Running head: Amazon. com Supply Chain Project Amazon. com Supply Chain Project Jarrel Nightingale [email protected] edu Capella University BUS3004: Supply Chain Management Professor Dr. Robert Goldwasser December 10, 2012 Amazon. com Supply Chain Project Introduction In today’s society, Online Shopping and the industry of e-commerce has become very popular and mainstream. Many individuals have integrated online shopping into their normal routine and have replaced traditional shopping altogether.
Online shopping has become so popular, there has been a shopping holiday called “Cyber Monday” which is the equivalent to “Black Friday. ” Traditional brick and mortar retail stores are now forced to offer their products online in order to remain competitive. This is a new position for most businesses to be in, so businesses are forced to make the necessary adjustments to conform to the consumers’ demands. Complying with the demands of technology has become a problem for some of the smaller businesses due to the lack of resources and infrastructure to produce these changes.
Amongst the many online retailers that have emerged, Amazon. com has set itself apart as the industry leader in Online E-commerce. Since 1994, Amazon. com has built a successful empire that has become the default name for when one thinks about buying anything online. Through their documented success, Amazon. com has created the blueprint for those to follow in order to become a successful Online Retailer. In this assignment, I will discuss Amazon. com as it relates to their success and the structure of its company.
Business Model Amazon. com sells books, music, and other items over the Internet and is one of the pioneers of consumer e-business. Amazon, based in Seattle, started by filling all orders using books purchased from a distributor in response to customer orders. This practice differs from that of a traditional bookstore, which usually purchases directly from publishers and stocks books in anticipation of customer orders. In 2008, Amazon had eight warehouses in the U. S. and another fifteen in the rest of the world.
Amazon stocks many books, though it still gets other titles from distributors or publishers. It uses the U. S. Postal Service and other package carriers such as UPS and FedEx to send books to customers. Amazon has continued to expand the set of products that it sells online. Besides books and music, Amazon has added many product categories such as toys, apparel, electronics, jewelry, and shoes. (Chopra, et. Al, 2012) In addition to adding more products, the strategy of Amazon. com is technology based as it relates to consumer demand.
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 (Bacheldor, 2004). Global Challenges Unlike most companies, Amazon. com has positioned itself to remain competitive in the national and global markets as well.
Shipping is one of the most main expenses of e-commerce and shipping internationally can be a lengthy and expensive process. As mentioned earlier, Amazon. com has built new warehouses and changed the markets supplied by each warehouse as its customer base has grown. Currently there are 15 warehouses in total; 8 of those are located in the United States and the other 7 are located internationally. As a result, it has lowered shipping costs and improved responsiveness (Chopra, et. Al, 2012).
There is a trade off because inventory and facility costs increase as the number of facilities in the supply chain increase; and transportation costs decrease as the number of facilities increase. The functionality of its technology is also designed to help with reducing costs so that transportation costs stay at a point where operating globally is still achievable. Amazon. com’s supply chain management applications communicate in real time when an order is placed and assigns shipping warehousing and cost based on location (Bacheldor, 2004).
When the average company ships internationally the response time is typically in excess of 14 days and the cost to expedite takes any potential savings from purchasing online go away. Importance of Aggregate Planning Amazon. com is beginning to aggregate other e-commerce that are linked via strategic placement and investments. The vision is to make it so customers don’t have to go elsewhere to shop very often especially online (Scally, 2000). The reputation it has is so strong that any association with Amazon. com helps create an impression of validity and success for anyone that chooses to partner with them.
Amazon has one of the most-sophisticated supply-chain systems in the world, and it was all built from scratch. Homemade applications handle nearly every aspect of its supply chain: warehouse management, transportation management, inbound and outbound shipping, demand forecasts, inventory planning, and more. In the last four years, Amazon has worked to minimize the need for human intervention in its supply-chain processes, such as manually inputting sales forecasts into an inventory-management system (Bacheldor, 2004).
Today, Amazon’s supply-chain apps 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. Ultimately, the goal is to try to “touch” every type of transaction on the web dealing with e-commerce and to integrate with business partners to enhance the online shopping experience (Scally, 2000). Many traditional brick and mortar stores are affiliating themselves with Amazon in order to gain online presence and sell its merchandise online. This is a mutual benefit as it allows Amazon to continue to diversify its products.
Role of Demand Forecasting and Pricing Promotions To achieve strategic fit, a firm must tailor its supply chain to best meet the needs of different customer segments. To retain strategic fit, supply chain strategy must be adjusted over the life cycle of a product and as the competitive landscape changes. Future risks, uncertainties, and environmental concerns must be accounted for when firms design their supply chain strategy. Customers ordering a book at Amazon. com are willing to wait longer than those who drive to a nearby Borders store to get the same book.
In contrast, customers can find a much larger variety of books at Amazon compared to the Borders store. Thus, Amazon customers trade off fast response times for high levels of variety (Chopra, et. Al, 2012). Amazon offers its customers a large menu of prices for products that are purchased from the company. For example, a person purchasing two books worth $30 could use standard shipping (ships in 3–5 business days) at a cost of $4. 98, two-day shipping (ships in 2 business days) at a cost of $13. 97, one-day shipping (ships in 1 business day) at a cost of $22. 97 or use free shipping (ships in 7–14 business days).
The pricing menu allows Amazon to attract customers with varying levels of desired responsiveness (Chopra, et. Al, 2012). Whereas customers paying for one-day shipping impose a high degree of uncertainty on Amazon, customers opting for free shipping can be used to level out the workload at the warehouse over time. Amazon can thus use its pricing to provide responsiveness to those who value it while using customers who want a low price to help it improve its efficiency. Amazon also uses pricing effectively to shift some of the Christmas peak to November, by offering free or discounted shipping.
The discount moves some of the December demand forward, allowing it to reduce its December peak and improve its efficiency without giving up on responsiveness for those customers who do not want to order earlier. Conclusion Since 1994, Amazon. com has built a successful empire that has become the default name for when one thinks about buying anything online. Through their documented success, Amazon. com has created the blueprint for those to follow in order to become a successful Online Retailer. By offering a vast variety of products, Amazon has changed the way many consumers shop for our merchandise.
In addition to more options, the prices are often times cheaper even though the merchandise ordered is always shipped from a different location. What Amazon started in 1994 has now been revolutionized as Amazon continues to find ways to better the merchandise, the technology involved, and most important the customer experience. References Anonymous. 1998. IceGroup Releases Amazon. com Analysis . PR Newswire, Retrieved from www. lexisnexis. com/hottopics/lnacademic Bacheldor, B. (2004). FROM SCRATCH: Amazon keeps supply chain close to home. InformationWeek, (979), 40-40.
Retrieved from http://search. proquest. com/docview/229180916? accountid=27965 Chopra, Sunil, Meindl, Peter. (05/2012). Supply Chain Management, 4/e for Capella University, 4th Edition. Pearson Learning Solutions. Scally, R. (2000). Amazon. com: The force that’s altering e-tail, one category at a time. DSN Retailing Today, 39(9), 42-44+. Retrieved from http://search. proquest. com/docview/228466615? accountid=27965 Willis, C. (1998, Apr 06). Does amazon. com really matter? Forbes, , 55-58. Retrieved from http://search. proquest. com/docview/195047045? accountid=27965