Supply Chain Management

CASE STUDY : AMAZON
In the early 1990’s, the dot-com boom drastically changed the landscape of communications, business and culture with no signs of regression. For new businesses, effective innovation offered great potential through the World Wide Web. Growing popularity of Internet access created an inspiring logistical niche later popularized as “E-commerce”, proving to be a successful means of purchasing products through the Internet. Jeff Bezos, founder of Amazon.com, Inc. (Amazon) was the first to profitably innovate in this emerging market, and has become the world’s largest online retailor. Bezos realized the opportunity presented by the web revolution, whereas becoming an established industry leader was the only means to long-term profitability. In 1994,Bezos left his vice-president position at D. E. Shaw, a Wall Street firm, to move forward with his business idea that would soon become Amazon.com.Before the end of 1994, Jeff Bezos incorporated his book e-commerce company as “Cadabra”.Later, Bezos rebranded the company as Amazon for two distinct reasons: The alphabetical advantage when listed in directories and metaphorically representing the Amazon River in terms of the company’s size. Piloted right out of Bezos’s garage, Amazon became an instant success and soon acquired a warehouse for continued operations. Bezos planned his supply chain strategically from day one, placing the company headquarters in Seattle near a large book distributor in Oregon.
By 1995, Amazon quickly became the world’s top online book selling website. Two popular web portals (Yahoo! and Netscape) placed it in their featured website lists.6 Two business practices correlated with Amazons immediate scalable success, it was capable of adjusting to rapid demand of products while maintaining satisfied customers. Amazons mission statement still reflects these core concepts today: To be Earth’s most customer-centric company, where customers can find and discover anything they might want to buy online, and endeavours to offer its customers the lowest possible prices. Amazon created a supply chain based on wholesale relationships for inventory it did not have, acting as the middleman in the shipping process because it still only had its Seattle warehouse. With this logistical design, Bezos was able to ship to over 50 states and 45 countries in July of 1995.8 Bezos’s bachelor degree in computer science and electrical engineering from Princeton (1986) provided him insight to the interface, information systems and database capabilities Amazon relied on. Leveraging these three technically competitive factors allowed customers to easily find the books they needed and simplified the purchasing process. He sought balance between capability, performance and low operations cost in the selling and delivery of books. This is supplemented by their customer-oriented culture; not just a necessary task but also a value they believe makes Amazon profitable. According to Bezos “Customer focus is a cultural issue” and he expresses it as a differentiator for Amazon. When they’re in the shower in the morning, they’re thinking about how they’re going to get ahead of one of their top competitors…Here in the shower, we’re thinking about how we are going to invent something on behalf of a customer. When Amazon releases a new service, it’s directed at innovating within their current customer base or exploiting the market for new ones. In July of 1996, they launched their “Associates” program, allowing independent websites to receive commission revenue at 3-8% per sale. Specifically, this was performed by inline linking to Amazon titles and was one of their first vertically integrated moves. The dynamic reach that individual sellers could achieve at the niche level produced a great revenue source for Amazon. The success of this program took hold in 1997, when large companies at the time such as Yahoo! and America Online became the top grossing Amazon has developed the industry reputation for being an “everything store.”
Their product diversity continues to grow through acquisitions of successful competitors and innovations into new niche markets. Headquartered in Seattle, Washington, Amazon operates on a global scale. Beyond the corporate offices, their fulfilment, customer service, data, and software development centers are located in many countries. Amazon’s products, services, and divisions are vertically integrated to create internal synergies so departmental names and structure are dynamic and change often. Table 1 displays the nine divisions that associates in the program.
Amazon communicates its business and operating philosophy through the vision of its CEO Jeff Bezos. Their mission state men loosely defines the products and services Amazon sells, instead discussing customer service as being critical to their success. As a result, it’s clear Amazon does not prefer to label itself as the seller or producer of any one product or service. First, Amazon recognizes markets they can compete for customers in that are underserved by existing competitors. Secondly, Amazon strategically innovates by developing new markets through improved delivery methods or synergetic combinations of other strategic business units. Each market venture always ties back into their distribution and logistical capabilities, clearly represented in their most profitable products and services.
Amazon’s retail service focuses on “more types of products, more conveniently and at lower prices”. Their retail sales and distribution vertically integrate with all other products offered (both digital and physical). Through their e-commerce platform, they empower the consumer with tools to research and comparison shop. When the decision to purchase is made, they make the process as easy, cost effective and satisfying for the consumer as possible. Amazon focuses on attracting “developer customers”, through selling “cloud infrastructure services” hosted at Amazon’s data centers. Amazon is able to subsidize its own data and processing requirements by turning what’s normally a cost center into a profitable division. Amazons ability to successfully scale and manage large projects has placed them as the market leader in cloud computing services.
Amazon offers a variety of digital content delivery services (Amazon Instant Video September 2006, Amazon MP3 September2007, and the Kindle Store November 2007).Amazon Instant Video has distribution rights from three major mainstream broadcasting networks (CBS, NBC, and FOX) in addition to agreements with smaller broadcasting networks. Amazon MP3differentiates its platform from competitors by offering downloads with no Digital Rights Management (DRM).The Kindle store sells content designed for the Kindle platform. E-books are the primary digital product sold, but shared content between the aforementioned media services exist as well.
1) What are “push” and ‘Pull” supply chain management strategy. – (10 marks)
2) What does the supply chain management strategy by Amazon? -(10marks)
3) What the meaning of customer relationship management and define the terms of cross selling implemented by amazon? (10 marks)
4) What are the key tools of supply chain management?
5) How does the implementation seven Rs Rule by Amazon?

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