case amazon
TRANSCRIPT
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St. Xavier’s College, Kolkata
Logistics & Supply Chain Management
A
St. Xavier’s College, Kolkata
Logistics & Supply Chain Management
2009-2010
A CASE STUDY ON
Presented by
Nirmalya Fadikar
Roll no. – 15
St. Xavier’s College, Kolkata
Logistics & Supply Chain Management
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Contents
1. Case Abstract.
2. Introduction.
3. Amazon At A Glance.
4. History.
5. Amazon.com’s Situation Analysis.
6. Amazon.com's Inventory Management.
7. Optimizing The Customer Fulfillment Network.
8. Amazon.com In Europe.
9. SWOT Analysis.
10. Industrial Analysis.
11. Future Challenges.
12. Future Of Amazon.com .
13. Future Plan Of The Company.
14. Acquisitions And Spin Offs.
15. Recommendations.
16. Conclusion.
17. Bibliography.
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Abstract: Abstract: Abstract: Abstract:
Amazon.com, the world’s leading online retailer had survived for nine long
years without annual profits because it was guided by a long-term vision that
put into place strategies for research, and the development of technology
infrastructure. The company finally turned the corner by posting profits for the
first time in 2003. The case provides an overview of Amazon.com's inventory
management. Jeffrey Preston Bezos the founder of Amazon.com launched the
company when he realized that Internet provided immense scope for online
trading. Although the site was originally launched as an online bookstore it
eventually offered several other products to keep abreast of the competition.
The case takes a look at the different products and features offered on the site.
The case also discusses Amazon's value propositions and its criteria for
choosing strategic partners. It then elaborates on the strategies adopted by
Amazon for managing its inventory.
With its history of not posting profits, and having turned the corner recently,
the big question was whether Amazon would survive the onslaught of major
competitors like E-bay, and continue to retain the No.1 position while at the
same time realize reasonable levels of earnings to satisfy shareholders. This
was the dilemma that founder Jeff Bezos and his team had to address.
It also explains Amazon's decision to outsource inventory management to
distributors. The case takes a look at Amazon's decision to sell the products of
competing retailers on its site. It concludes with a brief note on the future
challenges in Amazon's warehouse management.
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Issues:
» Examine the various facilities offered and the technologies adopted by online
shopping sites
» Understand the value propositions adopted by e-tailing ventures and their
importance in e-commerce activities
Pedagogical Objectives:
• To study Amazon’s expansion and growth despite posting losses for many
years
• Make a SWOT analysis of Amazon and evaluate its strategy for the future.
IntroductionIntroductionIntroductionIntroduction
''The logistics of distribution are the iceberg below the waterline of online
bookselling,'' Jeff Bezos, founder and chief executive of Amazon.com.
The Internet has changed the way that we perceive business and the way that
we as consumers may make our purchases. In fact, the online consumer today
knows the convenience of purchasing a book online and having it delivered to
their door in a matter of a few days. There is no more need to fight crowds,
find a parking spot, and deal with traffic. The high street and mail order
systems still have a place in the mix of purchase routes; however it is no longer
the only method of making purchases. The Internet revolution has seen a
massive increase in the long distance purchases made by consumers, as
geographical barriers are no longer as important as they were.
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The lack of geographical importance has influenced the strategy of Internet
companies. One of the first companies that took advantage of this was the
online bookshop Amazon.com.
The case provides an overview of Amazon.com's inventory management.
Jeffrey Preston Bezos the founder of Amazon.com launched the company
when he realized that Internet provided immense scope for online trading.
Although the site was originally launched as an online bookstore it eventually
offered several other products to keep abreast of the competition. The case
takes a look at the different products and features offered on the site. The case
also discusses Amazon's value propositions and its criteria for choosing
strategic partners. It then elaborates on the strategies adopted by Amazon for
managing its inventory. It also explains Amazon's decision to outsource
inventory management to distributors. The case takes a look at Amazon's
decision to sell the products of competing retailers on its site. It concludes with
a brief note on the future challenges in Amazon's warehouse management.
The continued success of Amazon.com can be attributed to its diversity in
terms of geography as well as its diverse selection of merchandise, ranging
from media such as books, CD's, and videos to online auctions and house
wares. Amazon.com currently operates four international websites in France,
Britain, Germany and Japan giving it global Internet exposure. One of several
factors that have proven Amazon.com successful is that it has the first mover
advantage. Not only was it first in its industry, it has also been successfully
marketed. But as with any Internet site, the actual presentation and
processing are seen as a result of the underlying technology and the way the
company uses it.
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Amazon.com At A GlanceAmazon.com At A GlanceAmazon.com At A GlanceAmazon.com At A Glance
Type
Founded
Founder
Headquarters
Area served
Key people
Industry
Products
Revenue
Operating
income
Net income
Employees
Website
Alexa rank
Type of site
Advertising
Available in
Amazon.com At A GlanceAmazon.com At A GlanceAmazon.com At A GlanceAmazon.com At A Glance ::::
Amazon.com, Inc.
Public (NASDAQ: AMZN)
Founded 1994
Founder Jeffrey P. Bezos
Headquarters Seattle, Washington
served Worldwide
people Jeffrey P. Bezos
Chairman, CEO, & President
Industry Retail
Products
Amazon.com
A9.com
Alexa Internet
IMDb
Kindle
Amazon Web Services
dpreview.com
Javari.co.uk
Revenue ▲ US$ 24.509 billion (2009)
Operating ▲ US$ 1.129 billion (2009)
Net income ▲ US$ 902 million (2009)
Employees 20,700 (2009)
Website Amazon.com
rank 20
Type of site e-commerce
Advertising web banners and videos
Available in
English, Japanese, German,
French, & Chinese
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HistoryHistoryHistoryHistory
Amazon has grown admirably from its initial beginnings as a small online
bookseller to a giant superstore company. During this process of rapid growth,
it has incurred significant losses and it becomes more expose to a greater
competition and threats. Cutting costs and achieving profitability remain
Amazon’s greatest challenges. However, there are key factors such as a strong
brand, providing customers with outstanding value and a superior shopping
experience, massive sales volume and realizing economies of scale which
contribute a lot to the success of this company Founded as Cadabra.com by
Jeff Bezos in 1994, Amazon.com was launched in 1995. It is an American
electronic commerce company based in Seattle, Washington. It is one of the
first major companies to sell goods over the Internet and one of the most
recognized and respected online businesses. It has become the number one
online retailer by steadily building its reputation and brand, beginning its
operation in July of 1995.
Moreover, it has expanded from its existing business of selling books to selling
a wide variety of products such as DVDs, music CDs, computer software, video
games, electronics, apparel, furniture, food and more (Wikipedia 2006).
Similarly, Amazon aside from its domestically shared market also set up four
other separate online stores in the United Kingdom, France and Japan, thus
shipping globally on selected products.
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Amazon.com Situation AnalysisAmazon.com Situation AnalysisAmazon.com Situation AnalysisAmazon.com Situation Analysis
Jeffrey Bezos started Amazon.com in 1994, after recognizing that Internet
usage was growing at a rate of 2,300 percent a year. Operating from a 400-
square foot office in Seattle, Jeffrey launched Amazon.com on the Internet in
July 1995. Amazon.com mission is to use the Internet to transform book buying
into the fastest, easiest, and most enjoyable shopping experience possible. By
the end of 1996, his firm was one of the most successful Web retailers, with
revenues reaching $15.6 million. Almost overnight Amzon.com quickly became
the world’s largest e-tail bookstore in the world. Amazon has continued to
expand its customer base, and sales revenues have increased every year. The
firm’s revenues increased from $15.7 million in 1996 to $2.76 billion in 2000
(Table 1). Today, Amazon.com is the place to find and discover anything you
want to buy online. Amazon offers the Earth’s Biggest Selection of products to
29 million people in more than 160 countries across the world making them
the leading online shopping site accessed via the World Wide Web. Over past
several years Amazon.com has grown and developed very rapidly. The key core
processes that have lead to Amazon’s success are convenience, selection,
service, and price. Convenience can best be described when Bill Gates stated
that, “I buy all my books at Amazon.com because I’m busy and it’s convenient.
They have a big selection , and they’ve been reliable.” With over 106 million
adults purchasing books every quarter, Amazon has capitalized on the
convenience of on-line ordering. The next key process for Amazon is selection.
Amazon is able to offer the world’s largest selection because they are an e-
tailer with virtual directories. Amazon only keeps recent publications in stock
for quick order fill, but directly orders any other requested books from the
publisher. This business practice allows Amazon to have low warehouse cost,
and offer the largest selection of books at the same time. The third key process
for Amazon is service. Amazon offers customers everything from email
notifications when their orders are filled, to chat rooms so customers can
discuss and recommend books. Amazon also allows customers to search for
books with similar titles or subject matters.
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Currently about 63% of Amazon’s business comes from repeat customers. The
last key process for Amazon is price. At Amazon.com, almost all books are
discounted. Bestsellers are sold at 30-40% discount and all other books are at a
10% discount.
Amazon is able to offer such discounts because they have a lower cost
structure than physical stores, and they turn their inventory over 150 times a
year. All four key core processes have lead to the success that Amazon has
experienced in its young six years of operation. People would visit amazon.com
whenever they wanted to buy a book because it would be the most likely
store, (physical or online) to have a particular title. After becoming satisfied
customers, people would return to amazon.com to buy more books and would
eventually stop looking elsewhere. In 1998, amazon.com began selling music
CD’s and videotapes. The websites software can track a customers purchases
and recommend similar book, CD, or video titles. In fact, the site can
recommend related products in a variety of product categories now sold on
amazon.com. these product categories include consumer electronics,
computers, toys, clothing, art, tools, hardware software, house wares,
furniture, and car parts. Amazon.com now generates significant revenue by
supplying other sellers of consumer goods with tae technology to sell those
goods online.
Amazon.com opened its virtual doors in July 1995 with a mission to use the
Internet to transform book buying into the fastest, easiest and most enjoyable
shopping experience possible. Today, Amazon.com seeks to be the world’s
most customer-centric company, where millions of customers in more than
220 countries can find and discover anything they might want to buy online.
The Operations Division at Amazon.com is composed of fulfillment and
customer service centers. It has six fulfillment centers nationwide totaling
more than 3,000,000 square feet and four international centers totaling more
than 1,200,000 square feet. Amazon.com built its fulfillment infrastructure to
meet projected long-term growth, provide customers with fast, reliable
shipping, and manage the amount of merchandise kept on hand for shipment
to customers. Amazon.com also has three customer service centers nationwide
totaling more than 70,000 square feet and three international centers totaling
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more than 22,000 square feet. Amazon.com designed its customer service
centers to enable customers worldwide to reach a customer service
representative 24 hours a day, seven days a week.
Amazon.com's Inventory ManagementAmazon.com's Inventory ManagementAmazon.com's Inventory ManagementAmazon.com's Inventory Management
Value Proposition
Amazon built a four-fold value proposition that indicated its priorities in the
establishment of the online venture. The four dimensions it focused on were
convenience, selection, price, and customer service. The online venture was
convenient as it was open for business all the time. The site was so designed as
to keep the download time at a minimum. The site also offered its users
various facilities such as reviews, e-mail notifications, reference from a
previous search and product recommendations. It also provided the users with
a wide range of product options, which they could select from. Amazon had an
inventory consisting of millions of items which was roughly about 100 times
that of a typical physical store.
Strategic Alliances
In order to expand in a rapid and a cost-effective manner, Amazon decided to
partner with other companies. The main criterion used by Amazon for
selecting a partner was the customer service provided by the company. During
1998-2000, Amazon acquired ownership stakes ranging from 17 to 49 percent
in various online retailers- Greenlight.com, Living.com, Drugstore.com,
HomeGrocer.com, Pets.com, Ashford.com, Gear.com, and Della.com. Amazon
spent an estimated $160 million on acquiring stakes in these companies.
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Inventory Management
When Bezos started his venture, he aimed at hassle-free operations. He
wanted to offer his customers a wide selection of books, but did not want to
spend time and money on opening stores and warehouses and in dealing with
the inventory. He however realized that the only way to satisfy customers and
at the same timer make sure that Amazon enjoyed the benefits of time and
cost efficiency was to maintain its own warehouse. Building warehouses and
operating them was a very tough decision for Bezos. Each warehouse cost him
around $50 million and in order to get the money, Amazon issued $2 billion as
bonds.
In 1999, Amazon added six warehouses in Fernley, Nevada; Coffeyville, Kansas;
Campbellsville, Kentucky; Lexington, Kentucky; McDonough, Georgia; and
Grand Forks, North Dakota. On the whole, Amazon had ten warehouses. Most
of these warehouses were set up in states with little or no sales tax.
Innovative Inventory Outsourcing
In early 2001, Amazon decided to outsource its inventory management though
it knew that it was a huge risk. When Amazon managed its own inventory, it
had earned the reputation of providing superior customer service, which was
its biggest strength.
Now, the company wanted to concentrate on its main activities and outsource
inventory management in order to earn more profits. However, Amazon was
apprehensive that this move would damage the hard-earned reputation of the
company. Nevertheless, it decided to go ahead with the decision to outsource
its inventory.
Amazon did not stock every item offered on its site. It stocked only those items
that were popular and frequently purchased. If a book that was not too
popular was ordered, Amazon requested that item from its distributor who
then shipped it to the company.
In the company, the items were unpacked and then shipped to the respective
customers. So, Amazon basically acted as a trans-shipment centre and ensured
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that the entire process of shipping from the distributor to the customer was
done very efficiently.
The main distributors of Amazon included Ingram Micro and Cell Star handled
cell phone sales while Ingram Micro, a whole sale distributor, handled
computers and books. Amazon had external distributors for most of its
products except the bestsellers. Further Amazon entered into contract with
Ingram Micro Inc. for distribution of desktops, laptops and other computer
accessories. Drop shipment model was very successful so Amazon decided to
extend this model to all categories too. The major disadvantage of this model
was if the customers ordered only a single item at a time the drop shipment
model was extremely helpful, but if a single ordered had several items such as
a book stocked by Ingram and a game stocked by Amazon, then the following
procedure was adopted: Ingram sent book to Amazon, Amazon added the
game then forwarded the whole box to the customer. Since almost 35 percent
of orders placed at Amazon were of different categories the drop shipment
model was not very effective.
In 2001, Bezos came up with the idea of including the products of competing
retailers and some used items on their website. Amazon earned almost the
same profit selling on commission as it earned on retail. An advantage of this
feature was customers could now verify the prices of Amazon’s products vis a
vis those of other retailers. So the company did not need to advertise its low
price.
By 2003Amazon, s warehouse could handle thrice the volume they used to
handle in 1999, while the cost of operating them decreased from 20 percent of
Amazons revenue to less than 10 percent. In 2003 Amazon decided to slash
down its shipping charges. Customers who visited the site were greeted with a
pop up window announcing the company’s decision to provide free shipping
for those who bought two or more items in any combination from the sites
books, music, or video stores. The company also decided to reduce shipping
charges.
Though Amazon spent millions of rupees in marketing in order to get new
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customers it managed to leverage the amount spent because of its lower
capital costs. Generally physical bookstores having a wide range of books
needed to stock about 160 days worth of inventory. The distributors and
publishers had to be paid 45-90 days after the books were bought from them,
in this way Amazon used to get a month’s of interest free money.
Optimizing the Customer Fulfillment Network
Mr. Jeff Wilke the Vice President of Operations successfully streamlined US
Distribution Centers’ Processes by the followings-
1. Implement and use of Six Sigma DMAIC ( Define, Measure, Analyze,
Improve, and Control ) review a tool to reduce variation and defects.
In 2001, this approach was used to improve inventory record accuracy.
This was just one in a series of improvements that helped reduce
inventory-record accuracy errors by 50 percent in a year’s time.
2. Wilke encouraged DC staff to simulate holiday season conditions.
3. In addition, in 2001, Wilke made arrangements for additional storage
capacity to be added to the system during the holiday season.
To improve inventory management, Wilke’s team –
a. Refined the software used to forecast customer demand by improving
its ability to anticipate seasonal and regional demands, thus reducing the
risk of buying too much or too little merchandise.
b. Established buying rules to better allocate volumes among wholesalers
and direct vendors.
c. Integrated its suppliers’ management systems with it own inventory,
warehouse, and transportation systems.
d. Implemented a set of “cascading “ buying rules that determined which
supplier offered the best price an delivery options for each item Amazon
ordered.
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Amazon.Com In EuropeAmazon.Com In EuropeAmazon.Com In EuropeAmazon.Com In Europe
In 1998, Amazon.com entered the European market, targeting the two
countries- the United kingdom and Germany – that represented both the
largest online markets and largest markets for books in Europe. To accelerate
its Europian entry, in April 1998 Amazon acquired a leading online book
retailer in each country : Bookpages.co.uk in the U.K and Telebuch.de in
Germany. Despite of huge competition Amazon quickly became the leading
online bookseller in U.K and Germany. In September 2000, Amazon entered in
France and built its own site from scratch.
Amazon’s Challenges In Europe : Globalization And Localization
According to Diego Piacent , Senior Vice President and G.M, Amazon.com
Europe :
“ The key to achieving international e-commerce success lies in understanding
one simple fact : customers every-where want better selection, more
convenience, and better service. After recognizing this fact, online retailers will
soon understand that the major challenge to international expansion I the
ability to bring these universal benefits to customers around the world while
honoring local customs.”
� First Amazon started maintaining dedicated Web sites for each
country. In addition, Amazon built dedicated 24- hours –a –day
customer centers with native – language – speaking customer service
representatives who adequately understood the needs of European
shoppers.
� In order to comply with the local laws while keeping a competitive
offering, Amazon introduced free shipping in 2001.
� A third critical area was payment options. Amazon chose to offer
locally preferred alternatives, such as checks for French customers and
postal orders for German customers.
� Amazon used EDI to communicate with its US suppliers, which allowed
for fast confirmation at the item level of purchase orders sent by
Amazon.
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� Finally they relied on national postal service carriers in Europe to
deliver its domestic as well as international orders which was offering
excellent coverage .
SWOT ASWOT ASWOT ASWOT Analysisnalysisnalysisnalysis
StrengthsStrengthsStrengthsStrengths
1. Customer Relationship Management (CRM) and Information Technology
(IT) support Amazon's business strategy. The company carefully records
data on customer buyer behavior. This enables them to offer to individual
specific items, or bundles of items, based upon preferences
demonstrated through purchases or items visited.
2. Amazon is a huge global brand. It is recognizable for two main reasons. It
was one of the original dotcoms, and over the last decade it has
developed a customer base of around 30 million people. It was an early
exploiter of online technologies for e-commerce, which made it one of
the first online retailers. It has built on nits early successes with books,
and now has product categories that include electronics, toys and games,
DIY and more.
3. Product diversification from books and CD/DVD markets has provided
additional customers in other product areas and indicates strategic
movement to grow the business through new customer bases.
4. Strong distribution channel.
5. Leader in use of technology to delivery targeted content.
6. Negative cash cycle.
7. Has moved away form being a low price supplier of books toward a focus
on delivering outstanding service at a price.
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Weakness Weakness Weakness Weakness
1. Amazon are dependent on external delivery companies to carry out the
delivery function of the interface with the customer which can lead to
uncontrollable service level problems and potential cost increases in line
with the wider transportation industry such as rising fuel and increased
vehicle taxation. If these costs are not absorbed they are passed back to
the consumer both with potential negative effects.
2. As Amazon adds new categories to its business, it risks damaging its
brand. Amazon is the number one retailer for books; diversification may
lead to losses and decrease in brand value.
3. The company may at some point need to reconsider its strategy of
offering free shipping to customers. It is a fair strategy since one could
visit a more local retailer, and pay no costs. However the shipping costs
could be up to $500m, and such a high figure would undoubtedly erode
profits.
4. No region based sites.
OpportunitiesOpportunitiesOpportunitiesOpportunities
1. Amazon.com brand has been diluted by entering a wide number of
product segments.
2. There are also opportunities for Amazon to build collaborations with the
public sector. For example the company announced a deal with the
British Library, London, in 2004. The benefit is that customer’s can search
for rare or antique books. The library's catalogue of published works is
now on the Amazon website, meaning it has details of more than 2.5m
books on the site.
3. Growth of internet users in the next five years, predominantly in the
international market.
4. E-commerce expansion in Asia and the Pacific.
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ThreatsThreatsThreatsThreats 1. Increasing transportation costs will directly impact delivery charges to
customers - as these costs are not absorbed into the direct business but
paid to a third party it is assumed these will be directly passed onto the
consumer which can have a negative impact to brand perception from
the consumer viewpoint.
2. Competition will increase due to the low barriers to entry in the market:
offline companies are coming online.
3. Low economic performance of world economy.
4. The products that Amazon sells tend to be bought as gifts, especially at
Christmas. This means that there is an element of seasonality to the
business. However, by trading in overseas markets in different cultures
such seasonality may not be enduring.
5. Hacker’s problem.
Industrial AIndustrial AIndustrial AIndustrial Analysisnalysisnalysisnalysis Five forces model which was proposed by Michael Porter, provides a robust
and time-tested framework for analyzing any industry, reflected in the strength
of the five forces (industry competitors, potential entrants, and threat of
substitutes, power of buyers and power of suppliers). The collective strength of
the five forces determines the ultimate profit potential in an industry.
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Michael PMichael PMichael PMichael Porter’s five forces modelorter’s five forces modelorter’s five forces modelorter’s five forces model
Barriers to EntryBarriers to EntryBarriers to EntryBarriers to Entry
Threat of entry is considered medium to low. Being the first mover in online
bookstore industry, Amazon would be the best example of what amateur firms
would be faced. The factor that separates Amazon from the inexperienced
firms is its 8-year capital intensive and continuous upgrade of services through
acquisitions and alliances, nurturing the commission-based associate websites,
and endless technology development and innovation. Imitating such would
also require relationship building which is difficult when relationship is already
established by the first mover, or in the case of untapped technology partners,
Threat of
substitutes
Buyer’s power
Inter firm
rivalry
Supplier’s power
Barriers to entry
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requires significant capital and strategic plan proposals to move the other
party. In both cases, known industry players would be the benchmark
requiring the deal a considerable amount of time and money impractical for
the new player.
The book retail industry has very high barriers to entry. The capital
requirements necessary to establish a bricks and mortar bookstore would be
virtually impossible for a newcomer. Consumers know the big name players.
High product awareness and large marketing budgets make it very difficult for
new entrants to enter into this industry.
Inter firm RivalryInter firm RivalryInter firm RivalryInter firm Rivalry
Competitive rivalry is medium to high. There are numerous industry players;
however, they can be considered niche (eBay) and overly diversified (Yahoo!)
competitors of a diversified industry firm like Amazon. As a result, a head-to-
head competition exists against Barneys (who is backed by retail stores) and
Price line (who has the highest employee per revenue contribution in the
industry) created strategic group together with Amazon. Adding the flame of
intensified rivalry is the high fixed and storage costs of the industry since firms
needed to stock inventory in their warehouses for ready delivery of an order.
Competitors also have little product differentiation, except for auctioned
product maybe and other exclusive rights of players to sell supplier’s products,
making customer switching costs low.
Looking at the entire book retail industry, competition is quite diverse. A
consumer could purchase books from a bricks and mortar store, which could
be a large chain, a non-book retail store, or a small independent store. A
consumer could also choose to buy their books on-line. With the onset of
Internet bookstores, price is even more of a factor in consumer book
purchasing.
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Buyer PBuyer PBuyer PBuyer Powerowerowerower
Buyer power is higher when buyers have more choices. Businesses are forced
to add value to their products and services to get loyalty. Many loyalty
programs include excellent services that customers demand on-line.
Customers want to solve their problems and many times they are more
successful on-line than on-phone. Also, we see internet savvy businesses
springing up offering more valuable goods and services at lower costs. Now
with the advent of eBay, many people are assuming roles as drop shippers.
Individuals can have a thriving business selling goods of larger companies
without having to carry inventory.
Supplier PSupplier PSupplier PSupplier Powerowerowerower
Supplier power is higher when buyers have fewer choices from whom to buy.
As mentioned earlier, drop shipping has increased the amount of suppliers
available. All an individual has to do is form an agreement to sell products for
the company. The company takes care of all the logistics. The same is true of
associates programs that amazon.com and google.com offer. Associates allow
a webmaster to earn money by recommending products from others. This
increases supplier offerings.
Threat Of SThreat Of SThreat Of SThreat Of Substituteubstituteubstituteubstitute
Threat of substitute products or services is high when there are many product
alternatives. This is different than having many suppliers. Examples of
alternatives are exchanging brand names, substituting credit card capabilities,
and looking at better values from cheaper sources. The internet allows this
with the "global economy". We can substitute product by purchasing from
companies overseas where labor, services and products are cheaper, but of
comparable quality.
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Future ChallengesFuture ChallengesFuture ChallengesFuture Challenges
Although online shopping has become popular over the years, Amazon had to
struggle to make profits. One of the reasons was the variable costs incurred by
multiple delivery attempts and reverse logistics-the return of products by the
customers. Multiple delivery attempts cost the company about 20-30 percent
of the total costs for home deliveries.
This was due to the additional shipping charges which had to be borne by the
company. Several incidents of thefts and product damage were reported as the
shipped goods were at times left at the customer's doorstep. All these
incidents also led to a lot of frustration among customers. The expenses on
reverse logistics and multiple delivery attempts ate into Amazon's profits and
hence it had to find a solution to this problem.
The Future Of The Future Of The Future Of The Future Of Amazon.comAmazon.comAmazon.comAmazon.com
Market Overview
• Amazon has built the world's strongest e-Commerce brand.
• But its expansion plans put the company at a crossroads.
Analysis
• Competitors like eBay, Wal-Mart, and IBM threaten Amazon's bid to
become all things e-Commerce.
• Amazon must focus on its retail business and portal strategy.
• The difference between "status quo" and "supercharged success" could
be $8 billion.
What It Means
• Amazon will turn to downloads and Asia for growth.
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Action
• Retailers: Push for better deal terms and account service.
Future Plan Of The CompanyFuture Plan Of The CompanyFuture Plan Of The CompanyFuture Plan Of The Company
The Company’s Current Objectives and Current Strategy-
The company’s oft-stated goal is sacrificing short-term profits for building long-
term growth, market share, and increased shareholder value. Amazon’s
internal goals were to focus on increased market share, expand product
offerings, and overall sales growth. Promotional activities, including
promotional alliances and advertising is also important.
Corporate GovernanceCorporate GovernanceCorporate GovernanceCorporate Governance
According to Amazon’s corporate team the followings are their plans for the
company.
� Focus relentlessly on our customers.
� Make bold investment decisions in light of long-term leadership
considerations rather than short-term profitability considerations.
� Focus on cash. When forced to choose between optimizing the
appearance of our GAAP accounting and maximizing the present value of
future cash flows, we'll take the cash flows.
� Work hard to spend wisely and maintain our lean culture. We
understand the importance of continually reinforcing a cost-conscious
culture.
� Focus on hiring and retaining versatile and talented employees, and
weight their compensation to significant stock ownership rather than
cash.
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Acquisitions And SAcquisitions And SAcquisitions And SAcquisitions And Spinpinpinpin OOOOffsffsffsffs
• In April 1998, Amazon bought the Internet Movie Database (IMDb).
• In August 1998, Amazon bought Cambridge, Massachusetts-based Planet
All for 800,000 shares of Amazon stock. PlanetAll operated a web-based
address book, calendar, and reminder service. In the same deal, Amazon
acquired Sunnyvale-based Junglee.com, an XML-based data mining
startup for 1.6 million shares of Amazon stock. The two deals together
were valued at about $280 million at the time.
• In June 1999, Amazon bought Alexa Internet, Accept.com, and
Exchange.com in a set of stock deals worth approximately $645 million.
• In 2003, Amazon purchased the rival online music retailer CD Now.
• In 2004, Amazon purchased Joyo.com, a Chinese e-commerce website. It
also debuted A9.com, a company focused on researching and building
innovative technology.
• In March 2005, Amazon acquired BookSurge, a print on demand
company, and Mobipocket.com, an eBook software company.
• In July 2005, Amazon purchased CreateSpace.com (formerly CustomFlix),
a Scotts Valley, California-based distributor of on-demand DVD.Since the
acquisition, CreateSpace has expanded its online services to include on-
demand books and CDs, as well as video downloads.
• On July 30, 2007, the National Archives announced that it would make
thousands of historic films available for purchase through CreateSpace.
• In February 2006, Amazon acquired Shopbop, a Madison, Wisconsin-
based retailer of designer clothing and accessories for women.
• In May 2007, Amazon acquired dpreview.com, a London-based digital
photography review website created by Phil Askey as his personal hobby
website and Brilliance Audio, the largest independent publisher of
audiobooks in the United States.
• In January 2007 created Endless.com, a separate e-commerce brand
focusing on shoes.
• In January 2008, Amazon announced that it would acquire audiobook
provider Audible.com for $300 million in cash.
• In June 2008, Amazon announced that it had acquired Fabric.com, an
online fabric store.
• In July 2008, Amazon's IMDb subsidiary purchased Box Office Mojo, a
site that tracks movie sales in theatres.
• In August 2008, Amazon announced it had an agreement to purchase
Victoria, B.C. based AbeBooks, seller of new, used, out-of-print and rare
books.Later that month Amazon announced that it would acquire
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Seattle-based Shelfari, a book-based social network site, for an
undisclosed sum.As part of its acquisition of Abebooks Amazon also got
an additional stake in Shelfari's competitor LibraryThing, which
AbeBooks had previously purchased a 40 percent stake in, and whole
ownership of Bookfinder.com, Gojaba.com, and listing-management
service FillZ, all owned by AbeBooks at the time of acquisition.
• In October 2008 acquired Reflexive Entertainment, a casual video game
development company.
• In July 2009 Amazon agreed to acquire Zappos, an online shoe and
apparel retailer. The deal is expected to close in fall 2009.
• In January 2010 is said to buy Touchco.
RecommendationsRecommendationsRecommendationsRecommendations
In order to overcome the hurdles currently facing Amazon.com, I offer the
following recommendations:
1. Develop and implement a B2B exchange for supplier’s manufacturers,
distributors, and retailers to use.
2. Amazon should expand its online auctions.
3. Develop an effective differentiating enterprise wide strategy to survive and
prosper over the competition for the long-term future.
4. Amazon should use a web-based model to personalize service.
5. Increase advertisement to have brand awareness.
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ConclusionConclusionConclusionConclusion
Amazon has grown admirably from its initial beginnings as a small online
bookseller to a giant superstore company. During this process of rapid growth,
it has incurred significant losses and it becomes more expose to a greater
competition and threats. Cutting costs and achieving profitability remain
Amazon’s greatest challenges. However, there are key factors such as a strong
brand, providing customers with outstanding value and a superior shopping
experience, massive sales volume and realizing economies of scale which
contribute a lot to the success of this company. These factors and the people
around the company help Amazon.com to face the threats pose by other
online bookstores. Essentially, the company should aim to maintain its gross
margins in its existing business and in future product lines such as music CDs
and videos. In order to do this, Amazon.com should develop strategic
partnerships with all of its main suppliers.
Although online shopping has become popular over the years, Amazon had to
struggle to make profits. One of the reasons was variable costs incurred by
multiple delivery attempts and reverse logistics- the return of products by the
customers. Despite all difficulties Amazon maintained its large inventory in a
very efficient way. In the late 90s, 12% of the inventory at Amazon was stored
at wrong places leading to delayed orders and lost time; by 2002 this was
reduced to 4 percent because of better software and storage facilities.
Despite all measures that Amazon took to manage its inventory more
efficiently, logistics experts still opinioned that Amazon’s warehouses were
working less than 40 percent capacity. According to experts Amazon should
either reduce the number of warehouses or increase their sales. With so much
of competition and problems one thing is for sure that Amazon is truly an
example of how to manage inventories effectively.
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BiblBiblBiblBibliiiiographyographyographyography
1. Designing and Managing the Supply Chain. By Simchi-Levi ,
Kaminsky, Ravi Shankar .
2. www. wikipedia.com
3. www. amazon.com
4. www. google.com
5. Harvard Business Review.