Operations Management

This project analyzes the operational efficiency of a business entity, with a focus on supply chain management and inventory management. The case study examines Amazon and discusses improvements in these techniques, as well as problems in operational management. It also explores financial planning and investment appraisal techniques.

Running head: OPERATIONS MANAGEMENT
OPERATIONS MANAGEMENT
Name of the Student
University of the Student
Author Note

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Executive Summary
The purpose of the project is to analyse the operational efficiency of a business entity. In
order to determine this a company has been selected for the analysis purpose. The company
selected in this project work is Amazon. Supply chain management and the inventory
management system have been thoroughly investigated and thereafter the improvements in
these techniques are being analysed. Problems in the operational management techniques are
also determined in this report. Proper financial planning is necessary for every organisation
and it is necessary for Amazon. The cost structure and allocation of Amazon and the
investment appraisal technique has been determined. The report concludes by stating that the
coordination and the management of all the activities analysed in the report will help in
increasing the total quality of the service provided by Amazon.

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Table of Contents
Introduction................................................................................................................................3
Discussion..................................................................................................................................4
Amazon Inventory Management............................................................................................4
Amazon Supply Chain Management.....................................................................................5
Improvements in the operations.............................................................................................5
Highlights of the Improvement Approaches..........................................................................6
Problems in Management Techniques Improvement.............................................................7
Financial Evolution Techniques:............................................................................................8
Cost Structure and Allocation................................................................................................9
Investments..........................................................................................................................10
Conclusion............................................................................................................................10
References................................................................................................................................11

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Introduction
One of the most crucial tasks performed by all business organisation is management
of quality. This helps in maintaining a required amount of excellence within the organisation.
The main purpose of quality management is to focus on long-term goals by implementing
short-term initiatives, hence assess the various quality issues, and thereafter provide
maximum satisfaction to customers (Heizer et al. 2017). Operations management is therefore
required to maintain the quality system within business organisations.
Operations management refers to planning, organising, administration and supervision
of the business practices in order to increase the efficiency of organisation. It aims in
maintaining a balance between the costs and the revenue in order to increase the operating
profits of the organisation. The process involves optimum, effective and efficient utilisation
of the resources like material, labour, technologies and equipment in order to maximise the
output and bring about an operational efficiency (Reid and Sanders 2015). This efficiency can
be bought in supply chain management and inventory management as well.
The management of the inventory and supply chain helps in smooth flow of goods in
market. This improves the quality of services being provided by the organisation. Supply
chain management refers to smooth flow of goods from its place of origin to a place of
consumption and the transformation of raw materials into finished products (Yu et al. 2016).
On other hand, inventory management refers to the administration and supervision of the
stocks of the organisation and it is a sub part of the supply chain management. The following
paragraph discusses about the current operational structure of Amazon and any changes
required in long-term.

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Discussion
The Amazon Inc. is the most technologically advanced multinational that was
founded by Jeff Bezos on 5th July 1994. The largest e-commerce market place provides the
strongest competition in the market. It has the highest revenue share as well as high market
capitalisation. The company initiated its operations by opening online bookstores but the
organisation later diversified its products and services and made several operational and
strategic changes. Amazon Inc. has diversified its products and services into the Amazon
web services, cloud services, online shopping, consumer electronics as well as mass
distribution.
Amazon Inventory Management
Amazon is an e-commerce giant that has to deal with high demand of various
products and services on a daily basis. The order volumes keep on fluctuating. Maintaining a
proper amount of stock and a proper inventory management is therefore necessary in order to
keep a track of the stocks as well as to provide customers with prompt services. The company
introduced long-term storage fees on a monthly basis for those inventories that are being
converted slowly and increase FBA fees. It also launched a new Inventory Performance Index
(IPI) metric to measure the performance of the stocks held by the company. There are not
much employees associated with Amazon’s FBA warehouses instead, the secret behind this
organisation is that the company has hi-tech robots that provides with inventory and the
shipping solutions. Statistics show that robotics department has employed over 30, 000 Kiva
Systems robots in order to manage inventories worth billions of amount (DOLLAR 2015). It
does so by picking up specific items as soon as the consumers order them. The robots and QR
codes are integrated with complex software that helps in providing this service. The products
of Amazon are categorized into the inventory class as per their availability. The classes of
inventory, that is shown by the company on the online portal are categorized as – Available,

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Inbound, Unfulfillable, Reserved, Fee Preview and Fulfilled By. Amazon makes use of big
data analysis that helps in maintain the stocks. It provides two inventory management
systems – the FBA (Fulfilment by Amazon) and FBM (Fulfilment by Merchant).
Amazon Supply Chain Management
The supply chain management system followed by Amazon makes the company
enjoy a competitive advantage over all other companies and also makes the company
adaptable to the changing needs and preferences of customers. The supply chain management
of the company is a mixture of the multi-level inventory management, quality transportation
and efficient use of information technology. The company stocks those amounts that are
frequently ordered by the customers. The stocks are maintained in the warehouses that are
owned by the company itself. The advantage of having its own warehousing is that the
products are delivered to customers smoothly and hence the delivery time and lead-time are
not wasted. Price differentiation strategy is followed based on the division of the customer
segments. Various delivery options are provided by the organisation like one-day delivery,
first class delivery, free super saver delivery and prime customer delivery. Amazon has been
trying to improve on its delivery segments in order to reach customers at a fast pace. The key
aspect of the supply chain management system of the organisation is its flexibility of
response to the changing demands. The inventories held by the company in the organisation
are held with push strategy and the shipment is done in a pull strategy.
Improvements in the operations
The company has undergone several changes in its supply chain management and
inventory management in terms of techniques and technologies (Christopher 2016). These
changes improve the quality of the services provided by the company and helps in managing
quality of their own products. Quality refers to a standard that is compared with the market
and degree of excellence prevailing in the same (Khanna 2015). The recent technological

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implementation that has been done is introduction of floating warehouses. This concept use
drones for the delivery of products to the prime customers. It has also released the Relay
concept, which is the first trucking application of the company. It aims in speeding up the
delivery process and reduction in the manual process. Amazon dash buttons help the
customers to reorder any previous order by simply clicking the button from anywhere. There
has been a plan of building an air cargo hub in order to reduce the dependency on FedEx and
UPS and speed up the delivery process. It has moved into ocean freight facilities for the same
reason. The company aims to deliver packages for itself and the other retailers. The company
also owns it warehouse and has 45, 000 robots from around 20 centres of product
distribution. Statistics reveal that at present Amazon has 493 warehouses as the efficiency of
robots have increased productivity level (Cui, Zhang and Bassamboo 2016). One key SCM
strategy is that it uses analytics in order to record and understand the buying patterns. This
system automatically understands what the customers can seek for in the future and flashes
such products on the interface when the customers logs in the account. The other SCM
strategy is the brand packaging that provides similar packaging to all customers. This helps in
creating a brand awareness.
Highlights of the Improvement Approaches
The success of Amazon Inc. depends on its operational efficiency that has been
achieved through innovation. The decisional areas of Amazon are – Design of Goods and
Services, Quality Management, Process Structure and Design of Capacity, Layout Design,
Job Design, Location, Supply Chain Management, Inventory Management and Maintenance.
The productivity is improved by reducing the time for the processing of the inventory items,
increasing number of orders fulfilled per hour and increasing the number of inquiries
answered per day. The company also wants to create efficiency among the workers and the
employers. It aims in maintaining high standards of work from all the aspects of the

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company’s operation. The company wants to achieve a long-term success through the
customer satisfaction. The improvements of Amazon supply chain can be divided as per –
1. Warehousing Services
2. Delivery Services
3. Technology Services and
4. Manufacturing Services
a. The warehousing management includes the FBA process. These are internally
optimized.
b. The warehouses are located near the population hubs and the metros. Several small
warehouses are also built in order to access the local markets in a global manner.
c. The supply chain as seen offers, free, instant, and two-day prime deliveries.
d. The delivery process has introduced drones that carry one’s order from the stores to
the backyard of the customer.
e. It now owns its delivery vans and trucks.
f. Amazon also offers branded and diversified products. Although it allows the third
party seller to list its products, but it has found better ways of producing those
products at cheaper costs and are therefore taking advantage of the same(Wurman and
Romano 2016).
Problems in Management Techniques Improvement
Amazon have innovated its operations efficiently and enjoys a competitive advantage
but there are certain issues related to these techniques. The problems are:
1. It relies greatly on FedEx and UPS.
2. It is unable to incorporate the SCM in a proper manner as it follows cooperation
model with its suppliers.

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3. Amazon outsources few of its operational activities that increase its accountability.
4. The profit margins are low and hence have shrinking margins that disturbs the
operational efficiency.
5. Low profit margin and huge delivery cost affects the finances of the company.
6. The Amazon portal is flooded with the Chinese products that question the quality of
the products offered by the company.
7. The company takes huge amount of time in solving inventory related issues.
Inventory issues pop up because of the incapability to monitor all the sales outlets and
the suppliers.
8. The drones used can be accidental in nature. The Amazon dash buttons can be lost
and unnecessary orders can be placed by those who find it, which will create problem
for both customers and company.
Financial Evolution Techniques:
Financing is necessary for the entire organisation. Proper management of finance can
increase the profitability and reduce the costs incurred by the company. A proper financial
plan helps in determining the amount of capital required by the company and estimating the
amount that would be spent factors (Burke and Eaton 2016). The two types of expenditure
that any company incurs are capital expenditure and revenue expenditure.
Capital expenditure refers to the amount spent on acquisition of the fixed assets and
expenditure on those fixed assets for a long period. The revenue expenditure on the other
hand is the cost incurred by the company for its daily operational activities (Cordes et al.
2015). Amazon also has these expenditures. Amazon can incur capital expenditure while
acquiring machines, buildings, patents, equipment, software and technologies. Revenue
expenditures of Amazon include depreciation, rents paid for third party outlets owned,

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salaries paid to staffs, insurance expenses, legal expenses, cost of carriage and so on. The
differences between the two types of expenditure are:
1. Capital expenditure is one time expenditure whereas revenue expenditure is recurring
in nature.
2. Capital expenditure is charged gradually for a long period whereas revenue
expenditure is charged to expense in short period.
3. Capital expenditure generally involves large monetary amounts whereas revenue
expenditure involves lesser amount of money.
4. The capital expenditure is stated in the assets side of the balance sheet whereas the
revenue expenditures are usually associated with the liabilities side of the balance
sheet.
Cost Structure and Allocation
Amazon business model follows a low cost structure. The business saves a large
portion of its cost from the brick and mortar structure. The firm wants to remain competitive
in the market and therefore sets the price of the products in a manner that decreases their
profit margin (Castelli et al. 2017). Amazon incurs maximum cost in the maintenance of the
e-commerce site. The number of employees are also many and because of this employee cost
is more. It has a very smooth and widely accepted web service unit, which is known as the
Amazon Web Services. Therefore, it also incurs cost in maintaining the web services as well.
A huge amount of money is also spent for the research and development purposes. The
company also manufactures the online book known as the Kindle, smartphones and
televisions. Therefore, it also incurs manufacturing cost. The cost of maintaining a warehouse
is also high as the warehouses are equipped with robots in order to manage the inventories.
Therefore logistics cost is also high. In case of technology, acquiring the company can
choose the Make or Buy decision-costing strategy.

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Investments
Amazon invests in the research and development sectors and the technology sectors in
order to boost up its competitiveness in the market as well as the operational efficiency. The
company has made a number of investments. The recent investment that it has done is $65
Millions in the Acko general Insurance. The investment appraisal technique that the company
generally uses Net Present Value method of investment appraisal technique as it considers the
time value of money and the discounting factor that provides a fair view of the investment
prospects (Adusumilli, Davis and Fromme 2016).
Conclusion
It can be inferred from the above discussion that operational efficiency is largely
required in order to attract the customers and increase profitability. A proper supply chain
management helps in increasing the operational efficiency of the organisation. The supply
chain management helps in the smooth flow of the goods and the services from the producers
to the consumers. Maintenance of inventory helps in meeting the customer demand
efficiently. This proper flow of the goods and prompt satisfaction of the consumers help in
increasing the quality of the services being provided by the company. The problem analysis
states that the company has made several innovations but all these innovations are not very
full proof. Amazon faces problem with the stock management and distribution of goods at
times that can be solved only through managing the operational activities of the organisation.
The total management of the cost structures, investment patterns, supply chain and inventory
management will help in increasing the operational efficiency and thereafter there will be an
improvement in the total quality of the services.

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References
Adusumilli, N., Davis, S. and Fromme, D., 2016. Economic evaluation of using surge valves
in furrow irrigation of row crops in Louisiana: A net present value approach. Agricultural
Water Management, 174, pp.61-65.
Burke, Q.L. and Eaton, T.V., 2016. Alibaba group initial public offering: a case study of
financial reporting issues. Issues in Accounting Education Teaching Notes, 31(4), pp.75-90.
Castelli, M., Manzoni, L., Vanneschi, L. and Popovič, A., 2017. An expert system for
extracting knowledge from customers’ reviews: The case of Amazon. com, Inc. Expert
Systems with Applications, 84, pp.117-126.
Christopher, M., 2016. Logistics & supply chain management. Pearson UK.
Cordes, T., Kinda, M.T., Muthoora, M.P.S. and Weber, A., 2015. Expenditure rules: effective
tools for sound fiscal policy? (No. 15-29). International Monetary Fund.
Cui, R., Zhang, D.J. and Bassamboo, A., 2016. Learning from inventory availability
information: Field evidence from amazon. Management Science.
Cui, R., Zhang, D.J. and Bassamboo, A., 2018. Learning from inventory availability
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DOLLAR, S.U.T.M.B., 2015. INTERNET PIONEERS: AMAZON FROM START-UP TO
MULTI-BILLION DOLLAR BUSINESS.
Heizer, J., Render, B., Munson, C. and Sachan, A., 2017. Operations management:
sustainability and supply chain management, 12/e. Pearson Education.

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Hoffman, A.E., Mountz, M.C., Barbehenn, M.T., Allard, J.R., Kimmel, M.E., Santini, F.,
Decker, M.H., D'andrea, R. and Wurman, P.R., Amazon Technologies Inc, 2016. System and
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Integrated Approach. John Wiley & Sons.
Wurman, P.R. and Romano, J.M., 2016. Amazon picking challenge 2015. AI Magazine,
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