Question:
Discuss about the Supply Chain Management of the Amazon.
Supply chain management deals with the procedures as well as methods involved for the management of products and services, the flow of the goods from their manufacturing units to the target consumers, which generally includes the processing of goods, their distribution procedures and transportation. The supply chain management merges all the layers along with the decisions related to marketing, desires and expectations of the customers in relation to the goals and strategies of the organization (Abbasi & Nilsson, 2016).
Amazon Company is being taken as an example for establishing this report on supply chain management. Started off as an online bookstore, the website now sells diversified items. Founded in the year 1994, by Jeff Bezos, the industry is now a largest retailer across the world and second largest after Alibaba, in terms of market capitalization and total revenue. The company also manufactures electronic items for the consumers like, Kindle e-readers, Echo, Fire TV and Fire Tablets. They also produce basic products like clothes, accessories, utensils and more. In the year 2015, the company has been regarded as the most valuable retailer in terms of market capitalization, at United States (Ahi & Searcy, 2013). The report highlights the supply chain management processes of the company.
The report throws light on the supply chain management of the industry chosen and being the supply chain manager of that organization, an analysis is done. It is done on the effectiveness of the four key flows, the make process and the supply chain forecasting. In addition to this, the report consists of some recommendations for improvements in the supply chain processes of the company.
The strategy of Supply Chain Management of the Amazon Company fits with their competitive strategy that has been the target consumers’ retailer choice. The combination of the multi-tier management, superlative transportation, efficient usage of Information Technology as well as the warehouse’s wider network, has assisted a lot by aligning the company’s Supply Chain Management as well as their competitive strategies. The other aspect is related to the company’s outsourcing of its inventory management. The company implements some strategy for the products which are not frequently purchased by the consumers or those which requires urgent delivery. They outsource their distribution as well as storage of items, which also consists of the goods where costs of storage are more than the marginal returns of sales (Ahi, P., & Searcy, 2015).
Amazon stocks purchased items and frequently ordered products at their warehouses, which assists them in being responsive towards consumer needs and demands. They hesitate on compromising the delivery and lead times as well. In other words, segregating inventory enables the company to respond to their consumers more effectively. Moreover, it helps Amazon by cutting the costs and slacks where needed. The company differentiates their consumers and segregates them into segments based on their demands by following certain strategies of price differentiation (Mangan & Lalwani, 2016). The deliveries are of various forms, such as first class delivery, one day delivery, super saver or free delivery and prime customers’ delivery. The company provides its consumers with several options and alternatives for the available segments. Firstly, the consumers have an option of spending extra money for receiving their product’s delivery faster. Secondly, they can even depend on the usual delivery time of the product. Coupled with the inventory outsourcing, customer segmentation and the price differentiation strategies have helped the company to bear with the dynamic fluctuations and changes (Awudu & Zhang, 2017).
Amazon Company’s Supply Chain Management is evolving due to its market growth. For instance; the company started as an online bookstore and acted as a middleman or intermediary between the buyers and sellers. The company did not stock their own items. Gradually, this strategy helped them in holding some of the goods at their warehouses. Currently, the company is hugely following push and pull strategies. The push strategy is the inventory and pull strategies include the shipments of all the items. In addition to this, the company blindly follows pull strategy for the goods they don’t stock. However, the Supply Chain Management’s discussion is incomplete without their multi tier inventory system’s analysis. The first tier of the multi inventory system deals with the distribution center’s aggregation, which enables the company to hold fewer inventories and to respond to the customer’s demands in a dynamic manner (Barney, 2012).
The second tier consists of the partner distribution centers and the wholesalers as well. Whenever, an item which is ordered by the consumer, is not available at the enterprise’s distribution centers, Amazon completely depends on their wholesalers and the partners for supplying the required products to the customers. Furthermore, by implementing real time as well as sophisticated strategies of information technology, Amazon can however, leverage their effectiveness in the distribution. The third or last tier consists of the networks of third party sellers, manufacturers, publishers and vendors who enable the company to act as a mediating link for fulfilling the customers’ orders by linking them to the tiers (Beske, Land & Seuring, 2014).
Figure: Key Flows in Supply Chain
(Source: Created by Author)
Amazon is one of the largest retailers across the world. The company does not only have plans of growing into biggest logistics’ company but also, they want to revolutionize other industries. Presently, the company has made some investments in their procedures and capabilities of supply chain management (Jacobs & Chase, 2013). In near future, they also have plans for handling sufficient shipments, other than the courier companies as well as special delivery postal. The company is also planning for building their own streamlined delivery systems and procedures, which may help in replacing their established specialists. In addition to this, the company has also signed a deal for expanding their services which may increase their market profitability (Brandenburg et al., 2014).
Amazon sells their own merchandise to their target customers and also operates in the market place. The major difference is that the gross merchandise values of the marketplace and the monetary values of all the items, which are being sold on their platform. Moreover, information technology benefits the manufacturing procedures and processes by reducing manual work and labor intensive work (Mc Cormack & Johnson, 2016). It also proves advantageous for the warehouse management. After the completion of the production, the consumer goods’ manufacturers start packaging their items inside cartons, which is then delivered to the warehouse of purchasing company. The cargos used for sending the products to the destinations, first visit the warehouse. It becomes problematic to keep a track of all those cartons. In addition to this, it is time and labor consuming procedure (Brindley, 2017).
Figure: Planning and Control
(Source: Created by Author)
The implementation of information technology is done in such crisis situations to ease the procedures as it assists in managing all information and keeping a record of the numbers of cartons. Every individual unit is installed with tags that help in information storage of the warehouse’s computers (Heizer, 2016). At each warehouse’s entrance, reading as well as writing devices is installed, as it benefits by registering all information of the cargos going in or out. It becomes easier for management centers for managing a number of products as well as items, which moves inside and outside the storage system. Furthermore, it acts as a major segment for the recognition of cargos and sending them to the replacement units whenever they stop working. The reading as well as writing devices benefits the strategic planning and management of the location of the products inside the warehouse (Christopher, 2016).
The application of information technology also benefits the distribution procedures of Amazon. It benefits the company by accelerating their delivery speed to a huge extent. It increases accuracy and improves efficiency in selecting and distributing procedures as well. It is advantageous for managing the warehouse, locating the goods is done in an efficient manner, recording the goods assists in planning of the products’ location more strategically. Furthermore, it helps in reducing the costs of distribution; along with keeping a track record of all the goods and items, by registering them at the distribution center’s system (Coyle et al., 2016).
Proper forecasting is essential for any organization or industry, as it ensures in having enough supply in hand, in order to satisfy the demands and desires of the consumers. Business analysts utilize the systems of logistics and supply chain management as well as some other tools, in order to forecast the demands in advance. Amazon uses forecasting techniques to increase the satisfaction of the consumers, reduce the inventory stock outs, schedule the production effectively, lowering the safety requirements of stocks, reduce obsolescence costs of products, manage the shipping better, improve price and promote management (Fawcett, Ellram & Ogden, 2013). This information helps in putting the boxes properly and that too in correct locations by sorting them quickly and efficiently. In addition to this, they are also dispatched to the retailers at less time span and with huge accuracy. It enables the inventory control’s accuracy, as the products are scanned and registered automatically on reaching their destination units. Therefore, it highly accelerates the delivery speed, at the same time improving their efficiency and increasing their accuracy. Furthermore, it helps in reducing the time and their distribution costs (Dekker et al., 2013).
Figure: Forecasting Model
(Source: Created by Author)
The three major forecast types used within supply chain’s context are; demand forecasting to investigate the demands and requirements of the buyers, supply forecasting to know about the current suppliers and producers and lastly, the price forecast, which is the compilation of demand’s and supply’s information. Forecasting abilities of any business varies from organization to organization. In order to improve the forecasting abilities, one needs to understand the size of the demands and the uncertainty drivers (Gereffi & Fernandez-Stark, 2016). The demand planning and strategy needs to be kept simple. The organizations should always have backup plans as well as change their strategies when needed. Amazon has been utilizing the forecasting technique in a brilliant way for the movement of their supply chain. It utilizes the tags for labeling all the equipments that assist in tracking and recording the movements easily, keeping it secured and safe. With the implementation of several technologies, the items are safely stored and tagged (Govindan, Soleimani & Kannan, 2015).
Previously, the whole activity was done by the security guards. They checked each and every item’s serial number by matching those with a list, which consisted of the details of those items. Therefore, supply chain management has proven to be advantageous for the company, as it helped in lessening the labor costs and time as well. Modern day’s competitive environment calls for new and innovative measure’s implementation in the supply chain management of the companies (Green Jr et al., 2012). Each and every company looks out for innovative ways to improve their own supply chains and its application. They are upgrading the supply chain systems or even implementing a new one in order to compete with the other companies. The implementation must be planned and strategically made, keeping in mind the pros and cons (Grant, Wong & Trautrims, 2017).
In conclusion, some recommendations are made for the improvement of the company’s supply chain management. Amazon can implement these strategies for making their supply chain world class and a source of advantage in the competitive field. The company relies on their courier services to a large extent. Therefore, they can undertake strategies for creating their own transportation through delivery vehicles and personnel, which will be advantageous for them. They can also improve their supply chain management by shifting from the model of cooperation to the coordination mode. In addition to this, it would enable information sharing between their partners and their suppliers as well, with the assistance of innovative and latest information technology. This will benefit them by creating a unified system of information technology. Therefore, it will call for significant investments as well as newly modified and innovative business models and strategies; where the company will not work in isolation; instead it will benefit them by bringing in all necessary as well as important elements and components for the supply chain management.
References
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Ahi, P., & Searcy, C. (2013). A comparative literature analysis of definitions for green and sustainable supply chain management. Journal of Cleaner Production, 52, 329-341.
Ahi, P., & Searcy, C. (2015). An analysis of metrics used to measure performance in green and sustainable supply chains. Journal of Cleaner Production, 86, 360-377.
Awudu, I., & Zhang, J. (2017). Uncertainties and sustainability concepts in biofuel supply chain management: A review. Renewable and Sustainable Energy Reviews, 16(2), 1359-1368.
Barney, J. B. (2012). Purchasing, supply chain management and sustained competitive advantage: The relevance of resource?based theory. Journal of supply chain management, 48(2), 3-6.
Beske, P., Land, A., & Seuring, S. (2014). Sustainable supply chain management practices and dynamic capabilities in the food industry: A critical analysis of the literature. International Journal of Production Economics, 152, 131-143.
Brandenburg, M., Govindan, K., Sarkis, J., & Seuring, S. (2014). Quantitative models for sustainable supply chain management: Developments and directions. European Journal of Operational Research, 233(2), 299-312.
Brindley, C. (Ed.). (2017). Supply chain risk. Taylor & Francis.
Christopher, M. (2016). Logistics & supply chain management. Pearson UK.
Coyle, J. J., Langley, C. J., Novack, R. A., & Gibson, B. (2016). Supply chain management: a logistics perspective. Nelson Education.
Dekker, R., Fleischmann, M., Inderfurth, K., & van Wassenhove, L. N. (Eds.). (2013). Reverse logistics: quantitative models for closed-loop supply chains. Springer Science & Business Media.
Fawcett, S. E., Ellram, L. M., & Ogden, J. A. (2013). Supply Chain Management: Pearson New International Edition: From Vision to Implementation. Pearson Higher Ed.
Gereffi, G., & Fernandez-Stark, K. (2016). Global value chain analysis: a primer.
Govindan, K., Soleimani, H., & Kannan, D. (2015). Reverse logistics and closed-loop supply chain: A comprehensive review to explore the future. European Journal of Operational Research, 240(3), 603-626.
Grant, D. B., Wong, C. Y., & Trautrims, A. (2017). Sustainable logistics and supply chain management: principles and practices for sustainable operations and management. Kogan Page Publishers.
Green Jr, K. W., Zelbst, P. J., Meacham, J., & Bhadauria, V. S. (2012). Green supply chain management practices: impact on performance. Supply Chain Management: An International Journal, 17(3), 290-305.
Heizer, J. (2016). Operations Management, 11/e. Pearson Education India.
Jacobs, R., & Chase, R. (2013). Operations and supply chain management. McGraw-Hill Higher Education.
Mangan, J., & Lalwani, C. (2016). Global logistics and supply chain management. John Wiley & Sons.
Mc Cormack, K. P., & Johnson, W. C. (2016). Supply chain networks and business process orientation: advanced strategies and best practices.
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