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Case Study 2: Supply Chain Management at Amazon

Amazon has faced challenges managing its large and diverse inventory, warehouses, and transportation costs as it has grown from an online bookstore to a massive retailer. To address this, Amazon uses a multi-level inventory system with its own warehouses supplemented by partner warehouses to hold less inventory while maintaining a wide product selection. It also strategically places warehouses near metropolitan areas and is developing drone delivery to reduce transportation costs. Amazon tracks customer purchase data and uses collaborative filtering and recommendations to personalize the shopping experience for each customer, which has increased sales.

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ganesh gowtham
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85 views

Case Study 2: Supply Chain Management at Amazon

Amazon has faced challenges managing its large and diverse inventory, warehouses, and transportation costs as it has grown from an online bookstore to a massive retailer. To address this, Amazon uses a multi-level inventory system with its own warehouses supplemented by partner warehouses to hold less inventory while maintaining a wide product selection. It also strategically places warehouses near metropolitan areas and is developing drone delivery to reduce transportation costs. Amazon tracks customer purchase data and uses collaborative filtering and recommendations to personalize the shopping experience for each customer, which has increased sales.

Uploaded by

ganesh gowtham
Copyright
© © All Rights Reserved
Available Formats
Download as DOCX, PDF, TXT or read online on Scribd
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Case study 2: Supply Chain Management at Amazon

1. What are supply chain related issues and challenges, ranging from strategic, tactical, and
operational levels, encountered by Amazon to ensure success? How did Amazon cope
with these issues?

Much of Amazon’s success directly depends on its supply chain management. Originally,
Amazon was an on-line bookstore, which connected buyers and sellers and did not stock any
product of its own. Nowadays, Amazon is a gigantic on-line retailer that sells almost anything
with billions in sales.
Managing inventory and warehouse locations are one of the biggest challenges for Amazon.
Holding large inventory and building and maintaining warehouses is a costly business. So, the
online retailer uses e-commerce to lower inventory and facility costs, and offer a huge selection
of not only books, but music, toys, electronics and many other items. To support the enormous
assortment of products, Amazon uses a multi-level inventory system. The first level is the
distribution centers. Amazon.com carries high selling products in its own warehouses which are
spread all over the world. The next level is partner distribution centers and the wholesalers. The
online retailer’s strategy is to hold less inventory and respond to customers’ orders in a quick
manner. The third level includes third party sellers, publishers, and vendors (management study
guide). Amazon does not stock every single item that sells on the website. It allows the internet
retailer to keep variable costs, such as inventory, facility, and transportation low, while having a
vast assortment of product on its web site.
Transportation costs are another challenge for Amazon. Delivery costs may be high,
especially for small inexpensive products. Amazon uses third-party logistics (UPS, USPS, and
FedEx) for its deliveries. To get closer to its customers and reduce delivery costs, the online
retailer strategically places its warehouses near major metropolitan areas. However, Amazon
began to use its own delivery services to reduce cost. In 2013, Amazon announced the creation
of drone-based delivery. This new delivery system will dramatically decrease delivery costs for
smaller items. Amazon has also begun to lease planes and has registered an ocean freight
booking business to bypass brokers that deal with cargo and global transit paperwork (Forbes).

https://www.managementstudyguide.com/amazon-supply-chain-management-practices.htm
http://www.forbes.com/sites/jwebb/2016/05/31/amazon-and-alibaba-bet-the-future-on-supply-
chain-management-eretailers-invest-big-in-logistics/#7dca2a03bea1
2. What are the advantages and disadvantages of selling books over the Internet?

Selling books over the Internet has more advantages than disadvantages. The first advantage
is an enormous selection of titles. On Amazon, there are millions of different books available for
sale because the on-line retailer does not keep everything in stock and uses partner distributors
and third-party sellers. On the other hand, brick and mortar bookstores, must physically carry all
titles for sale in their store, so their inventory is always limited. In addition, new titles are quickly
available for sale online, and there are huge selections of used book and books that can be rented.
Another advantage of selling books online is convenience. A customer can shop 24/7 from
their computer, laptop, or smartphone, and the shopping process take seconds. They have no
need to spend time driving to the store, looking for parking, looking for a book…etc. Moreover,
books can be delivered right to the customers’ door within a short period of time.
One more advantage of selling books over the internet is the smaller facility costs due to
outsourcing inventory. Amazon only keeps inventory on hand for the most popular items, this
brings facility costs down.
Finally, Amazon can build customer relationships and attract new customers. Amazon’s
software allows its user to rate books and sellers, post comments, and ask questions about books.
The software can also recommend books based on purchase history and send email reminders.
Moreover, customers can compare cost of the book between different sellers and find the best
deal available.
There are a few disadvantages of selling books over the Internet. The main disadvantage is
process and transportation costs. However, use of e-commerce, strategically placed warehouses,
and developments in drone delivery help on-line retailer be competitive with bookstores.
Another disadvantage of selling books on-line is delivery time. While shopping in a
bookstore, customers can purchase their book instantly, but musts wait several days with online
purchases. However, Amazon is constantly working on improving its delivery time, so in some
situations, their customers can receive their orders the same day.
3. Describe and elaborate one example of data analytics and/or optimization application
implemented at Amazon.

One of the keys of success for Amazon are data management tools. Amazon tracks
purchase data from customers, specifically what combination of products they buy together. The
company uses collaborative filtering technology that makes recommendations to customers on
what they might buy. This allows a personalized shopping experience for every single customer.
The filtering engine collects data from e customer and sees what he or she bought, then it looks
at all other customers and identifies customers with similar purchase histories. Based on this
information, collaborative filtering creates lists of items that customers might want to buy. The
online retailer broadly uses recommendation algorithms to personalize shopping experience to
each customer’s interests in real time (cs.umd.edu).
According to Forbes magazine, the collaborative filtering works very successfully based
on reported increase in sales over the past few years. Amazon.com integrated recommendations
into every part of its web site. Customers can see “suggested items”, “frequently bought
together”, and other product suggestions all over the web page. This allows Amazon to introduce
new products to potential buyers (Forbes).

http://fortune.com/2012/07/30/amazons-recommendation-secret/

https://www.cs.umd.edu/~samir/498/Amazon-Recommendations.pdf

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