Critical Analysis Exercise

The analyzer " Case Study"for the critiquer to review and comment on.

1. Write a 300-400 word critique of the analysis in Word (or equivalent). Apply the usual APA formatting for titles, headings, and any references and citation you may use.
2. Ask questions and make observations about the case methodology, type of data and sources used, and manner in which he or she approached the analysis.
3. Include questions, observations, and suggestions about how what they did in the case study might apply to the analysis of their chosen company for the final project
4. No Plagiarism

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Case Study Report - Amazon

Introduction

Amazon is now a common household name when it comes to purchasing consumer goods around the globe. Since its inception in 1994 as an on-line book retailer, the company has grown into a world leader in on-line sales of consumer goods with a net worth of $427 billion as of May 2017 with an annual revenue of $136 billion in 2016 (Forbes.com, 2017). Amazon’s sales still continue to grow on a regular basis. As of 2017, Amazon boasts roughly 5% of the total retail sales across the US, excluding grocery (Thomas, 2017).

Amazon’s vision statement “To be Earth’s most customer-centric company, where customers can find and discover anything they might want to buy online” and its mission statement “We strive to offer our customers the lowest possible prices, the best available selection, and the utmost convenience” speak to its core focus on the customer, selection and price. This study reviews both academic and web based literature on the supply chain of this mass consumer goods on-line retailer and its relationship with these core values.

Investments/Finance

Amazon has always seen low profit margins. As an example in 2013, Amazon’s profit was a mere $274 million from $74.45 billion in revenue (Yglesias, 2013). As Amazon is a customer-centric company, Bezos (Amazon’s CEO) believes that companies who are very profitable are charging its customers too much and this is in contract to pleasing its customer. Bezos believes customer satisfaction is what keeps the customer loyalty to ensure large revenues even though the margins are low. Part of that customer satisfaction includes good prices for product. Amazon shareholders believe in the business strategy developed by Bezos and that the strategy of

foregoing high profits to expand the business and gain market share are highly beneficial for the long term business goals.

Often, Amazon has been described as a “not for profit company”. However, despite critic’s comments, Bezos knows the company is right in line with both its vision and mission. Although the company has reported losses, it is still quite profitable. What the critics don’t realize is that the investment opportunities being seized by Amazon in such areas as fulfillment centers, logistics, software, hardware, global expansion etc.(Yarow, 2013). As an example, Amazon has invested or purchased over 128 companies in the last two decades (LaHenry, n.d.)

Supply Chain

In the past, Amazon owned and shipped product direct to the customers via its multitude of fulfillment centers. Today, Amazon offers a variety of selling options for its suppliers and customers. Amazon still purchases the majority of high moving items for sale, receives the goods in the fulfillment centers, stocks and ships items as required, but Amazon now also offers manufacturers or business the opportunity to sell using the Amazon platform but ship independently of Amazon’s fulfillment centers, and also offers the manufacturer/business the opportunity to sell through the Amazon platform and inventory and ship goods through Amazon fulfillment centers while still owning the product and paying a service charge for logistic activities (Rao, 2016). The latter option allows Amazon to gain profit through third-party sales without having to sink money into additional inventories. Amazon now has more than 2 million third-party vendors using the Amazon platform to facilitate sales, consisting of roughly 40% of the items sold through Amazon (Zanbelich, 2014). Offering owned and third-party goods enables Amazon to increase its offering to the customer without the requirement to purchase and stock every item.

Inventory/Warehousing

When inventory is owned or stocked through Amazon fulfillment centers, the goods are received at the location, scanned via bar code and placed into inventory through a fairly labour intensive process. Although it looks quite disorganized, Amazon uses a shelving method called “random stow” were inventory is placed randomly in the warehouse. Warehouse staff place incoming inventory anywhere it will fit rather than placing it next to similar items. This method will result in random items being stocked together such as toasters, car parts, curtains or home décor items. When an order is placed, pickers receive the request and computerized algorithms direct staff where to retrieve items in the closest location to minimize labour hours pulling stock to fulfill orders (Altshul, 2016). The packing area is further enabled with computer systems that advise the proper box size, packing materials and even the length of tape required to secure the package (Bixby, 2015). Packages are then placed on conveyors where labels are affixed and sent to the shipping area for pick up.

Amazon takes advantage of the use of automation in its fulfillment centers through different forms of scanners, conveyors, moveable shelves, computer algorithms etc. (Bixby, 2015). In 2012, Amazon acquired Kiva Systems which is an automated robotics system. This system allows small robots to pick, pack and sort shipments without human assistance. An average order takes a human worker roughly 90 minutes to fulfill where the implementation of the Kiva robots has reduced that cycle time to about 15 minutes (Bixby, 2015). This reduction in picking time enables order to be shipped faster with reduced overhead costs.

Distribution centers are moving closer to metropolitan areas to lower delivery times to facilitate programs such as Amazon Prime (2 day shipping) and Amazon Prime Now (1 hour shipping). Development in fulfillment centers can be seen in the expansion in 2011 when Amazon opened

17 distribution centers (D.C.s) and spent a whopping $500 million in shipping enhancements (Szakonyi, 2012). As of August 2017, Amazon holds over one hundred distribution centers in the U.S. with a total of almost 300 logistics facilities, but the company owns over 450 facilities worldwide (MWPVL, n.d.).

As noted by Heizer, Render & Griffin (2014), managing massive inventories has made Amazon “a world class leader in warehouse management and automation”. The Pheonix Arizona fulfillment center is an example, of the sheer magnitude of the Amazon warehousing development. It boasts 1.2 million square feet (roughly 28 football fields) with 15 million items in stock daily. It is Amazon’s innovation and investment in warehousing which enables the company to increase customer satisfaction though increase product offerings and faster delivery times.

Logistics

Outbound shipments from Amazon fulfillment centers typically use local carriers including US/Canada Postal Service, UPS, CEVA, DHL, FedEx, Purolator etc. Due to special rates negotiated with these carriers, Amazon is able to ship items quickly with good rates. These special negotiated rates allow Amazon to pass on the savings in shipping costs to the customer in order to keep the cost to the consumer as low as possible. Not only do in bound goods purchased by Amazon for resale obviously use these rates, but supplier owned goods inventoried in fulfillment centers by third-party suppliers also take advantage of these special rates thus again, keeping costs to the consumer as low as possible.

As is typical for Amazon, in keeping cost low and developing new innovative ways to do business, that Amazon is developing a new strategy which will allow the on-line retailer to compete with the likes of UPS and FedEx with independent shipping abilities in “Project Dragon

Boat” (Bentley, 2017). In accordance with “Project Dragon Boat” Amazon recently obtained a license from both the U.S. Government and the Chinese Ministry of Commerce to act as a freight forwarder for ocean container shipping. It will allow the company to control the flow of goods from China and India to New York, London etc. This allows Amazon to independently buy space on container ships at whole sale rates. Amazon has also furthered its independence for shipping as it signed a deal with Transport Services Group to lease 20 Boeing 767 aircraft to ship goods across the U.S. These two moves by Amazon decrease its need to rely on third party logistics companies and lower it shipping costs dramatically.

Alternatively, the initiative “Project Consume the City” will expand Amazon’s ability to ship outbound packages to the consumer as well, again competing with the shipping giants on a local front. This initiative comes after analyzing an annual expenditure of $11.5 billion in shipping in 2015 amounting to almost 11% of sales (Pallandino, 2016). “Project Consume the City” is estimated to save to company roughly $3/package and about $1.1 billion annually (Pallandino, 2016).

Most retailers and e-commerce companies cannot manage their own logistics. What makes Amazon so successful is the fact that it uses some of the world’s most sophisticated analytics and technology available to manage such huge shipping requirements (Bentley, 2017). Not only will these new initiatives enable Amazon to pass savings on to the customer but also increase their control on and speed of in and out bound product movement.

Pricing/Revenue

When it comes to on-line consumer goods sales, Amazon generates revenue in two different ways. First, Amazon generates revenue/profit through the sale of Amazon owned goods. In accordance with the company’s vision and mission, Amazon prices these items with minimal

margin, providing the customer with product priced as low as possible. However, when it comes to third-party supplier goods, Amazon does not dictate the price. The third-party supply uses the Amazon platform to sell goods as they see fit, paying Amazon a flat rate fee of $1 per item plus a varying percentage based on the items category (TechBoomers.com, 2017). In addition to the third-party supplier sales fees, Amazon also charges additional fees for items which are stored in the Amazon fulfillment centers and shipped by Amazon. This service is called Fulfilled By Amazon (FBA). These FBA fees vary based on the size/weight of the item and duration/time of year the item is occupying space in the fulfillment center (Hufford, 2015).

Conclusion

As you can see through investment/finance, supply chain, inventory/warhousing, logistics and pricing/revenue, that Amazon has a robust supply chain which speaks to its innovative approach to business. Through Amazons innovation, lower profit margins and investment in its supply chain, Amazon has been able to gain huge market share in the consumer goods market through focusing on its customers, selection and price. As Amazon continues to focus on its corporate vision and mission, the company has the potential to continuing gaining marketshare towards being the leading global consumer goods provider.

References

Altshul. A . (April, 2016) Amazon Inventory Management. Retrieved from https://www.youtube.com/watch?v=zERrqLFotSY

Amazon.com (n.d.) Shipping Carrier Contacts. Retrieved August 27, 2017 from https://www.amazon.ca/gp/help/customer/display.html?nodeId=918804

Bentley. M. (2017) Fighting Amazon's supply chain takeover. Logistics Management, 56(2), 42-47.

Bixby. C. (December, 2017) Amazon: Making History. Retrieved from https://rctom.hbs.org/submission/amazon-making-history/

Burnson. F. (n.d.) 6 Ways Amazon Is Changing Supply Chain Management in 2016. Retrieved from http://www.softwareadvice.com/resources/amazon-supply-chain-management/

Forbes.com (May 2017) The World’s most Innovative Companies. Retrieved from https://www.forbes.com/companies/amazon/

Hook. L. (July, 2017) Amazon sticks with investment plans despite blow to profits. Retrieved from https://www.ft.com/content/7ee5e70c-730a-11e7-aca6-c6bd07df1a3c

Hufford. J. (March, 2015) Are Fulfillment by Amazon’s (FBA) Fees Worth the Cost? Retrieved from https://www.nchannel.com/blog/is-fulfillment-by-amazon-fba-worth-the-cost/

Knight, W. (2015). Inside Amazon. MIT Technology Review, 118(5), 62-69.

Ldhenry. Z. (n.d.) Amazon Has Acquired or Invested in More Companies Than You Think – at least 128 of Them. Retrieved from https://www.inc.com/magazine/201705/zoe-henry/will-amazon-buy-you.html

MWPVL International (n.d.) Amazon Global Fulfillment Centre Network. Retrieved August 27, 2017 from http://www.mwpvl.com/html/amazon_com.html

Pallandino. V. (September, 2016) Amazon looking to abandon UPS, FedEx in favor of its own delivery service. Retrieved from https://arstechnica.com/information-technology/2016/09/amazon-wants-to-challenge-ups-and-fedex-with-its-own-delivery-system/

Rao. L. (November, 2017) Amazon No Longer Owns and Ships the Majority of Items It Sells. Retrieved from http://fortune.com/2016/11/17/amazon-third-party-sellers-holiday/

Szakonyi, M. (2012). Amazon Says Supply Chain Investments Could Hurt Profit. Joc Online, 4.

TechBoomers.com (April, 2017) How Does Amazon Make Money? Retrieved from https://techboomers.com/t/how-does-amazon-make-money

Thomas. L. (July, 2017) This chart shows how quickly Amazon is 'eating the retail world'. Retrieved from https://www.cnbc.com/2017/07/07/amazon-is-eating-the-retail-world.html

Yarow. J. (October, 2013) Former Amazon Employee Explains How The Company's Business Model Really Works. Retrieved from http://www.businessinsider.com/amazons-profits-what-people-dont-understand-2013-10

Yglesias. M. (April, 2013)Jeff Bezos Explains Amazon's Strategy for World Domination. Retrieved from http://www.slate.com/blogs/moneybox/2013/04/12/amazon_as_corporate_charity_jeff_

Zambelich. A. (June, 2014) A RARE PEEK INSIDE AMAZON'S MASSIVE WISH-FULFILLING MACHINE. Retrieved from https://www.wired.com/2014/06/inside-