Case Study: Amazon.com Guruvignesh (Q566U762)
Amazon.com was started at 1995 as an online book seller. Gradually it started providing a wide variety of products. Amazon’s strategy was to provide customers with wide range of products to select from for a cheaper price. Internationally Amazon has its footings in Japan and Europe and this make up 35 percent of its revenue. And Amazon brought in a wide range of products to select from to satisfy the customers as well as sustain its growth. In this case study we analyze on how Amazon is trying to expand its business in Europe. Amazon Europe could exceed Amazon US in revenue soon and Amazon is trying hard to utilize this opportunity.
The problem at stake for Amazon was on how to set up the distribution network in Europe to meet up Europe’s growing demand. Also, Amazon had few other challenges in Europe. Amazon had to maintain separate websites for each country. Amazon also had trouble in procuring products as there were no big suppliers or wholesalers in Europe. And most of the customers used cheques to make their purchases. These problems, if addressed could help Amazon Europe grow faster and be more profitable.
Amazon started its operations in Europe in 1998. Amazon wanted to repeat the success of Amazon US in Europe. Amazon ran its distribution centers in Europe in a decentralized manner. Each country had its own distribution center warehouses. These distribution centers were headed by a manager. Tom Taylor a MIT graduate hired by Amazon in 2000 became its Director of European Supply operations in 2002. Under Tom’s management, Amazon standardized its operations across UK, Germany and France and increased customer satisfaction by reducing backlogs and supplier lead time. Tom’s team started analyzing the benefits of a European distribution network vs maintaining individual distribution centers. Through this analysis Tom wanted to find best possible infrastructure that would support Amazon’s growth in Europe.
Due to its expansion in Europe and the growing product line, Amazon would have tough time in setting up Distribution centers and warehouses to hold different type of products. And these warehouses and distribution centers needs to be set up in locations that has easy transportation access. Amazon also risks of not delivering the goods on time because of the time taken to bunch up products to reduce the transportation cost. The longer lead time may make the customers unhappy and this could result in the competitors taking the market lead in Europe.
Recommendation to Amazon would be to improve capacity at distribution centers, use of drones for delivering products to customers and this could help Amazon to deliver products on time and to cut down transportation costs, better sorting and storing techniques at warehouses and distribution centers would also help Amazon to reduce the delivery time. These improvements could help Amazon to improve profits and satisfy customers, whose satisfaction is its primary focus. This could help Amazon be successful in Europe.
Business model of the company
Amazon business model is a customer focused model. Amazon focuses on providing excellent customer service with the availability of wide range of products and customer choosing their own service. The combinations of better utilization of assets, excellent customer service and an efficient supply chain gives Amazon its edge versus its competitors. With these combinations, Amazon gives a better service to its customers at a price less than the average market price of the product.
Amazon uses third party sellers, manufacturers and vendors to fulfill the customer orders. The third-party sellers maintain the inventory in Amazon distribution centers. Amazon uses these Distribution centers and Partner inventories to offer wide range of products without any inventory cost.
Amazon bunches up multiple orders at the distribution centers and they are transported to the location where there is a large pocket of customers. This kind of batching up of multiple orders helps Amazon reduce its transportation costs.
Amazon further increases its customer satisfaction with service programs like free shipping of products if the longer delivery time. This helps them have an efficient supply chain while also satisfying the customer. These initiatives allow Amazon to satisfy its customers as well as improve its profits.
Supply Chain of the Company
Amazon is a retail model that uses internet to operate its virtual store to fulfill the customer orders. It uses website as a virtual store to sell products to its customers. The customer places an order through its website and Amazon makes sure that the customer receives the product that he ordered for. Amazon uses third party sellers to fulfill the customer orders. The third-party sellers maintain the inventory in Amazon distribution centers. Amazon uses Distribution centers and Partner inventories to offer wide range of products.
The customer orders through Amazon.com, which is its website and the information is passed on to the Amazon distribution centers. And then the information is passed on to wholesalers and partner distribution centers. And from the Distribution centers it is then passed on to the vendors, third party sellers and manufacturers. Once the order is processed at the third level of its supply chain (which is vendor, third party sellers and the manufacturers), the product is then shipped to the wholesalers and then to the Amazon distribution centers and from the DC’s to the customer.
Case study answers
a) Amazon to expand in to other European countries was to supply the customers from the current Distribution centers rather than setting up local distribution centers. Amazon had 3 options to implement this,
The first option was to have a single distribution center (EDN) by linking the other distribution centers. With this option Amazons could continue to hold the inventories separately in these 3 DC’s.
Other option was to keep the 3 Distribution centers to fulfill customers ordering from other countries. With this option Amazon would be able to share the inventory among the Distribution centers. This would help them reduce the inventory holding costs.
The last option was to have 2 Distribution centers, one serving the South European customers and the other serving the North European customers. This option would allow Amazon to mix the inventories among the distribution centers based on the demand patterns and the operation costs (Transportation and inventory holding)
b) Right now, Amazon has 3 independent distribution centers in Germany, France and UK. But for Amazon to grow in Europe, it needs implement European distribution network by linking the three distribution centers. Benefits of having European distribution network are
? This would help reduce the operational costs.
? It could also help Amazon have a wide range of product selection as Amazon could make use of other distribution centers to fulfill the orders.
? With European distribution network (EDN) Amazon would be able to offer uniform products to all the countries across Europe.
? It would allow Amazon to procure products globally from the vendors who offers the lowest cost.
? It would also reduce the risk of dependency on Single Distribution center to deliver to large base of customers
? And it would also increase customer satisfaction as Amazon would be able select the distribution centers that would have a shorter shipping time.