Supply chain management

“SUPPLY CHAIN ANALYSIS”

“AMAZON”
 Supply chain management

Name: Nida Idrees

Reg #: 29772
Day & Timing: Sunday 11:45-2:45
Date: 20/11/2018
Instructor: Sir Kashif shafiq
 SUPPLY CHAIN MANAGEMENT

AMAZON

INTRODUCTION:
Amazon.Com was launched on 16th July 1995 by Jeff Bezos known as pioneer in e-
commerce 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. 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. n
the early phase of business the company agreed upon having a very little or no inventory due to
costs involved in keeping inventory.

AMAZON’S GAME CHANGING DELIVERY STRATEGY

Amazon launched its Amazon Prime service. Customers, paying an annual membership
fee, received a guaranteed two-day shipping on hundreds of thousands of products. In fact, the
introduction of two-day delivery was the game changer and established the dominance of
Amazon in online retail industry.
When many other retailers started to catch up with that strategy by offering their own free
two-day shipping, Amazon tipped the playing surface by offering a one-hour delivery with its
Amazon Prime Now service. Although Amazon has recently made it a free two-hour delivery for
Amazon Prime Now, it has always made life difficult for its major competitors as a result of its
innovative strategies.

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AMAZON’S SUPPLY CHAIN MANAGEMENT PRACTICES

"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 system wide
costs while satisfying service level requirement”
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. 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.

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Amazon enjoys a cult following. It is a favorite choice for customers due to one crucial
reason: quick and efficient supply chain management.

OUTSOURCING INVENTORY MANAGEMENT AND

INSOURCING LOGISTICS:
Amazon’s supply chain heavily depends on outsourcing of its inventory management.
Especially the products that are not frequently purchased or ordered are not stored in regular
Amazon warehouses. It may come as a surprise to you that nearly 82 percent of Amazon’s sales
comprise of third-party sellers. That amounted to $22.9 billion in 2016.
Amazon’s one-hour or same day shipping is possible due to its dependence on its own
logistics. Just because it sells third-party products does not mean it uses third-party logistics to
deliver the products customers order on Amazon. Amazon understands too well that depending
on third-party logistics would just lengthen the product delivery time. That’s why Amazon
mostly uses its own delivery vehicles for same day delivery or one-hour delivery options.

DELIVERY OPTIONS TO CUSTOMERS: 

Amazon has different warehouses for different kinds of products and customer
preferences of delivery options. Prime customers delivery, one-day delivery, first class delivery
and free super saver delivery are some of the common delivery options available to Amazon
customers. Amazon’s continuous efforts to make product delivery in the fastest possible time
make it a logistics giant and not just the leader in the retail industry.

PUSH/PULL STRATEGY FOR SUPPLY CHAIN SUCCESS: 

Amazon’s own warehouses are strategically placed, moving closer and closer to main
metropolitan areas and city centers. As a result, it uses a pure push strategy for the products it
stores in its warehouses. On the other hand, it uses a pure pull strategy when it sells the products
from the third party sellers.

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AMAZON’S WAREHOUSE CLASSES AND ZONES: 

Amazon boasts over 70 fulfillment centers in the U.S. and greater than 90,000 full-time
employees. In order to make good on increasingly fast delivery promises, the company has
positioned many new warehouses in proximity to local urban markets. (Wal-Mart's online
strategy in China now similarly makes use of a closer to the customer fulfillment model,
operating a network of mini-warehouses.) The location, size, and the number of warehouses are
important factors in Amazon’s supply chain success. Its warehouses are divided into five storage
areas. Its library prime storage stores books and magazines. Next, its pallet prime storage stores
full case products that have very high demand. Next, case flow prime storage stores high demand
products picked in less-than-case quantities. Its reverse storage accommodates irregularly shaped
and low demand products.

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WAREHOUSE AUTOMATION: 
Amazon acquired a provider of automated and robotic warehouse solutions called Kiva
Systems. And in 2015, that company was rebranded as Amazon Robotics. The robots of Amazon
Robotics can pick and pack without needing any human assistance, enabling Amazon to
complete warehouse activities super-fast. Over the years, Amazon has significantly increased its
army of warehouse robots. Its warehouse robots, in fact, have grown at the rate of 15,000 per
year from 2015. As of January 2017, Amazon had more than 45,000 warehouse robots, and the
robot invasion continues. It had amounts of 15,000 and 30,000 respectively in 2015 and 2016. To
date, Amazon’s robotics have been aimed at bringing goods to people for the picking of orders.
The next generation of robots will see them picking the orders on their own to reduce the need
for human order pickers.
While Amazon has been increasing its army of robots in its warehouses, other online
retailers were initially slow to follow. Now, however, robots are catching on both domestically
and abroad, for both large facilities, as well as for smaller islands of automation within existing
facilities. Auto store is an example of a robotic automation provider that can accommodate such
islands of automation.

AMAZON’S SUPPLY CHAIN COST: 

Due to the huge economies of scale and a bundle of industry-leading supply chain
strategies, Amazon has been able to keep its overall per unit supply cost to a bare minimum. As a
result, it has been difficult for other companies with far lower sales volumes and only their own
warehouses to compete.

DRONES: ONE OF AMAZON’S FUTURISTIC SUPPLY

CHAIN STRATEGIES
Amazon’s CEO Jeff Bezos announced that his company is developing a drone-based
delivery system called Amazon Prime Air which would be delivering products under five pounds
in locations within 10 miles of Amazon’s fulfillment centers within just 30 minutes or less.

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While that was more of a publicity stunt, Amazon is actually investing in a drone-based delivery
system that will do a similar service to what they publicized. Research continues. As of
November 2017 it announced the development of a drone that would self-destruct during flight,
if required, to keep people safe. In fact, developing the drone-based delivery system is a major
indicator that Amazon is well ahead of other players in the retail industry and it is doing
everything possible to leverage all of the latest supply chain technologies to maintain their
supply chain the clear market leader.

AMAZON’S MANUFACTURING SECTOR

Amazon is not just a retail giant anymore as it produces a wide variety of products
including batteries, backpacks, Bluetooth speakers, iPhone chargers, dog poop bags and more. In
fact, in near future Amazon would include more and more product categories in its
manufacturing product arsenal.
Amazon somehow understood that many of the third-party products it is selling to
customers could be produced at much lower prices. With the massive volume in which Amazon
operates deals, it is dealing with high volume situations which lend themselves to low-cost
production. As a result, the manufacturing sector of Amazon is making it financially stronger
while grabbing market share from many manufacturing companies. This combination of
manufacturing to support its retail operations provides Amazon with an important revenue
growth opportunity.

THE BOTTOM LINE

The rate of Amazon’s innovations in supply chain management has been mesmerizing.
The rate of change has been incredible, making it difficult for lower volume competitors to keep
up. Amazon is forcing its major competitors to invest more in supply chain automation, lessen
the overall product delivery time, increase the number of warehouses, and even engage in
product manufacturing. Amazon is already out of reach for most online e-commerce competitors.
At the same time, its acquisition of Whole Foods is another bold declaration of its move into
bricks and mortar, further emphasizing the convergence of traditional retail and e-commerce

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strategies. Most importantly, Amazon’s unique supply chain strategies and continuous
technological innovations have already changed the way supply chain management works. With
impending advances in robotics, drones and other autonomous vehicles, one can only guess what
the future holds for Amazon.

REFERENCES:
 https://www.thebalance.com/how-amazon-is-changing-supply-chain-management-
4155324
 https://logisticsviewpoints.com/2018/01/08/amazon-supply-chain-innovative-world/
 https://channels.theinnovationenterprise.com/articles/amazon-s-supply-chain-process
 https://www.amazon.jobs/team/fulfillment-supply-chain
 https://www.amazon.com/slp/supply-chain-management/2wg8zhczgdty3s8
 https://www.cips.org/supply-management/analysis/2016/february/the-secrets-behind-
amazons-success/

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