Will Amazon Dominate the Future Supply Chain?
Will Amazon Dominate the Future Supply Chain?
Marcelle Malagón Báez
Gerard C. Shockley
Boston University
MET AD 680: Global Supply Chains
Dr. Corlu
February 7, 2019
Will Amazon Dominate the Future Supply Chain?
Abstract
Amazon, Inc. operates one of the largest and most complex global supply chains on the
planet. Their cultural aim is to maximize their continuous service improvement and provide an
optimal customer experience. With consistent quarter over quarter revenue run rates the
founder's, Jeff Bezos, intent to be the world’s largest online bookstore goal would be realized.
The company operates a complex service supply chain where in 2018 it reached over two million
independent third-party sellers listed on the Amazon ecosystem (Mark & Johnson, 2018). In
2017, the behemoth distributed an astonishing 17.5 billion domestic shipments (Mark &
Johnson, 2018). In addition to the complexity and management of goods and service delivery,
Amazon operates the largest cloud computing service known as Amazon Web Services where in
2017 it exceeded 17.5 billion dollars in revenue (Mark & Johnson, 2018). Amazon’s leadership
in retail and web services supply chains have earned them the status of world's largest online
retailer, surpassing their competitors. With complexities and challenges in the global supply
chain, can the momentum and achievements of Amazon continue at this unparalleled rate? What
are their challengers doing to outpace Amazon with respect to adding new and improved
services? Are they innovating at a rate of change that will offer competition to the very
successful business models employed by Amazon? This paper will consider such questions with
an in-depth analysis of Amazon’s approach to supply chain management. The structure for the
paper will be to pose a question, include it as the header, followed by our analysis of the topic.
Will Amazon Dominate the Future Supply Chain?
The Amazon Supply Chain: Preliminary Analysis
Providing an analysis of the supply chain systems Amazon illustrates close to a role
model for service supply chain delivery. The Amazon business model combines both tangible as
in the case of delivery of products and intangible as outlined in the delivery of services from
their Amazon Web Services (AWS) corporation. Combining the distinguishing characteristics of
each, they provide both functions that provides services such as information technology as well
as goods directly from their network of over two million suppliers and nearly eighteen million
individual products (Mark & Johnson, 2018). They operate a global 24x7 operation seamlessly
integrating a diverse network of tiered supply chain members into their bottom line. Amazon
also “follows the sun” with service and support networks while treating down-stream tiered
suppliers like family. Amazon meets the classic definition of a global supply chain with work
performed at a global scale across a network of manufactures that are considered critical
stakeholders. Examples include food services production suppliers which would be considered
part of their tiered suppliers. Amazon also formed fulfillment mechanisms for its third-party
suppliers which has been constantly improved on. They create code named projects for
improvement processes and have formed ventures that are dedicated to process improvement as
evidenced by the formation of “Global Supply Chain by Amazon” in 2016 (Mark and Johnson,
2018). Amazon is unique where it utilizes a hybrid supply chain approach employing both push
and pull supply chain concepts (Hybrid). Comparing this model with traditional suppliers the
Amazon method was to provide oversight and control of flow unit, process flow and quality
control from the source to the final customer delivery influencing on time delivery and
excellence of process.
What makes the Amazon supply chain operate successfully?
Amazon operates a global supply chain where they take complete ownership of the
process of delivery. Despite having several first, second, and third-party sellers involved
Amazon takes direct control and are labeled the Merchant of Record (MOR) this implies that
Amazon becomes the legal owner of the suppliers inventory prior to shipment of the goods. The
key to operating this at scale is shared access to inventory and procurement data. Amazon shares
Will Amazon Dominate the Future Supply Chain?
that data with suppliers in a central system called Vendor Central (Mark & Johnson, 2018). That
system does not attempt to integrate disparate inventory control systems but requires that
vendors avoid data integration differences and allows for the direct ingestion of inventory into
the Amazon system. They are allowed various unit control options that maximize the fulfillment
process.
One of the more successful characteristics is the Amazon approach to warehousing and
delivery processes. The company deploys deep automation in the warehouse instrumenting
(Mark & Johnson, 2018). Amazon purchased a company to assist in the full automation approach
and in 2012 purchased Kiva systems (Mark & Johnson, 2018). They were a leader in robotics
deploying autonomous robots that can actually make decisions on the flow of goods at a
distribution center. Amazon is also a leader in the latest Artificial Intelligence in their
warehouses deploying advanced computer vision, depth sensing and object recognition (Mark &
Johnson, 2018). Amazon has differentiated themselves by not only employing techniques to
improve their supply chain management systems, but they also offer these systems directly to
consumers via services from Amazon Web Services. All of the optimization technologies in use
by Amazon are the identical services offered such as EC2 - Compute, S3 - Storage and allowing
the flow of supply chain data on the Amazon global network. Amazon has also innovated to
constantly optimize supply chain via the introduction of Amazon Prime, offering expedited
service.
While Amazon does not actually produce goods, how can we learn from their Supply Chain
Management experience?
Amazon does not actually produce goods as part of their business model. Their model
contains a role model optimized supply chain management systems and facilities that can be used
to compare against other topics. Amazon constantly looks to improve by offering both the
traditional cost efficiency supply chain design where goods are passed via fulfillment centers in
automated conveyor systems towards the efficient shipment of those goods to sortation centers.
The goods in the cost optimized system would then be delivered to the consumer in the
traditional freight process taking sometimes seven or more days to arrive at the customer
Will Amazon Dominate the Future Supply Chain?
location. Amazon would be able to better estimate the demand of such systems using commodity
product classification techniques. Amazon then innovated and offered a responsive design
option offering clients improved service and expedited delivery options and Amazon Prime was
born. Amazon Prime would be piloted and offered in select markets. That option would optimize
the supply chain management process by implementing outbound hubs for products. Amazon
Prime hubs were small buildings that would pull capacity to select locations where Amazon
could take advantage of flexible tiers supply members with an ability to respond to capacity
demands for the hot items (Leblanc, 2018). The outbound sortation centers acted as optimization
centers allowing for guaranteed product delivery to Prime consumers. The lessons learned on
supply chain strategy is taking both the path of optimizing the cost-efficient analysis with the
more responsive tiered option available as options for consumers. In both cases employing
excellence in the ordering, procurement and delivery to consumer process will continue to drive
the value proposition for Amazon.
Brick-and-Mortar Retailers vs. Amazon
Brick-and-mortar (B&M) retailers, that lease or own a physical building or space, provide
several advantages to customers that online businesses, such as Amazon, cannot provide. For
instance, stepping into the doors of Saks Fifth Avenue, Macy’s or Lord & Taylor is a local
attraction. Between the smell of perfume and makeup samples given, the customer has the ability
to try free samples of different high-end products that encourages the consumer to shell out
hundreds of dollars on luxury brands. Moreover, some of these stores provide additional services
to some of their premier customers such as a personal shopper or member exclusive events to
offer them a unique shopping experience that keeps them coming back.
Even though Amazon cannot compete with these services, the company can provide
several other instant gratifications. The company has implemented a number of developments
over the years that have contributed to their success. The truth is “we are at the intersection of
major technological, economic, and societal changes that are profoundly reshaping the retail
sector” (Berg & Knights, 2019, p. 44). These changes will to continue to occur and it will be up
to the customer to decide how they would like to buy their products. Many might choose
Will Amazon Dominate the Future Supply Chain?
Amazon for its convenience and others will probably choose a hybrid: combining both in-person
and online shopping.
Amazon Prime and Amazon Prime Now are two wonderful examples of how the
company overcame the ongoing competition with B&M stores and distinguished themselves
from other online retailers. Amazon Prime, introduced in 2005, promising to deliver free two-day
shipping for all its members and, in several locations, Amazon Prime Now offering free
same-day two-hour deliveries (Mark & Johnson, 2018). Both these services have radically
changed the way customers online shop. “As of April 2018, there were over 100 million Prime
members, who spent an average of about $1,300 a year on Amazon’s website, significantly more
than the $700 spent by non-members” (Mark & Johnson, 2018). The revenue Amazon generated
was impressive: about $9.72 billion in 2017.
Another great example is Amazon’s Dash buttons. With a single button press, customers
can order household items from their favorite brands without ever needing to go online.
“Amazon’s vision is that people will mount their buttons in their kitchen, pantry, laundry room,
and bathroom using the attached adhesive strip on the back of the device” (Banker et al., 2018).
These brands include: Tide, Bounty, Ziploc, Pampers, among others (Amazon, 2019). This
provides instant gratification as it simplifies the buying process and shoppers have peace of mind
that their items will arrive at their front door.
Moreover, throughout the years, especially in the year 2017 with the acquisition of
Whole Foods Market (Whole Foods), Amazon surpassed its number of brick-and-mortar (Mark
& Johnson, 2018). The company had previously introduced Amazon Fresh in 2007 and Amazon
Go in 2018 (Mark & Johnson, 2018). The acquisition was a strategic step for Amazon, costing
them a total of $13.7 billion in cash (Banker, et al., 2018). With this acquisition, customers can
choose between going to the supermarket in person or buying groceries online. As a result, there
has been an impactful shift in shopping habits. In fact, as mentioned in a joint study from the
Food Marketing Institute (FMI) and Nielsen, “e-commerce grocery adoption is expected to
skyrocket from just 23 percent of US consumers buying food and beverages online in 2016 to 70
percent by 2024” (Berg & Knights, 2019, p. 91).
Will Amazon Dominate the Future Supply Chain?
Amazon Success
Since its start, Amazon has successfully grown to capture almost 44% of the United
States online market. Amazon is “continuously looking for better ways of serving their
customers and making the shopping experience even more convenient” (Berg & Knights, 2019,
p. 8). Several innovative and strategic endeavors have contributed to this incredible
achievement. Some of these include: the introduction of Amazon Prime and Amazon Prime Now
(Amazon’s fastest delivery options ever), Amazon’s Dash buttons, among others. In other words,
it is safe to say that Amazon has dedicated itself to simplifying the online shopping experience.
Lastly, specializing in various niche markets throughout the years has allowed Amazon to
have a product diversification unlike any other online retailer. This is clear from their strategic
acquisitions of: D[Link], [Link], [Link], and [Link] (Mark & Johnson,
2018). Allowing them to have a stake within an array of industries that pushes their agenda
forward. Additionally, the company introduced Prime Wardrobe, “inspired by the niche services
offered by brands like Stitch Fix and Trunk Club” (Berg & Knights, 2019, p. 38). The company’s
product diversification leads them to compete with both B&M retailers as well as other online
stores. The variety of products they offer is absolutely endless and their avant-garde product
releases remain constant throughout the years.
Conclusion
There is no doubt that Amazon has successfully grown since the company started in
1994. As stated in [Link]: Supply chain management: “From its start as a venture looking
to build “earth’s largest bookstore” in 1994, Amazon is now one of the most valuable companies
in the world, and founder Jeff Bezos was is the richest person on earth” (Mark & Johnson, 2018).
Although their supply chain has not been the most cost-efficient, Amazon’s ability to establish
one of the most innovative, competitive, and complex supply chains in the world separates them
from any other company. Their wide supply chain network allows them to deliver promised
results to their customers both domestically and internationally. Above all, their ability to
provide a wide range of items from A to Z has challenged other logistic providers and retailers
becoming the world’s leading online retailer.
Will Amazon Dominate the Future Supply Chain?
References
Amazon. (2019). Retrieved from
[Link]
Banker, S., Cunnane C. & Reiser, C. (2018). The Amazon supply chain: The most innovative in
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[Link]
Berg, N. & Knights, M. (2019). Amazon: How the world’s most relentless retailer will continue
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to revolutionize commerce. N
Johnson, P. F. & Mark, K. (2018). [Link]: Supply chain management. Ivey Business
School Foundation. Retrieved from [Link]
etrieved from
Leblanc, Rick. (2018). How Amazon is changing supply chain management. R
[Link]
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