Amazon Supply Chain Management and Logistics Management

The case study I have chosen for my topic is on “AMAZON.COM”, the area where I would be focusing is on the core concept of e-business and the benefits it provide effectively in adopting e-supply chain strategies. The main focus here in on the word ‘e-‘as it has change the way of doing business in a global environment. Therefore, technology here plays a vital role in expanding new areas for businesses and enabling organizations to minimize their costs and work more precisely and effectively. Internet has made the world a small village for customers as now customers from across the world can assess any product of their choice by one click of mouse. Internet is world of opportunities as I come across a statement given by Tony Blair (UK’s X Prime Minister),

“If you don’t see the Internet as an opportunity, it will be a threat”. (Financial Times, 1999) (Barnes 2001)

Furthermore, this paper would be focusing on Amazon’s history and background, and then the focus would be on the product and services Amazon is offering to its customers, the practice of supply chain within the company and its customers. The paper also comprises of the benefits of e-business Amazon is providing to the customers effectively as well as importance of logistics in fulfillment of supply chain strategy throughout the supply chain.

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Background of Amazon.Com

Amazon.Com was launched on 16th July 1995 by Jeff Bezos known as pioneer in e-commerce (R. Spector 2000) with a tag line under the alphabet ‘A’ “Earth’s Biggest Bookstore” and is based in Seattle. At the beginning the web page was designed for selling books with a message at the top of the website “Welcome to Amazon.com Books” Search one million titles. Enjoy consistently low prices”. (R.Spector, 2000). At Present the company is providing three primary customer sets; consumers, Sellers, and developers. The general idea behind Amazon was to serve as many customers as possible with variety of products that the volume of business would generate profits for Amazon.com. (R.Saunders 2001). In the early phase of business the company agreed upon having a very little or no inventory due to costs involved in keeping inventory.

In the early nineties many traditional bricks-and-mortar retailers worked with their suppliers in accordance with the concept ‘just-in-time’ delivery in order to keep the cost of inventory low but Amazon followed “almost-in-time” delivery introduced by Barton Davis who was the second employee of the firm when Amazon started. (R.Spector,2000). This strategy meant that the books will be delivered to the customers after they order it as they are not kept in the stock until a customer asks for it. At present Amazon have six warehouses where it stocks its inventory. As per the company’s annual report of 2009 it indicates that company is experiencing continuous improvement in customer services which is result of 15 years of previous service like speeding delivery, reducing their cost structure in order to offer customers with ever lower cost prices. (J.P. Bezos 2010).

Products and Services at Amazon

Amazon started with selling of books by filling all orders of books by purchasing from a distributor in accordance with the orders given by customers. At Amazon they have a stock of bestselling books. Amazon’s main strategy is to keep on expanding the set of products and sell them online. In June 2002 Amazon became an authorized dealer of Sony Corp., selling sony products online (E. Turban, 2006). Apart from books Amazon has added many new product categories such as music, toys, electronics, jewelry, shoes and apparel (S.Chopra 2007). According to the annual report of Amazon.Com (2009), it has added 21 new categories around the world which includes Automotive in Japan, Shoes and Apparel in China. Amazon web services as also launched new services and features which includes the Amazon Relational Database Service, Virtual Private Cloud, Elastic MapReduce, High-Memory EC2 Instances and Versioning for Amazon S3. (J.P. Bezos.2010).

Supply Chain Practices of Amazon.Com

Before we come to the supply chain practice of Amazon.Com it’s necessary to define Supply Chain Management, therefore supply chain management refers

“Supply chain management is a set of approaches utilized to efficiently integrate suppliers. Manufacturers, warehouses, and stores, so that merchandise is produced and distributed at the right quantities, to the right locations, and at the right time, in order to minimize systemwide costs while satisfying service level requirement.”. (D.S.Levi 2008, Pg.1).

Now, after looking at the definition we come across the real meaning of supply chain management, therefore, if we look at supply chain of Amazon.Com it start from the customer and ends up to the customer meaning it’s a continuous process which starts when the customer for the first time makes a request for any product at Amazon, it directly goes into his virtual basket and after pressing the buy button and mode of payment he selects a mode of delivery services which includes overnight and various international shipping options (R. Spector 2000). Amazon have a system where orders are recorded, registered and processed and simultaneously, customer on the other hand is immediately apprised of the status of his order and how long will it take to ship the product with the amount of shipping costs involved in it (R. Saunders 2001).

Inventory Management at Amazon.Com

Amazon stocks best-selling books at its warehouses and get the other titles from other distributors or publishers. To deliver the products Amazon uses U.S. Postal Services, UPS and FedEx to deliver the goods to the customers (S.Chopra 2007). Here we can see the importance of e-commerce in supply chain that how effectively organizations are trying to invest and find new opportunities through e-commerce especially in field of supply chain management. The supply chain of Amazon is very strong just because of responding quickly and accordingly to the customer’s specification on delivering the goods at the right time, at the right place and at the right price during the time specified According to the annual report 2009 of Amazon.Com, the inventories rose over 200,000 titles at the end of the year which enabled Amazon to improve the availability of products for their customers.

Customer Relationship Management by Amazon.Com

Every business revolves around satisfying customers and enhancing their relationship for long term, the same implies with providing services on Internet or e-commerce, the general idea is to create a positive relationship with customers. The Internet has played an important role in making it possible for organizations to focus on building relationships with customers and having a direct contact with each customer (S. Barnes 2001). Therefore, businesses on internet can improve synchronization, both within and across companies while providing a direct contact with end users. If we look at Amazon, it has build a strong relationship with all of its customers by meeting up their expectations and trying to be more effective in going beyond their expectations. From the company’s more than 80 million customers across the world, more than half are repeat buyers (R.Saunders 2001).

The focus of Amazon was to offer customers compelling value from the beginning and to meet customers’ requirement 365 days a year. According to the annual report 2009 of Amazon.Com, Amazon has relied on Word of Mouth advertisement and to date it remains the most powerful tool in customer acquisition because repeat purchasing and word of mouth has made Amazon to be a market leader in online bookselling. Therefore, it is important for retailers to emphasize on satisfying customers because this can enable them to move first time buyers to loyal customers. Bezos, the chairman of Amazon once said,

“A pool of evangelists will use the Internet as a megaphone to help attract new customers with word of mouth.” (R.Saunders 2001, pg.102)

Importance of Logistics in Supply Chain Management

Logistics plays an important role in supply chain because it acts as a bridge or link between the entire processes of supply chain as it is the main source of delivering the products to the end consumers in a timely manner as and when required. There is a big challenge in logistics in managing the whole logistics system in order to meet the customer requirements, perhaps, exceeding customer expectations. In today’s competitive world and speed of ordering via Internet intensify the need of effective logistics system in order to deploy appropriate levels of inventory, delivering the products within the promised time and also managing the returns if required.

The role of Logistics in Supply chain implies in creating a place utility and in managing the time effectively, as place utility is provided through moving the goods from the point of production to the point where demand exists, thus adding a economic value to the goods. Time utility is of greater essence as it is not necessary that the goods and services should only be available where customers need them but also that they are delivered when they actually demand them. These both activities are clearly seen in the case of Amazon.Com as both the services are effectively and efficiently performed by the organisation.

Role of Logistics in Amazon’s Supply Chain

There has been a deep research done by different authors in order to find the secrets behind the success of a retail company, and that is offering the right products in the right location at the right time having the right packaging in the right quantity at a reasonable price to the right customer (R. Saunders 2001, pg. 119). This is one of the most core elements of any organisation and seems to be the most important objective in Amazon’s shipping as well because the strategy is to deliver the product safely to the customer at the time specified. In the year 2000, Amazon developed a “Delight-o-meter” in order to track the total number of items ordered worldwide. Amazon got high marks in terms of delivering the products in time on holidays from all e-business and e-commerce magazines than other e-tailors companies of the world (R. Saunders 2001).

Benefits of e-business in Supply Chain

The success of every retail and e-retail depends on providing quality products at good prices having in mind quality excellent services. One of the most important benefit that e-business is providing organizations is to reach hundreds of millions of people open 365/24/7 in just a click of mouse omitting all the barriers which used to exists before. Companies with just a minimal capital requirement can easily and quickly reach to the best suppliers, unlimited customers and even most suitable business partners across the globe. This activity enables organizations to buy at cheaper rates and sell more in number of quantity.

E-commerce plays a vital role in overcoming the inefficiencies in supply chain such as delivery delays and excessive inventories can be minimized. Furthermore EB also benefits in cost reduction like decreasing the cost of processing, distributing and storage activities (E. Turban 2006). Companies are now investing heavily in order to get the word ‘E’. Customers are getting the benefit due to intensive competition and number of products available to them online, like with just a click of mouse a customer with saving a lot of time can easily gather information of the features and prices of a product and can easily arrange direct shopping sitting at home (S. Korper 2001). Amazon is a classical example of B2C, which means it remains between the seller and the buyer. The objective of B2C is to optimize the business relationships with customers, increasing service levels effectively and efficiently and lastly increasing the sales (E. Turban 2006).

Conclusion

To sum up I would like to say that e-commerce and e-business play is a life blood of organizations, especially when I talk about Amazon.Com. A comprehensive research has been carried out through my research that how Amazon.Com has evolved its virtual door opened on the World Wide Web in July 1995. Furthermore, I would like to state that e-business plays an important role in managing the supply chain of Amazon.Com effectively and efficiently by offering customers what they are looking for and providing them their products within the time specified. Amazon.Com has become very successful in reducing its costs as well as increasing profitability effectively. The Amazon.Com leaves an example on how to do effective marketing on the Internet and satisfying customers.

The role of e-business in expansion of businesses also play an important role as we see now every organisation whether big or small goes on the Web and offer their products or services on the web as well in order to grab millions of customer on the internet. E-commerce plays an important role in minimizing the costs throughout the supply chain and improves the level of service by meeting or exceeding customer’s expectations. At last but not the least, EC enables companies build a positive relationship with customers by providing direct services to the customers which in turn promotes better customer relationship management and increases customer loyalty.