Development in internet has brought a dynamic change in the shopping culture of people and the business operations around the world. Initially, supermarkets and the retail shops were the best practises for consumers to buy products, but due to development in the technology in recent years have created a new online platform for retail stores from where consumers can easily buy a product with the help of internet. Online shopping is establishing itself as the alternative tool for marketing. In order to achieve success, e-retail companies require an effective strategy supply chain management. Different companies have their different supply chain for sorting and producing goods. A proper management of supply chain is needed for maximising the benefits of an organization. An effective supply chain management ensures that the right product is available at the right time, at right price, and at the right place. Features that define effective supply chain management include product delivery, supplier relationship, efficient inventory management, and aggregate planning. Amazon is one of the biggest e-retail companies that has the best supply chain management and is considered among one of the most successful e-retail companies worldwide. This paper will be discussing background of Amazon Company, introduction of logistics and supply chain of Amazon, problems faced by Amazon in their logistics and supply chain management, and solutions, recommendations and suggestions to eliminate the issues.
E-business is defined as the process which the products are bought and sold on online services using the internet services. Amazon is a multinational company of America which offers or provides a large variety of products. Amazon is based in Seattle, Washington, United States of America. Initially Amazon started just as a book store but over the time, it has diversified its products continually. This multinational company of America is focusing on to provide a one stop shopping experience to its customers where customers can easily shop and find every product of their need on Amazon as one of the biggest selection e-retail store online. Amazon does not has any physical retail store of their own and works as the pure internet retailers. Amazon delivers and supplies its entire product through networks of distribution centres of Amazon to its desired customers. This business strategy allows Amazon to provide a wide range of products with quality to its customers at lower cost. Cost of operations has been reduced by online retail chain system and thus leads to the reduction in the prices of products. Moreover, as e-retail is providing products to the customers online, therefore it is promoting customer satisfaction. As mentioned above an efficient supply chain is needed for every organization to know about the demands and the taste of the customers. Amazon’s supply chain management allows the company to respond to the demands, preferences, and tastes of the customers effectively. Amazon has managed a balance between the cost of distribution and the quality of services through creating efficient multi-tier inventory networks and distribution centres. Other enterprises like eBay and Walmart are providing the same kind of services and the substitute products as Amazon is giving, and this has developed a huge competition for the Amazon. As a part of its strategy, Walmart is providing free shipping services to its customers in order to retain its loyal consumers and to attract potential clients. But, customers of Walmart are required to pick up their products from the various physical stores. In contrast to this, eBay which is also an e-retail company is taking shipping charges from the sellers of the products to reduce the price of the product for the customers or users.
To develop sustainable competitive advantages, almost all companies need a successful supply chain management. An effective supply chain management provides several benefits like improvement in the delivery services, reduction in inventory, and sorter life cycles of product. Below is the supply chain strategy of Amazon which tells about how Amazon manages its business and factors that affects its supply chain.
Logistics plays a vital role in the supply chain as it acts as a link between the whole processes of supply chain. Logistics is the main component for delivering the products and ensures the timely delivery of the product to the end consumers. It is a big challenge to manage the entire logistic system to fulfil the customer requirements. Advancement in technology has increased the need of improving and providing effective logistics system.
Customers of Amazon are highly responsiveness. There are four main components that drive the results of Amazon and respond to the high uncertainty demand and availability of products. These components include large number of distribution centres at the storage facilities, efficient transportation, multi-tier inventory management, and implementation of information in order to provide real time information about the product within the supply chain.
Inventory Outsourcing
Outsourcing allows a company to focus on the core activities of the company and the cost saving techniques. Amazon can take the advantage of inventory outsourcing in order to benefit the company. However, to manage risk and the optimization of services, Amazon has outsourced only few parts of its inventory. Amazon keeps and manages products in-house that have high demands in the market and the distributors are given the stock of slow-moving products. These products are shipped to the distributors on authorization of Amazon. This strategy has reduced the cost of keeping inventory in large quantities and also enhances the customer services by providing faster shipping of products.
Price Differentiated Customers
Company has classified its customers into two groups depending on responsiveness and thus provide different delivery and dispatch facilities to different customers. Delivery options provided by Amazon are first-class delivery, one-day delivery, and free super saver delivery. Type of delivery defines the urgency of delivery of product to a certain customer. For example, if a customer wants to get the product delivered within hours, he is willing to pay extra for that. The helps in managing the service and cost level. Amazon also provides its customers a membership program known as Amazon Prime which ensures one-day delivery service to the customer for a whole year at the cost of 50 GBP. There are also several other benefits of this membership program.
Inventory Segmentation
Amazon works on multi-tier inventory concept that helps Amazon in providing real time optimization service and thus reduces the inventory needs for the company to achieve its service level. This network helps the Amazon in providing almost unlimited selection. Three tiers of Amazon are as distribution centre, inventories are aggregated in the distribution centre and company holds some of those inventories. Next tier is wholesaler and partner distribution centres where company will search for the product in the partner’s inventories if it is not available in the Amazon’s distribution centre. This increases the customer services as it reduces the chances of stock out experiences. Third tier consist of manufactures, publishers, third party sellers, and vendors.
Push Pull Strategy
Initially Amazon started with pull strategy in which there were no warehouse, no inventory, and no overhead. The company was just playing the role of middleman where it took the orders from customers and Ingram book group filled those orders. With the growth of the company, Amazon had to hold some inventories in order to fulfil customer demands. Hence, company changed its strategy to push-pull. Push strategy holds the inventory while pull strategy allowed shipping of the products. It increased the holding cost for Amazon because of having many distribution centres.
Transportation
To balance the level of service and the cost of transportation, Amazon is providing various choices in the delivery. Due to the lack of full truckload at the company, Amazon is providing free shipping so that it gives longer lead- time of transportation. It helps in reducing cost and achieving economy of scale. Also, the company is providing high responsiveness that cost company very high. This requires the proper designing of supply chain networks to reduce the costs.
Order Sourcing
One of the biggest challenges for Amazon is to decide who should be given the responsibility of customer order, internal distribution centres or the external partners. After the placement of an order, customer expects the on time delivery of the product. Therefore it becomes a difficult task for the company to find out the best solution in such a short period of time when there are many items included in the order which are located at different places and needs to be delivered in the single delivery.
Transportation
The main concern for the company in transportation is to achieve efficiency because of large number of small orders and this does not allow the company to take advantage of the scale. In order to reduce the transportation cost, Amazon has adopted transportation hub. Now Amazon aggregate all the products demanded by the customer and send them to the transit hub together to achieve less than full truckload. But it takes longer time to accumulate products in term of region zone. Therefore, to eliminate this problem, company introduced different delivery options like free delivery to get longer lead times. This helps Amazon to achieve economy of scale which resulted in lower costs to the company and also helped in maintaining customer satisfaction.
It is big challenge for the Amazon to provide the perfect visual store experience to the customers, as company does not have physical stores in order to compensate the touch of the products. To resolve this issue, company has made different innovations in its technology to differentiate itself from other e-retailers. Some of those innovations include one click ordering and A9. One click order is used to speed up the order process and the A9 is a subsidiary company which allows search inside the books and product search engines. Amazon also provides product recommendation that helps the customer to determine the interest from the previous orders.
An innovation is needed for the company to provide support for the back-end supply chain integration and execution also. To support labour management, supplier collaboration, order sourcing, process alternative, and load balancing, Amazon has enhanced warehouse management systems.
To absolute the problems mentioned above, here are the some recommendations for the company. The main problem is that the company is highly dependent upon the courier services like FedEx and UPS for the delivery of the products to reduce the transportation cost. Recently, it has noted that due to the delay in delivery at the time of high demand by these courier services has caused decrease in reputation of the Amazon and also decreased customer satisfaction. Therefore, it is recommended that amazon should start its transportation services with their private fleet in last-mile delivery as responsiveness is an important factor for the company. Private fleet has the advantage of greater visibility, better customer services, and enhance branding.
Another issue is of bullwhip effect. Lack of integration in the supply chain caused this issue. Currently Amazon and its supply chain partner are working on the cooperation strategy. It needs the company to raise its relationship with its supply partners to coordination or the collaboration.
Conclusion
Therefore, it can be concluded that supply chain management plays a vital role in the success and growth of an e-retailer company. In today’s world advancement in technology has developed various innovations for the e-business. For the expansion of businesses, e-business is plays a vital role. Every organization whether it is small or big, is using technology of internet in order to promote, sell, and grab millions of customer for their products. Amazon incorporated its business in 1996 on the World Wide Web and started with pull strategy. But with the growth in its business, it has to widen its strategy to push-pull. As, the entire business of Amazon is mainly dependent on the supply chain management, hence it plays important role in the success of Amazon. Amazon is working on the aim of providing its customers with the quality products within the specified time. Main goal of the company is to provide its customer with a facility of buying everything that they want on the one website. Amazon is not only providing a wide range of products to the customers but also ensures that these products reach to the customer into the specified time of delivery. To achieve this goal, Amazon has multi-tier inventory concept. This inventory segmentation ensures customer satisfaction with economy of scale. Amazon is also working to develop its relation with its partners in order to provide unlimited products and services to its customers. It is also recommended for the company to maintain supply networks and efficient distribution for the delivery of goods to the customer. Amazon’s main strategy of business is high responsiveness to the customers in the market and these are the factors that influence this strategy the most.
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