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Amazon Supply Chain Management

Question:

Discuss about the Amazon Supply Chain Management.

Answer:

Introduction

Since the development of the internet, there has been a dynamic change in the business operations and the shopping culture of consumers across the globe. In the past years, consumers purchased products through physical stores such as supermarkets and retail shops. However, advancement in technology in the most recent years has led to the emergence of online retail stores where consumers can purchase their products over the internet. The online shopping is continually positioning itself as an alternative marketing tool. The success of e-retail companies heavily depends on the presence of a strategic supply chain management which is characterized by an efficient inventory management, product delivery, supplier relationship and aggregate planning. Amazon is a classic example of e-retail companies that has utilized its supply chain management to become one of the successful retail companies globally. As such, this paper seeks to evaluate the strategic chain supply management of Amazon Company and how it has contributed to its success.

Overview of Amazon Company

Amazon is an American multinational company that offers various types of products. The company is based in Seattle, Washington, United States of America. Amazon initially started as a bookstore. However, it has continually diversified its products over time. The primary goal of this American multinational corporation is to offer a one-stop shop experience for its customers, where they can get all the company’s products (Simchi-Levi et al., 2014). The company operates as a pure internet retailer that do not have any physical retail store. All its products are supplied and delivered to its esteemed customers through Amazon’s networks of distribution centers. This form of business operation enables Amazon to offer diverse, high-quality types of products at relatively low prices. Online retail chain system reduced its cost of operation as thus selling its products at affordable prices. Also, it facilitates customer satisfaction since it promotes customer convenience (Pearce, Robinson & Subramanian, 2011).

The presence of an efficient supply chain management helps Amazon company to respond to the customers' tastes and preferences effectively. Amazon has managed to strike a balance between distribution costs and levels of services by establishing efficient inventory networks as well as distribution centers (Sirmon et al., 2011). However, the company is experiencing competition from other enterprises that provide substitute brands in the market such as Walmart and eBay. Walmart has introduced free shipping services to its customer as part of after-sales services with the objective of retaining its loyal customers and attracting potential clients to utilize its products. However, the customers of Walmart are required to pick up the products at various physical stores. On the other hand, eBay, which is also an online retail company, has introduced shipping fee to the sellers of its products as a strategy of cutting down the cost for the buyers, who are final consumers of its products (Zentes, Morschett & Schramm-Klein, 2014).

Analysis of Amazon Supply Chain

Strategic fits

For any business organization to successfully satisfy its customers, it requires an efficient supply chain manage to facilitate the continuous supply of products and establish sustainable competitive benefits in the market. There are many advantages associated with an efficient and effective supply management. Such benefits include shorter commodity life cycles, inventory reduction a well as improved delivery services (Reuter et al., 2010). A successful business organization requires its chain supply strategy aligned to its competitive strategy goals. Amazon Company considers its customers as high responsiveness. For this company to respond to high uncertainty demand as well as the availability of brand products, the company has established four components that drive its outcome (Fernie & Sparks, 2014). The four parts are multi-tier inventory, efficient transportation logistics, and adequate storage facilities, a reliable information system that offers real-time information in the market and within the supply chain. The four components are the key factors that explain how competitive and supply strategies are aligned together to make Amazon have the most successful supply chain in the market (Lee & Whang, 2010).

Inventory Outsourcing

One of the main advantages of outsourcing is that it helps the business organization to concentrate on its primary activities as a strategy of reducing its operation costs. Amazon is one of such firms that need to take the advantages of the benefited associated with inventory outsourcing. However, Amazon has outsourced only some part of its inventory as a technique of managing risks and service optimization (Akkermans, Bogerd & Vos, 2014). Those products that are popular and have high demand in the market are kept and managed in-house while distributors stock the slow-moving ones. These products are then shipped to distributors upon the Amazon’s authorization. Amazon acts as a trans-shipment center, a feature that has enabled it to reduce the cost of keeping large quantities of inventory, considering that customer services can be improved through faster shipping of products (Zentes, Morschett & Schramm-Klein, 2014).

Price differentiated Customers

The company uses delivery and dispatch options in classifying its customers into two main groups based on responsiveness since different customers require different prices and service levels. The company offers various types of deliveries with different prices such as First-class delivery, free super saver delivery as well as one-day delivery. Each of these types of transportation options determines the urgency of delivery of goods to a particular customer. For instance, if the client requires high responsiveness or wants to get the products within hours, he is willing to pay more. Therefore, the company has categorized customer segments to suit its distribution and inventory strategies. The classification of customer segments aims at managing the cost and service level (Akkermans, Bogerd & Vos, 2014).

Amazon has also established a membership program known as Amazon Prime whose objective is to provide one-day delivery service for a whole year to a particular customer at the cost of 50 GBP. The customer who has subscribed to the Amazon Prime also gets a discount if he or she needs evening or express delivery. Apart from the discount benefits, the Amazon Prime members are allowed to borrow Amazon Kindle books for free (Wook & Kim, 2016).

Inventory segmentation

The inventory of this organization is multi-tier inventory management. Its inventory provides optimized real-time service to Amazon and thus, allowing it to have very few inventory needs to attain its service level. Such kind of network helps the company to provide unlimited selections to its customers.  The inventory of Amazon is made up of three tiers. One of the tiers is the distribution center, which helps this business organization to keep minimal inventories. The other tier consists of partner Distributed Control system (DCs) and Wholesaler. In case the commodities are not available in DCs, Amazon utilizes IT systems to search the products in partner inventories so as to determine the party that will be responsible for orders (Johnson & Whang, 2012). The third tier of Amazon’s multi-tier inventory consists of vendors, publishers, manufacturers and third party sellers that play a crucial role in helping Amazon to fulfill selection of products it offers.

Transportation

The company provides various delivery options for its buyers as a measure of controlling transportation costs. The company offers free shipping services so as to attain longer lead-time of transportation. It helps the company to cut down transportation costs get the benefits of economies of scale. Although the buyers are willing to incur higher prices to get their products on time, Amazon has maintained this transportation strategy as an incentive to low-income customers Bradshaw, D., & Brash, C. (2011).

Product delivery

The delivery system of Amazon also incorporates third-party logistics to transport some of its products direct buyers. The main the logistic company that partners with Amazon is DHL. However, Amazon utilizes order check and package functions in tracking the consumer’s product while on transit. Moreover, the company utilizes software applications such as Linux, Oracle, and SQL to improve service delivery. Third party logistics helps Amazon Company to attain economies of scale through specialization through an efficient supply chain network. It also improves the performance of supply chain system of the company. DHL, which is a key logistic company that partners with Amazon, has an established logistics information platform that facilitates data exchange from Amazon to the buyers. DHL does not only serve the purpose of product delivery for e-business but also manage order and customer services on behalf of Amazon (Monczka et al., 2015).

Also, Amazon utilizes Enterprise Resource Planning (ERL) to improve its online businesses. ERP is an information technology tool that aims at improving online business as well as resource integration. It helps Amazon to share information with its key stakeholders such as customers, third party logistic companies and creditors. This tool has the various advantage to the company’s supply chain.ERP facilitates high levels of response by ensuring that Amazon, logistics third party company and customers get the require information regarding the products on time, and provide timely feedback to the concerned party (Chen & Chang, 2013). Also, this tool facilitates that concept of information sharing in the supply chain and thus making Amazon’s supply chain system become one of the most successful in the market. Another advantage of ERP system is that it reduces the operation costs of Amazon Company through workflow reduction. Also, the system it promotes quality services for supply and retail departments of Amazon. Therefore, the implementation of ERP system on the online stores of Amazon Company has helped it to achieve the target of high flexibility, cost reduction, and improved supply chain performance.

Linkage of the organization’s activities and SCM theories

Managing business in a global context helps in delivering high business perspectives so as to find a solution to the complexities that executives and managers face when operating in the local and worldwide market. The understanding of the SCM theories helps in the critical appraisal and adoption of highly competitive business strategies concerning the theoretical situations that can foster good performance and capture perspectives of customers. Amazon competitively operates in the global market through the adoption of various strategies such as IT, SCOR, and RFID among other strategies. According to Johnson and Whang (2012), RFID technology is a revolutionary element that helps in ensuring the right goods are available with no errors and discrepancies and at the right places. Amazon adopting the use of this technology makes its supply chain more precious hence improving the reliability and efficiency of its entire chain. Real-time information is thus made available for every online product hence significantly improving market and customer planning and administration. By the use of RFID tags, the products can be counted or automatically scanned simultaneously within a short time. It has thus translated to a reduction of cost as RFID carries out processes that are labor intensive in a faster and more accurate manner.

SCOR is a supply chain management model that addresses improves and communicates supply chain decisions within a company to its suppliers and customers. It describes the processes required to satisfy the demands of customers as it explains the process along the entire supply chain thus providing a basis for improvement. It thus focuses on the planning, sourcing, making, delivery, and returns which are the five primary areas of the supply chain (Aarti & Rupa, 2012). In the process of handling restitution of packaging, containers, and defective products, the performance of Amazon involves management of return inventory, business rules, assets, regulatory requirements, and transportation. Adopting SCOR model in its operation thus enables Amazon to identify the possible challenges within its operations thus allowing full leverage of capital invested, supply chain roadmaps creation and aligning business functions that have seen it through an average of three to six times return on its capital investment annually. 

Amazon has also incorporated IT  in its supply chain is Electronic Customer Relation Management (E-CRM), which is an electronic platform that plays the role of managing customer services (Chopra & Sodhi, 2014). The Amazon management team utilizes this system in analyzing customer’s information such as historical transactions and personal data which is crucial for e-retailer to study the loyalty or shopping habit of its customers. Also, the customer’s browsing record and transaction history help the company in developing relevant marketing strategies for the new products that suit the current tastes and preferences of consumers in the market (Zentes, Morschett & Schramm-Klein, 2014). E-CRM performs functions such as data mining and data analysis to create a comprehensive customer database that can be utilized in decision making. E-CRM has helped Amazon to increase its market share across the globe, enhance speed response, reduce operation as well and enhancing customer satisfaction.

Challenges and Solutions

Although Amazon has positioned itself as one of the leading e-retailer company as the globe, it stead needs to re-evaluate its supply chain so as to make the significant breakthrough in e-retail business. Regarding technology, the company does not have a storefront and as such, it should improve its visual store experience as a mechanism for compensating the touch of its brand product (Dupuis & Prime, 2016). Also, the company has been criticized for unfavorable working conditions of its workers in DC such as long working hours, mandatory overtime and increased workload which pushes employees to physical limits. Amazon can enhance its labor productivity and reduce operation cost by having robots to work in DC and other demanding areas. The transportation sector also needs some improvement (McWilliams & Siegel, 2010).

The company’s dependence on logistics third party companies such as DHL as a mechanism of lowering transportation costs makes the supply chain system more efficient. However, third party firms such as DHL are causing negative reputation for Amazon due to their failure to deliver the products to clients on time. Therefore, Amazon should carry out its transportation activities with their private fleet in last-mile supply since responsiveness is a key factor this e-retailer company.

Conclusion

Supply chain management is a major element in the success of Amazon Company. Amazon’s primary goal is to provide a one-stop service that consumers can get all Amazon’s products on its website and will deliver such products to customers within the required time. In order to realize this goal, Amazon needs to have a productive relationship with its partners through a multi-tier inventory system so as to provide unlimited goods to customers. Also, the company should maintain efficient distribution and supply networks to deliver goods to the customers. All these factors influence Amazon’s main strategy of proving high responsiveness to the buyers in the market.

References:

Aarti, D., & Rupa, R. (2012). Challenges For Supply Chain Management In Today’s Global Competitive Environment International Review of Business Research Papers. 6 (2), 194 – 203.

Akkermans, H., Bogerd, P., & Vos, B. (2014). Virtuous and vicious cycles on the road towards international supply chain management. International Journal of Operations & Production Management, 19(5/6), 565-58

Bradshaw, D., & Brash, C. (2011). Managing customer relationships in the e-business world: how to personalise computer relationships for increased profitability. International Journal of Retail & Distribution Management, 29(12), 520-530.

Chen, S. J., & Chang, T. Z. (2013). A descriptive model of online shopping process: some empirical results. International Journal of Service Industry Management, 14(5), 556-569.

Chopra, S., & Sodhi, M. S. (2014). Managing risk to avoid supply-chain breakdown. MIT Sloan management review, 46(1), 53.

Dupuis, M., & Prime, N. (2016). Business distance and global retailing: a model for analysis of key success/failure factors. International Journal of Retail & Distribution Management, 24(11), 30-38.

Fernie, J., & Sparks, L. (2014). Logistics and retail management: emerging issues and new challenges in the retail supply chain. Kogan Page Publishers.

Hernandez, T., & Bennison, D. (2010). The art and science of retail location decisions. International Journal of Retail & Distribution Management, 28(8), 357-367.

Johnson, M., & Whang, S. (2012). E‐business and supply chain management: an overview and framework. Production and Operations management, 11(4), 413-423.

Lee, H. L., & Whang, S. (2010). Information sharing in a supply chain. International Journal of Manufacturing Technology and Management, 1(1), 79-93.

McWilliams, A. and Siegel, D.S.(2010). Creating and capturing value: Strategic corporate social responsibility, resource-based theory, and sustainable competitive advantage. Journal of Management, p.0149206310385696.

Monczka, R. M., Handfield, R. B., Giunipero, L. C., & Patterson, J. L. (2015). Purchasing and supply chain management. Cengage Learning Publisher.

Pearce, J. A., Robinson, R. B., & Subramanian, R. (2011). Strategic management: Formulation, implementation, and control. Chicago, Illinois: Irwin.

Reuter, C., Foerstl, K.A.I., Hartmann, E.V.I., & Blome, C. (2010). Sustainable global supplier management: the role of dynamic capabilities in achieving competitive advantage. Journal of Supply Chain Management, 46(2), pp.45-63.

Simchi-Levi, D., Kaminsky, P., & Simchi-Levi, E. (2014). Managing the supply chain: the definitive guide for the business professional. McGraw Publishers.

Sirmon, D.G., Hitt, M.A., Ireland, R.D. and Gilbert, B.A., 2011. Resource orchestration to create competitive advantage breadth, depth, and life cycle effects. Journal of Management, 37(5), pp.1390-1412.

Wook, k., Kim, S. (2016). Effects of supply chain management practices, integration and competition capability on performance. Supply Chain Management: An International Journal, 11(3), 241-248.

Zentes, J., Morschett, D., & Schramm-Klein, H. (2014). Strategic retail management. Betriebswirtschaftlicher Verlag Dr. Th. Gabler GWV Fachverlage GmbH, Wiesbaden (GWV).

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