Supply Chain Management of Amazon Inc.

This report discusses the supply chain management of Amazon and how it affected the business of the company. It also provides recommendations to eliminate the issues faced by Amazon in their logistics and supply chain management.

Running Head: AMAZON INC. 0
Supply Chain Management
Student Details
12/7/2018

Amazon Inc. 1
Executive Summary
Supply chain is an important factor and plays an important role in the growth of e-commerce.
This report will discussed about the supply chain management of the Amazon and how it
affected the business of the company and contributed in the growth of the Amazon. Due to
the internet technology now every organization wants to reach to the millions of customers
over the internet and sell their products to them. Amazon in cooperated its business in 1996
with the pull strategy and with the time and increase in its business, Amazon has expanded its
business strategy to push-pull. An effective supply chain management helps in reducing
inventories, sorter life cycles of products, and service delivery to the customers. Amazon
works on the main strategy of high responsiveness to the customers in order to achieve high
customer satisfaction. To achieve this goal, Amazon is enhancing its relations with its
partners through multi-tier inventory strategy. There are also some recommendations for the
company that includes improvement in the transportation system and bullwhip effect. This
paper is presenting the supply chain and logistics information of Amazon, problems in the
logistics and supply chain of the company, and the recommendations and solutions to
eliminate those issues.

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Contents
Executive Summary...................................................................................................................1
Introduction................................................................................................................................3
Background of Amazon.........................................................................................................3
Introduction of Logistics and Supply Chain..............................................................................4
Supply Chain Strategy of Amazon.....................................................................................5
Problems in Logistics and Supply Chain Management of Amazon..........................................7
Transportation........................................................................................................................7
Order Sourcing.......................................................................................................................7
Solutions to Mitigate the Issues.................................................................................................7
Transportation........................................................................................................................7
Technology.............................................................................................................................8
Recommendations......................................................................................................................8
Conclusion..................................................................................................................................9

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Introduction
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 internet1. 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 management2. 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 organization3. 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 planning4. 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 worldwide5. 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.
1 Darrell K. Rigby, The Future of Shopping (12 December 2011) <https://hbr.org/2011/12/the-future-of-
shopping>
2 SmartInsights, How to structure a successful e-retail strategy (04 August 2014) <
https://www.smartinsights.com/ecommerce/ecommerce-strategy/online-retail-strategy/>
3 David Frederick Ross, Introduction to Supply Chain Management Technologies (CRC Press, 2016)
4 John J. Vogt, P. W. C. de Wit, Business Logistics Management: Theory and Practice (Oxford University Press,
2005)
5 Tara Johnson, How the Amazon Supply Chain Strategy Works (25 July 2018) <
https://www.cpcstrategy.com/blog/2018/07/amazon-supply-chain/>

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Background of Amazon
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 America6. 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 customers7. 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 effectively8. 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
6 Bloomberg, Company Overview of Amazon.com, Inc (08 December 2018) <
https://www.bloomberg.com/research/stocks/private/snapshot.asp?privcapId=18749>
7 John Pena, Supply Chain sustainability: problems, solutions and successes (16 September 2013) <
https://www.allthingssupplychain.com/supply-chain-sustainability-problems-solutions-and-successes/>
8 Prachi Juneja, Analysis of Amazon’s Supply Chain Management Practices (2018) <
https://www.managementstudyguide.com/amazon-supply-chain-management-practices.htm>

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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 stores9. 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.
Introduction of Logistics and Supply Chain
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
product10. 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 system11.
Supply Chain Strategy of Amazon
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
9 Rick Lebnack, How Amazon Is Changing Supply Chain Management (04 November 2018) <
https://www.thebalancesmb.com/how-amazon-is-changing-supply-chain-management-4155324>
10 Martin Christopher, Logistics & Supply Chain Management (Pearson UK, 2016)
11 P Radhakrishnan, Shanthakumar Palaniswami, P.V. Mohanram, J. Kanchana, Logistics and Supply Chain
Management (Allied Publishers, 2001)

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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 inventory12. 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 products13.
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 that14. 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.
12 Shilpa Parkhi, Sourabh Joshi, Shubham Gupta and Mridu Sharma. “A Study of Evolution and Future of
Supply Chain Management.” AIMS International Journal of Management 9, no. 2 (May 2015): 95-106.
13 Arawati Agus. “Supply Chain Management: The Influence of SCM on Production Performance and Product
Quality.” Journal of Economics, Business and Management 3, no. 11 (November 2015): 1046-1053.
14 Cherono Vivian. “Pricing Differentiation Strategy on Customer Satisfaction in Large Retail Supermarkets in
Kenya.” Mara Research Journal of Business and Management 2, no. 1 (September 2017): 15-27.

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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 inventories15. 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 demands16.
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.
15 Manuel D. Rossetti and Ashish V. Achlerkar. “Evaluation of Segmentation Techniques for Inventory
Management in Large Scale Multi-Item Inventory Systems.” International Journal of Logistics Systems
Management 8, no. 4 (2011): 403-424.
16 Toshendra Kumar Sharma, What is Push-Pull Strategy in Supply Chain Management (22 April 2018) <
https://www.blockchain-council.org/blockchain/what-is-push-and-pull-strategy-in-supply-chain-management/>

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Problems in Logistics and Supply Chain Management of Amazon
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 scale17. 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 delivery18.
Solutions to Mitigate the Issues
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
17 Patricia J. Daughert, David J. Closs and John H. McConnell, Supply Chain Issues:What’s Keeping Supply
Chain Managers Awake at Night? (2018) < http://www.apics.org/docs/default-source/scc-non-research/supply-
chain-issues.pdf?sfvrsn=2>
18 Forrest Burnson, 6 Ways Amazon Is Changing Supply Chain Management in 2016 (2018) <
https://www.softwareadvice.com/resources/amazon-supply-chain-management/>

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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 zone19. 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.
Technology
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 orders20.
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.
Recommendations
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
19 Yung-yu Tseng, Wen Long Yue and Michael A P Taylor. “The Role of Transportation in Logistics Chain.”
Proceedings of the Eastern Asia Society for Transportation Studies 5, (2005): 1657-1672.
20 Rajiv Bhandari. “Impact of Technology on Logistics and Supply Chain Management.” IOSR Journal of
Business and Management (2014): 19-24.

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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 company21. 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
collaboration22.
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
21 David Blanchard, Supply Chain Management Best Practices (John Wiley & Sons, 2010)
22 Blogspot, Supply Chain Management (20 January 2014) < http://cmuscm.blogspot.com/2014/01/amazon-
knows-what-you-want-before-you.html>

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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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Bibliography
A. Books/ articles/ Journals
Agus A. “Supply Chain Management: The Influence of SCM on Production
Performance and Product Quality.” Journal of Economics, Business and Management
3, no. 11 (November 2015): 1046-1053.
Bhandari R. “Impact of Technology on Logistics and Supply Chain Management.”
IOSR Journal of Business and Management (2014): 19-24.
Blanchard D, Supply Chain Management Best Practices (John Wiley & Sons, 2010)
Christopher M, Logistics & Supply Chain Management (Pearson UK, 2016)
John J. Vogt, P. W. C. de Wit, Business Logistics Management: Theory and Practice
(Oxford University Press, 2005)
Parkhi S, Joshi S, Gupta S and Sharma M. “A Study of Evolution and Future of
Supply Chain Management.” AIMS International Journal of Management 9, no. 2
(May 2015): 95-106.
Radhakrishnan P, Palaniswami S, Mohanram P V, Kanchana J, Logistics and Supply
Chain Management (Allied Publishers, 2001)
Ross D F, Introduction to Supply Chain Management Technologies (CRC Press,
2016)
Rossetti M D and Achlerkar A V. “Evaluation of Segmentation Techniques for
Inventory Management in Large Scale Multi-Item Inventory Systems.” International
Journal of Logistics Systems Management 8, no. 4 (2011): 403-424.
Tseng Y, Yue W L and Taylor M A P. “The Role of Transportation in Logistics
Chain.” Proceedings of the Eastern Asia Society for Transportation Studies 5, (2005):
1657-1672.

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Vivian C. “Pricing Differentiation Strategy on Customer Satisfaction in Large Retail
Supermarkets in Kenya.” Mara Research Journal of Business and Management 2, no.
1 (September 2017): 15-27.
B. Others
Blogspot, Supply Chain Management (20 January 2014) <
http://cmuscm.blogspot.com/2014/01/amazon-knows-what-you-want-before-
you.html>
Bloomberg, Company Overview of Amazon.com, Inc (08 December 2018) <
https://www.bloomberg.com/research/stocks/private/snapshot.asp?privcapId=18749>
Burnson F, 6 Ways Amazon Is Changing Supply Chain Management in 2016 (2018) <
https://www.softwareadvice.com/resources/amazon-supply-chain-management/>
Daughert P J, Closs D J and McConnell J H, Supply Chain Issues:What’s Keeping
Supply Chain Managers Awake at Night? (2018) < http://www.apics.org/docs/default-
source/scc-non-research/supply-chain-issues.pdf?sfvrsn=2>
Johnson T, How the Amazon Supply Chain Strategy Works (25 July 2018) <
https://www.cpcstrategy.com/blog/2018/07/amazon-supply-chain/>
Juneja P, Analysis of Amazon’s Supply Chain Management Practices (2018) <
https://www.managementstudyguide.com/amazon-supply-chain-management-
practices.htm>
Lebnack R, How Amazon Is Changing Supply Chain Management (04 November
2018) < https://www.thebalancesmb.com/how-amazon-is-changing-supply-chain-
management-4155324>
Pena J, Supply Chain sustainability: problems, solutions and successes (16 September
2013) < https://www.allthingssupplychain.com/supply-chain-sustainability-problems-
solutions-and-successes/>

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Rigby D K, The Future of Shopping (12 December 2011) https://hbr.org/2011/12/the-
future-of-shopping
Sharma T K, What is Push-Pull Strategy in Supply Chain Management (22 April
2018) < https://www.blockchain-council.org/blockchain/what-is-push-and-pull-
strategy-in-supply-chain-management/>
SmartInsights, How to structure a successful e-retail strategy (04 August 2014) <
https://www.smartinsights.com/ecommerce/ecommerce-strategy/online-retail-
strategy/>