SIM336: Strategic Management Analysis of Amazon's Business Model

This report provides a strategic analysis of Amazon, focusing on its value chain and the application of Porter's Five Forces model to address the challenges it faces. The analysis covers Amazon's inbound logistics, operations, outbound logistics, marketing and sales, and customer service, highlighting the company's strengths and areas for improvement. The report also discusses the impact of international performance, competition, investment balancing, and government scrutiny on Amazon's strategic direction. By examining these factors, the report aims to provide insights into how Amazon can maintain its profitability and development in a highly competitive environment. This student contributed the assignment, and similar solved assignments and past papers are available on Desklib.

Strategic management
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Contents
Executive summary:........................................................................................................................3
Introduction......................................................................................................................................4
MAIN BODY..................................................................................................................................4
Explanation of the Comparison of theory and practise:..............................................................4
Critique of the theory...................................................................................................................6
Application of the theory.............................................................................................................7
Effectiveness for the organisation.............................................................................................14
Failure areas of Amazon by use of specific theory....................................................................18
CONCLUSION..............................................................................................................................21
REFERNCE...................................................................................................................................22
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Executive summary:
Strategic management is a tool that can help in achievement of certain laid down objectives.
There are certain frameworks such as value chain analysis and porters five force analysis are the
two major strategies that can help a organisation in understanding various external forces and
their positive and negative impact on the functioning of an organisation. Strategic management is
a great tool for various strategies that can help organisation in dealing with different challenges
that are present for them in the market scenario. There is a need for proper strategic development
plan in order to achieve some laid down specific objective definite time period.
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Introduction
Strategic management is related to the different strategic approaches that are applied by
an organisation to deal with certain prevailing issues and challenges. It can be defined as use of
different theories that are in relation to diverse range of objectives, analysing the different
internal factors, analysing the external competitive environment and ensuring the role of
administrative rolls for formation of all the strategies within company. Amazon is an American
multinational technology company that is based in Seattle and has approximately 750000
employees that are working with this organisation. Present report is based on the value chain
analysis of different aspects of primary and supporting activities for Amazon and application of
porters five Force model for strategically dealing with these issues.
MAIN BODY
Amazon is a globally recognised and a world famous brand that started facing some issues
related to the clanging market inception in the year 2002, there were many challenges related to
high customisation and use of update technology. There were some recent changes that had to be
made in the recent model and overall value chain process used by this organsuiation. So,
Amazon started focussing on its core strength and then using it in their overact process of
managing of their practises.
Explanation of the Comparison of theory and practise:
Case study approach:
Amazon started focusing on that is” instant order update” that actually wants their customers
that are about to buy a same item repeatedly. Further it can be said that there are some of the five
biggest challenges that have been identified for Amazon in 2019 these challenges are mentioned
below:
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Figure 1Mission of Amazon: “Our goal is to be earth’s most customer-centric company”.
(Source: Amazon Supply Chain & Logistics, 2018)
1) Keeping a pace with international performance: In the year 2019 in October there has
been week that is recorded for Amazon. CFO Bryan recently pointed out that there has
been a weak growth in various countries such as India, that is leading to all operating
segment suffering as there has been a substantial slowdown in the overall revenue growth
of Amazon(Bammann, 2019).
2) Dealing with Rivals: There are many competitors of Amazon that is WalMart that are
leading to decrease in the overall revenue and market share for Amazon. In the year
2019, in December Amazon has pulled back their overall promotional and pricing
strategies that is resulting in high competition.
3) Balancing profits versus investment: Amazon is making efforts in different sectors
such as Healthcare and logistics. so, that they are able to get back overall earnings to their
business. There are many initiatives in different sectors such as Logistic payment health
care for maximizing investor Returns(Mudambi, and Puck, 2016). There is requirement
of detailed research for making some investment in these new sectors, by Amazon so that
there is efforts by the research and development department that is again a challenge for
this global organization.
4) Dealing with intense government scrutiny:In case, of different countries such as,
France have formed regulations and different taxation rules for major tech companies
such as Amazon (Bhargava, Bafna, and Shabarisha, 2018). In UK Amazon's HQ2
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Expansion has led to large breaks in tax. It was a flash point of Criticism in last year
because of changes policies because of changing privacy concern and different antitrust
concerns were also a major key failure areas of Amazon.
Above mentioned are some of the major failure and issues that have been faced by
Amazon in 2019. There is need of some strategic formulation in order to cope up some
strategies to deal with such challenges. So, that they are able to maintain their present
graph of profitability and development (Hishe, Asfaw,and Giday, 2016).
Critique of the theory
Value chain analysis approach:
According to (Rothaermel, 2016) Value chain analysis basically refers to an analytical
framework that helps in identification of different business activities that can actually lead to
creation of value and increasing competitive advantage for a business. In present study it has
been identified that there are various issues that are being faced by Amazon in their overall
supply chain and logistics management. So, there is a need to do a value analysis to be used as a
strategic analysis tool. It is a method that is based on analysis of different activities of Amazon to
review how various activities can help them in adding value at each step. Also, there is
Requirement to maintain cost effectiveness at each step.
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Figure 2VALUE CHAIN ANALYSIS
(SOURCE: Amazon Value Chain Analysis. 2020)
Application of the theory
Amazon inbounds logistics:
Figure 3: Increasing logistics cost in Amazon
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(Source: Amazon Supply Chain & Logistics, 2018)
Amazon has recently started providing services that is being offered to other organisations.
For example, in Beijing Century Jyo a courier service that is subsidiary of Amazon registered
with government of UK and is shipping provider of this organisation.
Figure 4: Amazon warehouses in France
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Figure 5: Products categories stocked in warehouse of Amazon
(Source: Amazon Supply Chain & Logistics, 2018)
Amazon has an efficient system of Logistic infrastructure that provides them a competitive
advantage, below discussed is the value chain analysis of primary activities case of Amazon
(Amazon Value Chain Analysis. 2020).
Operations:
Operations of Amazon are basically divided into three segments:
First is North America: It is a segment that is operating in North America and has focused
website such as www.amazon.com www.amazon.ca. Sales in this segment have been increased
by 33% in the year 2018 and 2017 as compared to previous years.
International: It is a segment that is having a internationally focused website such
as www.amazon.com.br and www.amazon.com.au. International operations of Amazon can are
getting affected because of the changes that are taking place in exchange rate of currency rates
like changes taking place in foreign currency exchange rates.
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Third is: Amazon Web Services: It is a segment that is dealing with the Global sales of storage
database computing, services for Enterprises start-ups, academic Institutions and government
agencies. Overall sales in an AWS has observed rise by 43 percent and 47 percent in 2017 &
2018, compared to previous years.
It can be said that an innovative and creative approach is required for solving various problems
that is related to major source of creation of value for operations in Amazon. The Tech initially
developed some Cloud Computing resources and cloud storage as a part of creating value in their
business operations. Amazon has also commercialized their services of cloud for enhancing their
overall benefits.
Amazon outbound Logistics:
There are some aspects of outbound logistics in Amazon Integrated in their following segment:
Figure 6: Machine learning technology in Amazon
(Source: Amazon Supply Chain & Logistics, 2018)
Fulfilment centres: These are the tour operators that are operating in 109 fulfilment centres
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across the globe and Amazon is using a robotic technology in extensive manner for the purpose
of managing the stowing, picking, receipt and shipment of their products. There is also use of
machine learning technologies in Amazon.
Physical stores: Amazon has recently acquired the whole food chain in the year 2017. This
organisation has generated 4.3 billion revenues from their physical stores alone in the year 2018.
It can be concluded from the above discussed points that there is a strong outbound logistics that
are present for Amazon and they have an increasing number of ships planes trains truck that is
helping them in increasing the effectiveness of their logistics system. Further, the online retail
also has announced the Amazon Prime air that is a system of drone delivery and also Amazon
flex that is related to metro delivery services that is additional services in their outbound logistics
system. There is a great opportunity for Amazon to create maximum value in their logistics
Network. According to industry analyst, Amazon can compete with Global Delivery business
and also with Global Delivery giant that is fed EX.
Amazon marketing and sales:
Annual Global marketing expenses have been a major issue that is a concern for Amazon
as it is increasing in the past 7 years and has exceeded to 8 billion in the year 2018. It consists of
promotional cost and other advertisement expenses that are amounted to US dollar 5.0 billion
and 2.2 billion in the year 2016 and 2018 respectively. After making a comparison with other
competitors such as Best Buy, Kroger ant target it has been identified by Amazon, that marketing
and sales activity can be a major source of creation of value in their chain of operations for
Amazon. Marketing message of Amazon also conveys the Promises of selection of different
products and services at great ease. Furthermore, the Attractive prices that are being offered to
people superior provided to their customers. Apart from these different aspects of marketing mix
such as communication strategies of media and print advertising events, experiences public
relations are also offering an effective medium and channel to communicate with their target
customer segment by Amazon.
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Figure 7Nets sales of Amazon since year 2004 to 2017
(Source: Amazon Supply Chain & Logistics, 2018)
Figure 8: Turnover of Amazon per country
(Source: Amazon Supply Chain & Logistics, 2018)
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Amazon services& Product:
There is an exceptional Customer services that has lead to creation of high customer value for
Amazon because of the cloud computing company and their online presence. Annual report of
Amazon has recently pointed out that they are one of most customer centric organisation. Reason
behind is there are offering exceptional services to their customer and customers are also
satisfied with their quality, timely response that they get from highly trained service Department
of Amazon.
Figure 9: Amazon worldwide product category
(Source: Amazon Supply Chain & Logistics, 2018)
The return process and exchange process of Amazon is entirely online that take place with
the help of a customer service department. It is continuously helping their customers in dealing
with all issues of customer that are solved efficiently and quickly (Flanagan,Lepisto and Ofstein,
2018). Not only just customers but the sellers who are part of overall Amazon as a brand also
lead to higher satisfaction level to those who are associated with the brand since a longer
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duration of time and helping them in getting a competitive advantage as compared to other E-
Commerce websites like Flip kart.
Effectiveness for the organisation
The prime feature of Amazon has successfully segmented their target market. Coaching program
is a feature that is offered by Amazon for their sellers to avoid going out of stock. For selecting
and using only that products which can provide them high leads and more competitive advantage
as compared to other e commerce brands that are being sold on Amazon. It has lead to
development of a loyal seller segment of Amazon (Hailu,., 2016).
From the above Discussion of the value chain analysis, there is identification of different
business activities that are part of the overall value chain of Amazon. It is helping Amazon in
creation of value at each and every step to deal with all the issues that are being face because of
highly competitive environment.
Success of Amazon by use of value chain analysis:
According to views (GinterDuncan, and Swayne, 2018), the goal of every supply chain &
value chain is having motive invest product designing advertising and research & development
activities. One of the major goals of value chain analysis is to make sure that product is placed in
hands of customer as fast as possible. After making a detailed analysis of the above value chain
services it can be said that there are certain activities that are maximizing the overall
effectiveness in a functions and operations there are some activities to be more focused.
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Figure 10: Amazon way of maintaining inventory demand
(Source: Amazon Supply Chain & Logistics, 2018)
Amazon has made a shift in the way they are communicating to inventory demand for
the vendor and there is addition of a new feature that is forecasting of demand. Vendors are now
more focus on making some decisions that is impacting the stock level of Amazon. For Amazon
value chain model is discussed below:
Amazon supply chain delivery:
One of the biggest differentiation feature that is used by Amazon supply chain strategy and the
different other online retailers is the plethora of delivery option. They are offering Prime
deliveries that is a system of one day delivery are today deliveries or instant leading to be a more
preferable site for the purpose of purchasing frequent products(David, and David, 2016).
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Figure 11: Amazon Drones
(Source: Amazon Supply Chain & Logistics, 2018)
There are drones that are in the backyard or on the roof that are Amazon branded drugs
and some delivery Van, there are also delivery bikes in certain areas. They are also using
retailers like routes with the help of ups and FedEx. These are some of the wide ranging
strategies that is allowing Amazon to get their delivery is more faster and more efficiently
everywhere in the different parts of world even in case of rural areas and remote area that were
usually not served by the traditional option.
Amazon supply chain:
With the use of Updated Technology the supply chain management approaches used by
Amazon for the purpose of American Technology. The organisation is utilising the automation
and different robotic solution used for the purpose of pick and packing Orders and also for the
purpose of storing and stacking inventory. These are the tools that are helping in efficiency and
speeding up of deliveries also resulting in cutting down of warehousing and the storage cost.
Different Amazon Prime air drones are also also adopted by the organisation these drones are
allowed for 30 minute deliveries in some of the biggest market.
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Figure 12Investment made by Amazon
(Source: Amazon Supply Chain & Logistics, 2018)
Global supply chain:
Amazon may not have one of the well tune supply chain management strategies across world
but they are one of the biggest retailers. They are making preparations for starting to set a
complete food delivery game (Hill, 2017). In Europe Amazon is handling the Amazon European
fulfilment network that is a powerful way of reaching to the customers across different parts of
Europe with a single Marketplace account.
CEO Jeff Bezos has recently agreed that the failure is part of every business organisation.
For this there has been announcement of 800 million dollars for the purpose of expanding the
availability of one-day Shipping to their Prime members Amazon. It is estimated to be roughly
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having 500 warehouses across different parts of the world. The Global presence and the prime
location have led to overcoming all the issues that are being faced in the value chain analysis of
Amazon.
Failure areas of Amazon by use of specific theory
There is use of Value chain analysis to understand some major failure areas further manage
by formation of certain strategies. For the purpose of dealing with all the issues that are
prevailing in Amazon and its overall process of value chain as discussed below:
It is very important for Amazon to build up a competitive advantage and for this there is a need
to analyse all the major five factors that are present in the external environment and are affecting
Amazon and formation of overall strategies (Huang, 2019).
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1) Inefficiency in the overall process:
The supply chain may not function properly because it may not have the correct number
of suppliers. In Amazon it has also resulted into inefficient procedures and this lead to non
functioning of operations in a proper manner. There are many situations when the stock has gone
out of stock and this has resulted into their existing customer switching to some other brand.
Some organisations are not willing to work with amaze such as recently Toy’s R relied on
Amazon for distribution on their site platform but Amazon kept on listing other competitors toy’s
and this resulted into a situation of loss of sales for Toy’s R & soon it became bankrupt. Such
instances have lead to situations of negative impact on brand image of Amazon (Amazon Supply
Chain & Logistics, 2018).
2) Supplier mistake:
In Amazon some of the vendor suppliers are not reliable and there is no proper
manufacturing process that is going in the organisation. They are not been able to maintain
strong relationship with their suppliers and causing of rifts. It resulted into long time for
resolving of such issues, wastage of resources and dissatisfaction on part of customers.
3) High cost:
In order to maintain the efficient supply chain network such as in Amazon there are
presently 175 fulfilment centres across different parts of the globe. There is occupancy of more
than 150 million square feet of space along with 755 fulfilment sectors and also there are 25
sortation centres in the North America. This overburdened cost structure of Amazon is stated
below:
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Figure 13: Cost structure in Amazon
(Source: Amazon measure & optimize, 2020)
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Recommendation:
From the above discussed points of Value chain analysis can be recommended that there
is a very high threat of some of the factors such as competitive rivalry threat of power of
substitution these are three major factors that can increasing the amount of order present
challenges for Amazon.
There can be use of low bargaining Power of suppliers in Amazon has always made
efforts to plan long term association with their all the suppliers so that it can offer them
competitive advantage. The prices of products and profits which are offered by Amazon as a
brand to their suppliers are not easy for any other competitive brand to offer the same suppliers
(Kanakulya and Jinzhao, 2017). All the efforts have been made to prevent suppliers from
switching to other competitors. It has created a situation of low bargaining power of suppliers as
they are working on high ethical principles and it is leading to from Amazon and created a lot of
benefits in terms of high percentage reduction in switching cost of suppliers that are experienced
by other competitive brands Amazon.
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CONCLUSION
It can be concluded from the above report that Strategic management is a great tool that can
help in dealing with over all issues that are being faced by organisation and all the challenges
that are coming across in dealing with various area areas of a organisation. Value chain analysis
and porters five Force model these are two major strategy formulation Framework that can help
in analysing the overall issues and problems of organisation and how to strategically deal with
the challenges.
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REFERNCE
Books & Journals
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employment opportunities and food security.
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SWOT-PEST-Michael Porter's Five Forces Model--Taking SF Express as an Example.
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Hill, T., 2017. Manufacturing strategy: the strategic management of the manufacturing function.
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Online
Amazon Value Chain Analysis., 2020, [online] Available through:<https://research-
methodology.net/amazon-value-chain-analysis/>
Amazon Supply Chain & Logistics, 2018, [online] Available
through:<https://abcsupplychain.com/en/amazon-supply-chain-logistics/>
Amazon measure & optimize, 2020 [online] Available
through:<file:///C:/Users/hp/Documents/Break-even-Acos-structure.webp>
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