By: Rahul Hege136 Rahul Warathe137 Rajat Gupta 138
Amazon .com Get Big Fast
First online book store launched in 1995. Constantly ranked as the best site on internet Features include: one-click shopping, customer review and e-mail order verification Popular for excellent customer service and inventory management. Since 1999 adding 1 new product every 6 weeks. By 2002 : 22.3 million registered users. By 2003 : 4.7 million books, music CD, DVDs and other products.
History
Jeff Bezos, in 1995, started [Link] as a virtual retailer no inventory, no warehouses, no overhead; just computers Amazon owed its popularity to its excellent customer service, which was due to its effective inventory management.
Products and services
Marketplace service Launch date
Books
Music DVD Electronics, Toys
July 1995
June 1998 November 1998 July 1999
ZShops
Home improvement Software Video games
October 1999
November 1999 November 1999 November 1999
Unique Concept of Zshops -
Increased Revenue
Value Proposition
Amazon Build four fold proposition Convenience Selection Price Customer service
Strategic Alliances To expand
Amazon acquired stakes from 17 to 49% in various
online retailers [Link], [Link],
[Link], [Link] Spent $160 million and these investments grow to 1.5
billion.
Amazon tried to promote each of its partner by emails , catalogs, adding in the shipment.
Amazons Partners
Company [Link] Audible [Link] [Link] [Link] Nature of business Luxury and premium products Internet delivered spoken audio Gift registry, gift advice Retail and info of health, beauty, wellness drugs Brand-name sporting goods
[Link]
[Link]
One hour delivery service entertainment and convenience products
Home products and service
Advantages Of Investments
Provide a increased range of products. Increased revenue in the form of marketing fees from partners.
Amazon Stake in these companies increase its
market valuation.
Customer ordered
A code being generated
Computer send the code to workers
Code tell the location of the book in warehouse
Worker decide the order in which to pick up the items
Items were send to the central location
Orders matched with item barcode
Finally the items were shipped to the respective address
Inventory Management
Initially Bezos aimed at hassle-free operations Time and money not to be spent in dealing with the inventory. Satisfy customers ; forced to build warehouses. In 1999: Added 6 new warehouses to total to 10 Computerized warehouses Increased warehousing capacity from 300,000 sq. feet to over 5 million sq. feet Automation of events after placement of order to make inventory management easier
In 1999, when Amazon's sales grew 170% from the previous year, its inventories ballooned by 650%, Suria pointed out. ''When a company manages inventory properly, it should grow along with its sales-growth rate,'' he noted. When inventory grows faster than sales, ''it means simply that they're not selling as much as they're buying.'' Decided to stock all possible items that customer could demand during holiday season Appreciated; but faced a lot of problems in inventory management Thus looked for alternatives
Initial Changes
Decided to buy directly from publishers rather than distributors Upgraded software which helped to accommodate inventory as per demand Placed products which were generally bought together at one point. Eg. CDs and CD player
Deciding the Strategy
Inventory goals: right product in the right quantity to the
right place at the right time.
Reduce redundant inventory Blockage of working capital. Low inventory turnover. Cost of holding > cost of outsourcing Thus they OUTSOURCED
Innovative Inventory Outsourcing
Stocked only popular items and rest were outsourced
from distributors.
Outside distributors at Amazon for three kinds of products: cell phones, computers and books, excluding
those on best-seller lists
CellStar handled the cell phone sales Wholesale distributor Ingram Micro handled the
computers and books
Advantages of Outsourcing
Concentrate on main activities To reduce the inventory holding costs. To earn more profits
To free the working capital and increase liquidity.
Adoption of Drop-shipment model which increased the overall efficiency and streamline supply chain logistics.
Warehouses could handle thrice the volumes
Reduced the shipping charges.
Drop-Shipment Model
Disadvantages of DropShipment Model
The variable cost incurred by multiple delivery attempts and reverse logistics. Multiple delivery attempts cost the company about 20-30% of the total cost for home deliveries.
35% of orders placed at Amazon belonged
to different product categories.
[Link] Customer Fulfillment Network
Steps taken for improvement
Made improvements in its distribution centre which reduced
12% of the wrong inventory to 4%
by 2002. Tightened its operation to ensure that it did not miss any customer orders.
Success Story
Till 2001 Amazon was in deficit of US$2.86 billion. Earned its first ever profit of $5 million in the 4th quarter of 2001. Year 2002 recorded sales of $3.93 billion which was 26% higher than sales of 2001. Cost of operating warehouses reduced from 20% to 10% where as the capacity increased 3 times. Inventory turnover was 20 times as compared to other retailers having 15 times.
Discussion Key Points
1. Amazon adopted right strategy to manage its inventory
Managed the inventory efficiently Bought books directly from publishers
Refined software as per the demand in different regions
Placed products like CDs, CD Players at one point Reduced split shipments Cut down expenses, Outsourced some routine activities Revamped the layout of warehouses Recorded first ever profit of $5 million in 4th quarter of 2001
Discussion Key Points
2. Outsourcing key area of Inventory Management A huge Risk To concentrate on its main activities in order to earn profit Stocked only popular & frequently purchased items Trans-shipment centre
Discussion Key Points
3. Selling other products on its site instead of concentrating on promotion of its own products? No need to advertise its low prices. Giving people the choice to buy new & used side by side is good for the customers.
Good promotion strategy free shipping on purchase of 2 or more items
