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An Analysis of Operational Efficacy of A Web Based Organization

Outline • • • • • • • • • • • •

Why Amazon? Company Overview Business model in Amazon Web based Business Model Products and Services Value Proposition Inventory Management Outsourcing Drop-shipment Model Supply Chain Management Push/Pull Process of SCM Amazon’s SCM

Why Only Amazon??

Company Overview Amazon.com, Inc. (NASDAQ: AMZN) is an American-based multinational electronic commerce company. • Headquartered ---Seattle, Washington. • America's largest online retailer. • Jeff Bezos founded Amazon.com, Inc. in 1994 and launched it online In 1995. It started as an online bookstore. • With 2.5 million titles, it became the “Earth’s Biggest Bookstore”. •

Business Model at Amazon • • • •

Amazon-to-Buyer Sale Approach Multi level E-Commerce Customer Tracking It operates 7 websites that their business operation globally and offers 20 million items for sale.

Models for Web Application There are 2 kinds of web models :• Conceptual model • Structural model

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Product and Services • • • • •

Retail goods Consumer Electronics Digital Content Amazon Prime Private labels and exclusive market arrangements • Computing services

Product and Services • Content Productions • Donations • AmazonLocal • AmazonWireless • Services 1. Reviews 2. Content Search 3. Third-party sellers

Value Proposition

CUSTOMER SERVICE

PRICE

SELECTION

CONVENIENCE

 Minimum time  Selection from wide product range  Had inventory of millions of items  Book lovers can post/read reviews on the site  Book search option- by author, subject, title or publication  40% discount on selected feature books, 30% on hard covers and 20% on paperbacks  Shipment within one week  Notification to customers via emails  Secured online payment gateway

Inventory Management Costs Related:

Carrying costs- basically opportunity costs E.g - rent, lighting, staffing etc Ordering costs – basically acquisition costs E.g – purchase order, recording , ing etc  Shortage costs – E.g – urgent purchases, loss of reputation etc

Inventory Management

 Initially Bezos aimed at hassle-free operations  Time and money not to be spent in dealing with the inventory.

 Satisfy customers ; forced to build warehouses.  Each warehouse cost him around $ 50 million and in order to get the money, Amazon issued $ 2 billion as bonds

In 1999  Added 6 new warehouses to total to 10  Computerized warehouses  Increased warehousing capacity from 300,000 sq. feet to over 5 million sq. feet  Automation of events after placement of order to make inventory management easier

Deciding the Strategy Set Inventory goals Reduce redundant inventory Blockage of working capital Low inventory turnover Cost of holding > cost of outsourcing Thus they OUTSOURCED

Drop-Shipment Model

Till 2001 Amazon was in deficit of US$2.86 billion. Earned its first ever profit of $5 million in the 4th quarter of 2001. Year 2002 recorded sales of $3.93 billion which was 26% higher than sales of 2001.  Cost of operating warehouses reduced from 20% to 10% where as the capacity increased 3 times. Inventory turnover was 20 times as compared to other retailers having 15 times.

Amazon’s Customer Fulfillment Network

SUPPLY CHAIN MANAGEMENT Have a clear understanding of customer’s delivery needs Coordinate with wholesale suppliers and independent producers to make available to customers both current and the soon to be released books Provide two day delivery on most orders  Allow customers to query the status of their purchases and track their own shipments  Align, supply and delivery to other functions such as marketing, sales and customer services

Supply Chain Objective Maximize overall value generated Value strongly correlated to supply chain profitability

Supply Chain Design : Three Components Insourcing / Outsourcing

Partner Selection The Contractual Relationship

Decision Phases in a Supply Chain  Supply chain strategy or design

 Supply chain planning  Supply chain operation

Push/Pull View of Supply Chains  Pull processes: execution is initiated in response to a customer order  Push processes: execution is initiated in anticipation of customer orders

Push/Pull View of Supply Chains Procurement, Manufacturing and

Customer Order Cycle

Replenishment cycles

PUSH PROCESSES

PULL PROCESSES

Customer Order Arrives

Pull and Push View of Supply Chain

Customer

Customer

Pull

Pull Amazon

Cut short process

Distributor

Retail Store

Warehouse

Publisher Publisher

Amazon supply chain

Conventional bookstore supply chain24

AMAZON’S SCM

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