Amazon Performance Analysis - Case Study Example

Amazon Case Study Q1 Amazon’s product-service has two components: a service component and a product component. The service component has a product-service mix width of two, since the company provides two types of services: provides customers with easy access to online purchases of goods at a fee; and provides sellers with an online platform to sell their goods and services through Amazon’s library of software. The product component of Amazon’s product-service mix has a very large width that is undeterminable since the company provides customers with almost all types of products. Similarly, the length, depth and consistency of the product mix are indeterminately large (Griffin, 626). Some aspects of Amazon’s operations are characteristic of a manufacturing organization while some are characteristic of those of a service organization. The manufacturing aspects are manifest in the company’s library of software. Although Amazon provides this software for free to merchants and independent programmers, it charges a fee when these users use the software to sell their products and services through Amazon. Amazon’s operations that are characteristic of a service organization include the online platform it provides to its customers, which enables them to purchase goods through a simple mouse click. The marketing of Kindle and Kindle-related products also has aspects of both manufacturing and service provision. Kindle is a software-hardware platform that enables users to access electronic print material. The manufacturing component is manifest in the Kindle electronic device which Amazon manufactures and sells to customers. The service component is manifest in the access to electronic print material that Kindle provides to users at a fee. Therefore, when marketing Kindle, Amazon has to market both the unique features the device provides and the unique services that customers can obtain through it (Griffin, 627). Q2 Amazon’s operations almost entirely depend on technology in one way or another. In most cases, the technology involved is computer technology. Firstly, Amazon’s service operations are anchored on the internet. Amazon’s business platform is located on the internet and, therefore, the company has to invest in computers and accessories that facilitate internet access and software development. Similarly, Amazon’s customers have to get on the internet in order to access the company’s platform. To do this, they require the use of computers, iphones, tablets, cell phones or any other device that provides internet access. Furthermore, operations that facilitate service provision at Amazon’s facilities are highly automated. Workers use computer programs to monitor and manage customers’ orders. Finally, a system of automated bins and chutes is responsible for sorting goods and moving them to and fro the shelves (Griffin, 626). Amazon’s manufacturing operations are also highly dependent on computer technology. The manufacturing operations include the development of software programs for Amazon’s library of software service and the production of the company’s Kindle device which is a software-hardware platform that provides instant access to electronic books, newspapers, magazines, journals and other electronic print material. The development of software is a manufacturing activity that involves the development of software programs from scratch using computers as well as software developing tools and programs. This software is availed to merchants and independent programmers who may use it to sell their products through Amazon at a fee. In addition, Amazon develops Kindle’s software using computers and software developing tools. Finally, Amazon manufactures the Kindle electronic device whose hardware component is based on computer technology (Griffin, 626). Since Amazon does not have facilities or resources for manufacturing electronic devices, it usually contracts other companies with that ability to manufacture the device on its behalf. Q3 Amazon has two kinds of supply chains: One with Amazon as the only middleman between producers and consumers, and one without a middleman. In the first type, Amazon purchases goods from producers or wholesalers and stocks them in the company’s distribution centers in preparation for delivery to customers. In the second type of supply chain without a middleman, Amazon provides its customers with goods through drop-shipment, only facilitating the purchase of goods by consumers directly from manufacturers. Amazon controls the first type of supply chain using supply chain software and algorithms that determine which goods need to be stored in parts of the warehouse that are most frequented (Ross, 513). The second type of supply chain that involves drop shipment is also controlled by supply chain software which analyses purchases in the company’s database and determines which goods should be drop-shipped. Workers then take over and make orders for the goods to the various producers or wholesalers who deliver the goods to customers or inform them of the nearest point they can collect them. In the first type of supply chain, purchase management is carried out by menu-driven computer programs that manage and monitor purchases and prioritize customer orders. Workers then transfer ordered goods from shelves to an automated system that bundles and packages them appropriately (Griffin, 626). Inventory management applies to only the first type of supply chain where Amazon serves as the middleman. At Amazon, inventory management is completely automated. After goods ordered by Amazon are delivered to one of the company’s distribution centers, supply chain software determines which goods should be stored in easily accessible parts of the warehouse. Automated scanners monitor the movement of goods in the warehouse by tracking the progress of each order. Goods are boxed and labeled through an automated system, and an effective sorting algorithm calculates optimal package size and directs shipping to the appropriate address (Griffin, 627). Q4 I logged on to Amazon’s website and selected a sweater that Amazon has put on sale. Amazon’s price for the sweater was $27, the price of the sweater at stores of a major clothes line was $35 according to the clothing line’s website. In order to make this sweater available to customers at that price, Amazon had to make purchasing decisions that are unique to an online selling business. Firstly, Amazon had to consider transportation costs involved from the manufacturer to the company’s warehouses and the costs that would be incurred in delivering the product to the customer (Ross, 345). Here, Amazon had a big advantage because there are no middlemen between the company and the manufacturer. Therefore, Amazon obtained the product at a lower price than that set at retail outlets. Secondly, Amazon had to consider the size of the product so as to estimate shipping expense involved in delivering the sweater to the customer. Small products attract low shipping expense and, therefore, the overall costs incurred in procuring the sweater and delivering it to the customer is low. Finally, Amazon had to consider the expenses involved in purchasing and inventory management. Since the company’s supply chain control system is extensively automated, Amazon incurred low expenses in purchasing, storing and delivering the sweater to the customer. Consequently, Amazon was able to charge the sweater at a lower price than retail outlets because costs were reduced by automation efficiency and a short supply chain (Ross, 347). Q5 Amazon is both a manufacturing and service organization; and maintenance of its competitiveness lies in creating and maintaining quality in both the manufacturing and service operations of the organization. The manufacturing facets of the organization include production of the Kindle device and development of software. Amazon is not an electronic manufacturing company. Therefore, without all the facilities and capital necessary to manufacture Kindle devices, the company would incur large expenses in using its own resources to produce Kindles. As a result, Amazon contracts offshore technology companies such as Huawei to produce Kindles on its behalf. This ensures high manufacturing quality since these technology companies have the resources and facilities necessary for producing quality devices at lower costs than Amazon would incur. In addition, the offshore companies, especially those with production plants in Asia, have access to cheap labour; further lowering production costs (Ross, 234). Amazon controls productivity and quality of its service operations through automation of its systems. Software is more accurate than people at carrying out tasks, eliminating human error that could reduce profits. In addition, the software applications utilized by Amazon enables it to process customer orders faster, and to speed up and improve the inventory management process. The company also uses software programs that detect and alert controllers to mistakes, or malfunctioning in the automated process, allowing them to rectify them and maintain optimum productivity. For this reason, Amazon invests extensively on computer technology and personnel who are able to develop and maintain supply chain software. Q6 If I were Jeff Bezos, I would list eBay as Amazon’s primary competitors. This is because eBay has a market capitalization of $67.4 billion which is second to Amazon’s leading market capitalization of $130.4 billion. In contrast with Amazon, eBay not only provides new goods for sale, but mostly provides a platform for independent sellers to auction items for sale, most of which are used second-hand products. Therefore, Amazon can compete with eBay and surpass in the online shopping business by emphasizing in its promotional campaigns that its products are new and, therefore, their quality is assured. In addition, Amazon can use pricing strategies to gain an edge over eBay in the market. This is because Amazon has the ability to control the prices of its products and can set low prices in order to boost sales and increase market share. In contrast, most products on eBay are sold through auction and, thus, prices are determined by demand (Griffin, 445). Works Cited Griffin, Ricky. Management. Mason: South-Western Publishing, 2011 Ross, David. Introduction to supply chain management technologies, 2nd ed. Boca Raton: Taylor and Francis Group, 2011. Read More