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SCM - Amazon Case
Transcript of SCM - Amazon Case
Shweta Nichani // Malavika Shiva // Prakriti Priya // John Hansel
Early Beginnings ...
- Founded in July 1995 - Initially a pure online book retailer with a selection of 1 million titles
- Quickly increased its selection to 2.5 million titles to become the “Earth’s Biggest Bookstore”
- Procurement strategy: Hold modest inventories and rely on wholesalers to build its online book catalogue and source its vast selection.
- Inventory turns high – 70 turns per year in 1996
Capacity expansion: 50,000 to 285,000 sq ft
- A 70% expansion of the Seattle DC
- Launch of a second DC in Delaware
- Enabled the company to decrease lead times
Increased product variety:
- Added titles, Expanded product lines
- Reduced promised delivery times
Back office software:
- Development to support back-office logistics.
- How many & where
- Supplier and customer locations, Inbound and outbound freight rates, Warehousing expenses, Labor
- Additional factors ( tax rates, employment levels and the availability of distribution facilities)
Product holding pattern:
- Mostly, each DC held full array of products
- Wide range of product characteristics
- regional vs nation wide demand
- seasonal (ex- toys) vs uniform demand
Equipment at the DCs:
- “Pick-to-light” system - employed lights to show
workers which items to pick sequentially and
- Radio-frequency technology - directing via handheld devices
- Voice technology - computers verbally communicate with workers
- Maintain “pick profiles” for fast-selling items
- To measure worker performance
- Number of items picked per hour, Replacement rate, Inventory accuracy, Number of hours from order confirmation to shipment, Cost per unit shipped.
- Usage of Six Sigma DMAIC
- Simulate holiday season conditions:
- to identify bottlenecks
- "Flow manager" position
- Reconfigure DC layout: easier to locate sort and ship
(ex: frequently ordered items placed together, bestseller section)
- Aim to achieve a more continuous flow
Receive -> Picking -> Sorting -> Packing -> Shipping areas
- Additional storage leased during holiday season
- Products at the right place, in the right amount and at the right time
- Refined the forecast software to anticipate seasonal and regional demands
- Established buying rules to better allocate volumes among wholesalers and direct vendors
- Integrating with suppliers systems
- “cascading” buying rules
- Wholesalers “drop shiping” orders
- “Postal injection” or “zoneskipping”
- Reduced its headcount by 15% – eliminating 1,300 jobs
- Consolidated operations
- closed two DCs (in Georgia and Seattle)
- closed Seattle call center
- Discount sales
- Free shipping
- on all orders over $99 in November 2001
- on all orders over $49 in June 2002
- on all orders over $25 in August 2002.
- Entered Europe in 1998 - UK & Germany
- largest online markets and the largest markets for books in Europe
- 2,000+ publishing houses
- Acquired Bookpages.co.uk in the United Kingdom and Telebuch.de in Germany
- Started Amazon.co.uk and Amazon.de
- 1.4 million UK titles plus 200,000 US titles - UK site; 335,000 German titles plus 374,000 US titles -German site.
- Duplicated US “Get Big Fast” strategy: added products
- In 1999: leading online bookseller, one million active customers
- Cultural differences among Countries targeted
- International e-commerce success-better selection, more convenience, and better service
- European market-Aggregate of regional markets
- Comply with their legal and cultural norms
Maintain dedicated web sites for each of the three countries
- Similar functionality
- Unique language, editorial content and items
- 24 hours-a-day customer centers
Address selling regulations
- Germany and France- Fixed book list price, No discounts
- On-invoice purchasing price
- Comply with law & competitive offering-Introduced free shipping in 2001
- Promotional activities-clearance sales on slow moving
- Credit card options - 38% of Europeans
- Alternatives – checks for French, postal orders for the Germans cu
- Cost - Major software customization , New processes
- US strategy - could not be replicated in Europe - Different supplier market factors
- Europe: Relies on large number of small vendors unlike in the US
- Had to establish relationship with 100s of suppliers
- Large order cycle time with suppliers (typically Five days)
- Low EDI penetration in Europe, Vendors still used email/fax
- Used National postal service carriers
- Excellent coverage & Fast deliveries
- Suited Amazon's Fast Delivery Model
- Customers used to fast delivery due to proximity of DCs
- However, Not a reliable cross-border logistics service
- Cross border Customer Experience: Delays or lost shipments
Organization of European Subsidiaries
- Ran in a decentralized independent manner
- Every subsidiary owned and operated a dedicated warehouse
- Each had dedicated operations
(ex: each had their own purchasing
The Problem ...
Is running 3 decentralized independent DCs the most optimal way to operate ?
Could there be an integrated European Distribution Network (EDN) ?
Possible Benefits of EDN
- Significantly expand product selection
- Facilitate global sourcing
- Reduce risk of a DC failure
- Strategically locate the products
- Could select appropriate DC to fulfill order
- In case of expansion - EDN will be useful
EDN Implementation Options
Option 1 "Backup EDN":
- Hold inventory in all 3 DCs
- EDN functions as backup in case of disruption in a DC
Option 2 "Selective Share":
- Selectively share inventory to reduce inventory costs
- ex: a product category like consumer electronics could be based out of UK DC
Option 3 "Full Integration":
- Inventories physically mixed
- Optimized based on demand, inventory and transport costs
Option 1 "Backup EDN"
- Will address DC failure risk
- Simplest to implement
- No cost benefits of integrated inventory management
- No expansion of product selection
- Duplication of functions will continue
Option 2 "Selective Share"
Option 3 "Full Integration"
Should DCs be dissociated from country websites?
- Yes, will significantly boost product selection and deliver benefits of integrated inventory
- Go for the "Fully Integrated EDN" Approach
Should Amazon keep the French DC?
- Yes, lower lead times and more importantly for future expansion
If Amazon expanded into other European countries, should it fulfill these orders from an existing DC or should Amazon consider a new location for a new DC or hub?
- Case by case call ( depending on market size, lead time achievable & at what cost )
Case for EDN
Level of Integration
It's crowded ...
But growing ...
E-Commerce in India
Possible supply chain issues*
- High logistics costs
- Physical infrastructure - a bottleneck?
- Demand side: High churn/low loyalty
- Supply side: Higher unpredictability
- Low technology usage by suppliers
- Cash flow: Payment modes
* SOURCE - News articles & association publications
Supply Chain Issues
High logistics costs
- Logistic cost is 13% of India’s GDP
( 11% in Europe and 9% in the U.S.)
- Transportation -> 39%
- Warehousing -> 24%
Physical infrastructure - a bottleneck?
- Weak infrastructure facilities in the country
- Delivery outside tier one and two cities a concern
- Tracking technology developing but not comparable with US/Europe ( GPS etc )
Supply Chain Issues
Demand side: High churn/low loyalty
- e-Commerce consumers in India exhibit low loyalty often switching to where the best deals are
- Even players with relatively strong brands (ex - flipkart) report churn as a significant problem
Supply side: Higher unpredictability
- Fragmented supplier network
- Higher unpredictability
- Current players complain of having to maintain high inventory levels
Supply Chain Issues
Low technology usage from the suppliers
- Technology implementation on the supplier end is relatively lower
- Poor information flow could be a significant issue
Cash flow: Payment modes
- Cash on delivery is an expected feature in India
- CoD gives rises to its own complications
- Lower card usage
- Some cost benefits can be gained due to strategic positioning of certain product categories
- Could increase lead time for the "selective share" products
- Duplication of functions will continue
- All benefits of Integrated inventory management
- Most "expansion friendly" option
- Could increase lead time significantly
- Integration issues/costs ( IT, processes )
- Most difficult to implement - complex
- Entered in June, 2013 as amazon.in
- Earlier attempt with junglee.com (marketplace)
- Amazon.in currently sells books, digital media and consumer electronics
Peek into Amazon Warehouse
- Example of "fulfilled by amazon"