when they sell a product—Amazon ships it!
Amazon.com has come a long way toward proving that online retailing can work. Its logistics and supply chain management activities have provided Amazon with a cost-effective and efficient distribution system that combines automation and communication technology with superior customer service. To continue its drive to increase future sales, profits, and customer service, Amazon acquired Zappos.com in mid-2009. According to Bezos, “We see great opportunities for both companies to learn from each other and create even better experiences for our customers.”
QUESTIONS:
Amazon: Delivering the Goods . . . Millions of Times a Day. Read the Amazon case on pages 400 and 401. You may watch the video at the publisher’s website if you choose.
1. How do Amazon.com’s logistics and supply chain management activities help the company create value for its customers?
2. What systems did Amazon develop to improve the flow of products from suppliers to Amazon distribution centers?
3. What systems improved the flow of orders from the distribution centers to customers?