Supply Chain Network: Amazon.com Inc - Case Study Example

Operations Management – Report Amazon.com, Inc. – Supply Chain Network As the largest online retailer across the globe, U.S-based company Amazon.com, Inc. emerged as the first organization to capitalize on an advantage that was granted to prospective businesses by the creation and subsequent growing popularity of the World Wide Web. This benefit which would be later recognized as widely practiced as a business opportunity and even an academic subject is known to organizations today as the realm of electronic commerce which is popularly regarded as e-commerce. As noted by Kennedy and Dowling (2013), Amazon’s extensive reach can be viewed as a massive prospect for the retail giants to venture into profitable areas of the business and enhance their success in several continents. For a company that recorded more than $60 billion in sales in 2012 alone, the mantra of Amazon appears to be rather simple – the platform acts essentially acts as an intermediary and connects potential buyers with hopeful sellers in an unconventional manner, such that the processing of this transaction does not involve the action of physically going to a retailer, selecting a product, inspecting the item and then paying upon completion of the transaction to a cashier. From the perspective of operations management and the establishment of an efficient and effective supply chain network, the scenario poses several implications for the identification of process flows and process components that essentially constitute of a supply chain network. Kennedy and Dowling (2012) suggest that the absence of traditional experience does not restrict Amazon from maintaining a supply chain network which follows the fundamentals of enhancing efficiency so as to allow the company to meet organizational objectives. Fig.1 illustrates the wider supply chain network of which Amazon is a part of. Fig. 1 The Wider Supply Chain Network of Amazon.com, Inc. According to Dinitzen and Bohlbro (2010), Amazon can be described as a network organization that is responsible for ensuring that its supply chain is managed effectively because the key underlying factor on which the firm’s business model is based upon is the idea of creating a relationship between the buyer and the seller. In this scenario, Amazon’s role is to present buyers with a platform on which they can secure items which offer the greatest value and also fulfill their need at the same time, while; the main premise for suppliers is based upon garnering maximum advantage from Amazon’s trusted distribution facility that is made use of millions of customers. Thus, the creation of an efficient supply chain is the decider of Amazon’s success in the market (Lee, 2004). Thus, Amazon’s wide supply chain network primarily comprises of the intermediary itself in addition with a host of buyers and sellers. However, in order to explicate further upon the firm’s supply chain network it is important to highlight three primary elements of the system which are that of: materials, information and money (Dinitzen and Bohlbro, 2010; Jespersen and Skjott-Larsen, 2012). The company’s supply chain strategy is based on the premise of a customer-centric approach. As illustrated in fig.1 the firm’s supply chain commences with the customer and also ends with the customer. For the maintenance of a supply chain network such as this where the primary components are essentially the same for the commencement and end of activities or operations, informational flows are of the utmost significance. As identified by Dinitzen and Bohlbro (2010), informational flows constitute of capacity, promotional plans and delivery times. The options that are available for Amazon in terms of capacity are rooted in cutting costs by limiting or restricting the number of warehouses or DCs which act as central distribution points for the entire supply chain network. The supply chain network of Amazon has been developed along the lines of a consolidated distribution network which is characterized by the presence of fewer facilities that meet the demands of a large customer base or clientele (Christopher, 2012; Ravindran and Warsing 2012). Amazon.com can be termed as an example of a consolidated distribution network due to the key reason that it only manages the operation of two regional warehouses that are responsible for meeting customer demands from across the United States (Ravindran and Warsing 2012). In accordance with the factor of promotional plans as a part of the informational component, Poirier (2002) Amazon has established collaboration with major companies such as Circuit City and Toysrus to manage their e-commerce infrastructures and provide distribution services by engaging the expertise of the Amazon platform to aid access to a large clientele across the United States. Additionally the delivery times for customers are extended from anytime between 1 and 7 days depending on the product ordered and the time it takes the item(s) to reach Amazon warehouses and DCs from the suppliers’ storage facilities. 2. Operations Management at Amazon This section examines the management of operations at Amazon through the aid of a process map illustration which describes the steps, activities and procedures that comprise of the firm’s operation in its entirety. The first subsection of this discussion shows a process map followed by a thorough explanation of the same. 2.1 Process Map Fig. 2 Operations at Amazon 2.2 Analysis of Process Map As stated previously, the operations and supply chain management of Amazon has been developed around the customer and this factor has led to the formulation of business processes and frameworks that specifically cater to the demands of the customer thereby, prioritizing their requests over those of the other actors within the system (Bolton, 2004). Moreover, the aforementioned approach is also outlined in the company’s mission statement which envisions Amazon: “to be Earth’s most customer-centric company, where customers can find and discover anything they might want to buy online, and endeavors to offer its customers the lowest possible prices” (Amazon, 2014). Given this customer-centric approach which is visible in both the organization’s supply chain network and operations management system, it can be established that the most critical factor which dictates the functioning of the two is the premise that each activity begins and ends with the customer. Thus, the first stage involves the placement of an order by the customer through Amazon.com’s online platform by browsing for desired products and selecting the item that meets the specific demand. Consequently, once the order is placed the workers who are conducting their duties in the warehouse are informed regarding the items which have been ordered, this is conducted by the means of bar codes which cause ordered products to blink upon placement. As these items are already placed in Amazon’s one of two regional DCs or warehouses within the U.S. the item must be shipped from the warehouse to the point of access where it is handed over the transport and logistics company for shipment. During this critical period, an operations manager is faced with several pivotal questions and concerns the fulfillment of which is necessary for achieving objectives and reaching the desired level of cost efficiency. In this period, the items pass along the conveyer belts in the warehouse and are sorted in accordance with their respective bar codes; following this activity the crates of items reach a vital point within the system where the items are organized into packages. At this phase the bar code identification aids the sorting of packages in accordance with the customer’s name followed by the weighing, taping and final packaging of orders. In this phase of the process, the transportation and logistics company that is the US Postal Service and the United Parcel Service becomes involved in the process in order to ensure that the item(s) is/are shipped to the customer in a safe and timely manner. The completion of this process can take anywhere between 1 to 7 days for domestic shipments and higher for international shipment depending on a range of external factors and issues with the logistics company. 3. Amazon’s Kindle – An Overview The purpose this section of the report is to identify a popular and revolutionary product that is produced by the company – Kindle. The discussion which has been conducted in this part of the report delves into the concept, package and process of Amazon’s Kindle and also analyzes the operations within the organization in accordance with the four V’s. 3.1 Amazon’s Kindle – Concept, Package and Process The concept behind the invention of Amazon’s Kindle capitalizes on the existence of a market that was born in the decade of 70s but only began to take its first steps in the latter half of 1990s (Ascoli et al. 2008). The idea behind e-book reader is simple, to provide customers with an electronic device which can act as their personal library, store hundreds and even thousands of book volumes but not isolate the reader with the ‘true’ experience of reading a book at the same time. As noted by Ascoli et al. (2008) despite of the presence of notable competitor such as Sony in the e-book market, Amazon approached its entry into the market with a different, rather fresh mindset which was based on the idea of creating a device that would “get out of the way”. This premise entails creating a device that would preserve the readers’ experience of enjoying a paperback yet having the convenience of extensive storage, browsing and purchasing capabilities that were not offered to them previously. In more ways than one, Amazon was able to sell an idea to the customers that revolutionized the progress of e-book trends. Ascoli et al. (2008) claim that Amazon’s desire for creating a device so unique yet so familiar to the reader translated into the making of a concept which focused on critical factors of battery life, interface, display, eye strain, accessibility and portability to provide maximum value to the customers. 3.2 Four V’s In the realm of operations management, the concept of four V’s comprises of the; Volume, Variety, Variation and Visibility of processes (Basu and Wright, 2008). Applying the concept of volume to the operations of the organization entails conducting an identification of the demand for Amazon Kindle, for the volume of processes will align with the specified demand and in accordance with whether the demand is high or low. According to Ascoli et al. (2008), the differentiating features of Kindle have appealed to a sizeable market of e-book customers who prefer to read books on e-book devices and also those avid fans of books who are looking for a feasible option to optimize their management of volumes and books. This aspect of Kindle’s uniqueness appealed to customers as the device was sold out quickly on the day of its release and therefore, the company had to take immediate action to produce more items because the demand for the product exceeded their expectations. On the other hand, as Amazon is primarily present in the production of consumer electronics and a major part of its business is distribution-oriented the processes which are practiced within the organization are marked with low variety as variations of Kindle are manufactured with minor variations to equip different customer needs and requirements. Moreover, variation in processes is also minimal because demand for the product is steady and as the e-book market is only in its initial stages and threat of new entrants is also limited at this point; the company has the liberty to plan its operations and activities in advance and in a timely manner. Additionally, the visibility within the organization is also high because information channels including capacity, promotional plans and delivery times are explicitly communicated to all concerned teams in order to limit the emergence of issues. Since, those processes which share a close contact with customers must be characterized with high visibility as compared to processes which occur in a factory setting (Basu and Wright, 2008) and such is the case with Amazon, the company’s operations are marked by high visibility. 4. Assessment of Operation Performance While, it is evident that Amazon.com, Inc.’s supply chain network and operations management system has been consistently ranked as one of the most ideal networks across various industries, Chiles and Dau (2005) highlight that the functioning of this system is characterized by the presence of challenges that must be resolved to maximize potential and ensure future success. Thus, the foremost challenge in this regard is that of identifying demand as it is affected by external changes such as seasonal variations, launch of new products or modifications in customer preferences. In the light of a market analysis of demand patterns over a significant period of time, the number of distribution centers of Amazon should be increased to cope with demand. Consequently, the second critical factor in this case is that of maintaining regional warehouses and linking the placement of items in warehouses according to the geographic location of distribution centers to cut costs and minimize transport and logistics expenses. The key here is to remodel the supply chain design and align it with demand changes which are occurring in Amazon’s primary e-commerce business and also for the consumer electronic products such as Kindle which it is manufacturing. Considering the extensive clientele of the organization, the current state of distribution centre seems to be rather low and therefore, this consideration should be addressed by outlining demand and establishing new warehouses and distribution centers accordingly. This improvement is presented in the diagram below. Fig.3 Operations Performance References Amazon (2014). About Amazon. Retrieved from < http://www.amazon.com/Careers-Homepage/b?ie=UTF8&node=239364011> [28th February, 2014] Ascoli, A., Cullina, D., Kunesh, L., Peng, C., & Xu, S. (2008). Amazon Kindle. Amazon Kindle. Basu, R., & Wright, J. N. (2008). Total supply chain management. Routledge. Bolton, M. (2004). Customer centric business processing. International Journal of Productivity and Performance Management, 53(1), 44-51. Chiles, C. R., & Dau, M. T. (2005). An analysis of current supply chain best practices in the retail industry with case studies of Wal-Mart and Amazon. com(Doctoral dissertation, Massachusetts Institute of Technology). Christopher, M. (2012). Logistics and supply chain management. Pearson UK. Dinitzen, H. B., & Bohlbro, D. (2010). Value-Added Logistics in Supply Chain Management. Academica. Jespersen, B. D., & Skjott-Larsen, T. (2005). Supply chain management: in theory and practice. Copenhagen Business School Press DK. Kennedy, S. & Dowling, P. (2013). How Amazon.com can turn the page on supply chain sustainability. Greenbiz.com. Retrieved from < http://www.greenbiz.com/blog/2013/08/07/amazon-turn-page-supply-chain-sustainability> [28th February, 2014] Lee, H. L. (2004). The triple-A supply chain. Harvard business review, 82(10), 102-113. Poirier, C. C. (2002). The supply chain managers problem-solver: maximizing the value of collaboration and technology. CRC Press. Ravindran, A. R., & Warsing Jr, D. P. (2012). Supply Chain Engineering: Models and Applications. CRC Press. Read More