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1.1 INTRODUCTION

Supply
chain management also known as (SCM) is the information, oversight of materials
and the finances as the process from the producer, also known as the supplies
to the manufacturer, which then is sent to the wholesaler, following retailer
and finally reaching the customer. It involves combined coordination which
flows both among the companies. “The application of Internet has propelled the
Supply Chain Management to new dimension. The power of Internet to synchronize
the channel functions into single, scalable “virtual” enterprise, capable of
optimizing resources anywhere and anytime in the supply chain to meet market
opportunities.”1 In year 1994, the company established, and was found by
Jeffrey Bezos. He realized that internet provided a popular scope for online
shopping. However, back then the society was not familiar with internet
services and therefore did not appreciate his idea, comparing to now. Amazon
was the biggest launching online book store in the world, ever since. Amazon
allows people to buy products online, and started expanding their diversifying
several other products to improve their sales and shows people that one can buy
literally anything from Amazon (Esscortment 2011).  This essay will give a
brief research about supply chain practices of Amazon.com includes its
historical development, Global network planning and logistics , Production
planning, Inventory management, Use of information and information technology,
Customer service and pricing, Ethical and environmental policy.

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1.2 Historical development of the company

Amazon
initially launched as pure online book retailer in 1995. The fastest success of
the company made them to built up its structure and systems and started to
increase their distribution centre. Four years after the launch, in 1998 Amazon
relied on same procurement model and started selling CD and DVD.  Robert
Spector introduced something called a “Get big Fast” 2 strategy, which Bezos
followed to reach the customers through their central websites as the beginning
which was already in the form of PC’s and internet. This is when they started
adding new features and products.

In year
2000, it was Amazons year. It launched 3PL business, a new logo which is the
current one the arrow running from A to Z, which reflects to have everything in
Amazon store. Amazon signs partnership deal in 2001 to take over running of
Borders.com to provide Amazon customers picking up products in Borders stores
nationwide.

This is a
Historic timeline: from 2002 to 2015

In 2002, Amazon launched its
website on e-commerce which is a cloud computing platform which took over
its biggest competitors, like eBay, Wal-Mart.
In 2005, Amazon prime, its annual
membership was made introduced in USA, two years later in UK.
In 2006 ,Amazon Fresh is the
online fresh food delivery, launched in Seattle, USA.
In 2007, launches Amazon kindle,
eBook reader where all books, Magazines can be purchased as pdf.
In 2012, Acquired kiva a robotics
company for $775 million.
In 2013, Amazon reveals the plan
of drone delivery system.
In 2015, Amazon
celebrates its 20th birthday with capitalization of  $245
billion.10

 

 

 

1.3 Amazon supply chain

1.3.1 Global network planning and logistics

Companies
like Amazon concentrated on the structure of their global locations and assign
products, technologies and investment. Adding to this, they studied about
centralized and local governance and ultimately which set up manufacturing and
logistics at new locations, across the world. Referring to Alan
Ruston:”logistics network planning relies on following major points:

The role
of DC’s and warehouse; Distribution cost factors and relationship; a
methodology for planning a distribution structure; an overview of different
modeling techniques; qualitative assessment; DC site considerations.” 3

Role of distribution centre and Warehouse:

 

 

Source: https://services.amazon.com/global-selling/overview.html/ref=asus_ags_snav_over

 

 

 

 

 

 

 

A methodology for planning a distribution
structure

Source: copyright 2014,2011 John Wiley and sons

Distribution
cost factors and relationship of Amazon

source:http://www.scdigest.com/firstthoughts/17-03-02.php?cid=12028

 

 

An overview of modelling technique

Amazon
have been planning on launching it own-account logistics network. They want
this because this will make them rely less on third-party logistics providers
like DHL and UPS. However, this does not mean that Amazon is intending to
compete against these carriers. Amazon want to proceed this so they can develop
a network to gain the ability to react faster when third do not complete their
wishes.  They want to use own trucks to move goods out of its warehouses.
 Furthermore, as analyzed by Oreskovic, “Amazon has recently leased
airplanes which will mainly operate in the United States in order to ensure
fast deliveries..” (Oreskovic, 2016).

Dc site
considerations

Amazon
started to adapt its supply chain and distribution network. Amazon first have
to decide how many DC should be built and where to locate them. According to
(simchi levi  pg 211) the Amazon started using ‘i2 technologies’ the
supply chain strategist software package. This software helped to identify the
location by considering factors based on suppliers and customer location,
warehouse expenses, freight rates, labor and other cost.

1.3.2 Production planning and design

The
planning of manufacturing and production modules in  a company is said to
production planning. In the process of Amazon production planning utilizes the
resource allocation of raw materials ,activities of staff, and necessary
materials are procured and creating the finished product according to the
production capacity and schedule specified, in order to distribute several
customers.

Push and
Pull strategy  

According
to Martin Chrsitopher follows the strategy of reorder point, which is the
conventional approach about meeting the customer requirements based upon some
form of statistical inventory control and a length of lead time. This image
explains the push and pull strategy.  (Martin Chrsitopher 2015)

 

source:https://www.linkedin.com/pulse/push-pull-manufacturing-process-wilson-goncalves-silva

Amazon provides customers shipping in three
types of ways, standard shipping, same day shipping and prime now shipping. The
processes of these three deliveries are explained below.

Source : https://smbp.uwaterloo.ca/2016/06/amazon-automating-the-supply-chain-using-mobile-technology

Omni channel
approach

Retailing
industry involves towards a complicated Omni channel retailing experience, the
distinctions between physical and online will disappear, and will turn the
world into a showroom. The retail industry will shift a concierge model geared
towards helping consumers, and not just focus on tractions and deliveries. An
example would be the physical retail space for, which can be accessed on smart
phones. The Whole Foods gets company into grocery market through a massive way
and comes back after a test concept for its store, and then can be click and
collected from many locations. 15

There are
stores within a store concept which are part of Amazon’s strategy, since it
recently has been executed something similar at Kohl’s locations. Amazon,
struck a partnership with Kohl’s which dedicated space in some stores was for
“The Amazon Smart Home Experience”, which gave Amazon sales a good income. Omni
channel fulfillment for a lower costs and faster delivery times, which is a
detail benefits for difficulties which are involved with specific services like
click-and-collect, ship-to-store, and ship-from-store. 16

 

1.3.3 Inventory management

According
to (simchi levi,pg 30)  “The goal of effective inventory management in the
supply chain is to have correct inventory at the right place at the right time
to minimize the cost while satisfying customer service requirements”. Thus for
the giant like Amazon, managing inventory in the complex supply chain is
difficult. Although they are the best example for taking inventory related
decisions which can have significant impact on making excellent customer
service and with efficient supply chain cost.

In
addition, Amazon  faced huge problems and challenges of maintaining its
huge inventory in line with the efficiency rate is rapidly increasing. Most the
warehouses were too large therefore had to at one point that the company had to
find a better way of managing the inventory. Result was that the organization
did drop shipping system. Drop shipping model is a method of supply chain
management where the original retailer does not have its stock item or its
product to purchased by the customer but the actual retailer transfers the
order placed by the customer to the manufacturer or a wholesaler of the product
who, the actual retailer has already have an agreement over its profit share
and commissions. In general the retailer only enlists or displays the items
available  with different manufacturers or wholesaler or in some cases it
provides the catalogue of the items or products available with the manufacturer
retailer has tied up with. This is a drop shipping Model Cycle of delivery:

Source:
https://cdn.salehoo.com/files/image/blog/benefits-of-free-amazon-shipping-for-dropshippers-01.png?id=2

Amazon
has started out referencing parts of its management and resigning its
warehouses by introducing their “Chaotic storage” (Schofield, 2016). Warehouses
now are highly managed and arranged based on product categories or its level of
demands. However, the company decided to distance itself from the rearranging
constant to complete isles in case of new product and introductions, or even
its large deliveries quantities of items are an issue. Methods such as
organizations make a purchase straight to the manufacturers when a customer
makes an order. Business are run this way because there are no more
intermediaries partake in making a transaction and organization are able to
save a lot of money and time when making a purchases . Company develop simple
grid of items which are randomly assigned to isle, sections and shelf and can
be easily identified for the user’s purchase. By having a barcode for each
item, products can be easily located and found for more efficiently and must
faster finding. The registration system which these barcodes are based on is
able to update item availability. The cost of maintaining warehouses greatly
decreases and furthers more the company. The warehouses are still operating at
its lowest cost, and stocks are still put in the order of their barcodes.
(Michalski 2009). Amazon’s Management and inventory and not to forget their
Amazon Marketplace, is well supported by the Appath cloud software. On Appath’s
website, it shows that selling on Amazon is beneficial for many companies. It’s
not easy to manage the selling platform of Amazon.7

 

1.3.4 Amazon’s use of information and
information technology

Informations
and data analysis play a big role in supply chain management as inventory,
pricing, sourcing, transportation and facilities are based on an accurate
informations. Factors are to be discussed and considered when managing
informations. 8

 

Mobile technology

Powerful
cloud-based applications will increase gradually towards mobile platforms,
according to Hamerlinck. “Mobile devices are not only becoming more mainstream,
but more powerful. They have more storage, more computing power and more
graphics possibilities…The cloud will get more and more important”, he also
included he will be inviting his partners to build some new features.  9

Amazon’s cloud computing

Bigger
number of manufacturers and retailers are deciding to streamline their
worldwide supply chains for the long haul by making a signature for
pay-as-you-go logistics services available through the internet the cloud.
Services will reduce the supply-chain costs by making it faster and easier to
share information about shipping with their suppliers, transportation and the
end users. Processing informations with the latest most powerful tools. 11

Amazon
focus on attracting customers by selling “cloud infrastructure services”.
Amazin are able to use their own data and processing requirements to turn what
something would normally cost into a profitable division. They are successfully
sale and manage a big project which placed them a leading market in cloud
service.  12

 

Automated Warehouses using KIVA Robots

In Order
to make the shipping progress as fast as possible they use robots, which is new
technology. Amazon acquired a maker of a robotics systems. These robots speed
run the entire warehouse moving inventory from shelves to workers to accelerate
order flow. The company changed its name ti Amazon Robotics LLC in late 2015.
This was done like this because it was able to perform many tasks at the same time,
and did not require and breaks it was more efficient the humans. The primary
task of the robot performs is the identification of items which have been
ordered and attached to the transports for the pickup. When someone orders from
Amazon, a robot gets the informations to its system and will proceed its
requirements and will identify the location of the product. 13

Bezons
has confirmed to invest heavily into the IT development from the beginning of
the company’s operations. In the past years, Amazon has implemented services
and systems in the fields of website management’s, customer interactions,
search, and many other things. These services will require a good amount of
investments and an extremely well developed technological infrastructure.  Amazon
currently possesses the largest quantity of online retailing technologies
(Laudon et al., 2014).

 

 

 

1.3.5 Customer service and pricing

Amazon
introduced a strategy called “Put yourself in customer’s shoes”, which shows
they care about the customers so much. The word “empty chair” becomes a symbol
of customers centric business from inside the Amazon company. 17

Customer Relationship with retailers

Amazon
introduces its products by making them available on the net, and new items or
services happens much faster comparing to retailers that use physical channel
this is called “Time to Market”. It is easy to return for E-Business. This
represents another trade-off for everyone. However, there are risks for the
return of products which have been purchased online, which means customers
can’t have physical touch before buying the item. So they will be depending on
its description from the website. Simply speaking, returning items to retail
stores is much easier comparing to online.

Customer Experience

Customer
reviews were introduced early on the production of Amazon.com. Many people
thought amazon was crazy for people to post their negatives reviews on products
for sale on Amazon.com. Nowadays, customer reviews are a big part of Amazon. It
shows the relationship and its confidence of the products. Customers can now
upload images, answer other customers question on the product and rate each
other’s reviews.

https://www.amazon.com/p/feature/xwcf5prt9req576

customer pricing

Since
Amazon are the leading market across everyone, they still try to cut down on
customers prices. Amazon is successful in changing and adjusting its prices and
demand new methods to response to seasonality. (Chopra et al., 2007). Many
retailer are facing this seasonal peak and are facing many problems of
unavailability or an extended lead time and thereby late their deliveries. This
is why Amazon regularly offers “off-peak discounting”, which is a benefit for
many customers. This will be most beneficial during Christmas-peak.

Chopra,
S. and Meindl, P. (2007). Supply chain management. Upper Saddle River, N.J.:
Pearson Prentice Hall.

 

1.3.6 Ethical and environmental policy

 

According
to Martin Christopher, Creating a sustainable supply chain depends on “The
Triple Bottom Line” concepts which are Environment, Economy and Society. Amazon
employees should always stick to the law, and its company’s policies, and not
their personal demands. This is the code of business conduct and Ethics, which
is also known as the “Code of Conduct”. Employees who are unsure about the law
or any other legal they should contact the Legal Department. Conflicts of
interest include such as insider trading policy, discrimination and harassment,
health and safety, price fixing, bribery, recordkeeping, reporting and
financial integrity, questions; reporting violations and periodic
Certification.

http://phx.corporate-ir.net/phoenix.zhtml?c=97664&p=irol-govconduct

 

1.1.1   
Conclusion

All countries are not provided with Internet
access around the world. Internet connection is much needed to access Amazon
through mobile application and website.so working with telecommunication
providers would help improve the growth of company and many customers can enjoy
service of Amazon.

Amazons great achievement in supply chain would
be reductions of depending on third party by building its own logistics
network. This can make company an enormous competitive advantage when comparing
with competitors’.

Amazon should implement recycling package and energy
saving standards because company currently is not environmently friendly. Focusing
on green retailing would make them sustainable

 

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