3. Background
1995- Launch of Amazon.com (Online Shopping Site)
Business Goal: „GET BIG FAST”
First e-commerce site to use collaborative filtering technology
Timely shipment satisfied customers improved market share repeat business
4. JEFFREY PRESTON BEZOS, CEO, AMAZON.COM
Journey
Graduated in Electrical Engineering and Computer Science in 1986
Idea: Impact of the internet on online shopping
Criteria: Market Size, Price Setting, Range of Choice
Started venture in Seattle with a vision to create a „VIRTUAL BOOKSTORE‟
Amazon.com- Amazon of the book selling world
Immediate priorities: arrange for funds and build necessary software
5. 1st MONTH OF OPERATIONS
Amazon shipped books to 45 different countries
WITHIN FEW YEARS
Several new e-ventures were introduced and were threat to Amazon
COUNTER ACTION
PRODUCTS LAUNCH DATE
Books July 1995
Music June 1998
DVD/Video November 1998
Auctions March 1999
Electronics July 1999
Toys July 1999
Zshops October 1999
Home Improvement November 1999
Software November 1999
Video Games November 1999
6. Highlights
Amazon was ranked among the top 20 internet sites in 1998
„When you think of web shopping, you think of Amazon first.‟
- An analyst
Amazon was ranked as „The best online shopping site‟ in
2000 by The Forrester Power Rankings
By the end of 2002, Amazon had 22.3 million registered users on its site
By 2003, Amazon became the biggest book, music and video retailer on internet
and offered more than 4.7 million books, videos, music CDs, DVDs, computer
games etc
7. Value Proposition
Minimum download time
Selection from wide product
range
Had inventory of millions of items
CUSTOMER SERVICE Book lovers can post/read reviews
on the site
Book search option- by author,
PRICE subject, title or publication
40% discount on selected feature
books, 30% on hard covers and 20%
SELECTION on paperbacks
Shipment within one week
Notification to customers via
emails
CONVENIENCE Secured online payment gateway
8. „Amazon had earned a great reputation for its
excellent customer service. It delivered all the
goods within the estimated time, mailed the
customers about their latest books of interest and
invited customer reviews on the site, thus
developing a strong relationship with its
customers.‟
9. Strategic Alliances
Amazon‟s Partners
COMPANY NATURE OF BUSINESS
Ashford.com Online retailing of luxury and premium products
Audible Internet delivered spoken audio for PC based listening
Della.com Online service for gift, gift advice
Drugstore.com Online retail and information source for health, beauty,
wellness, personal care and pharmacy
Gear.com Online source for brand name sporting goods at discount prices
Greenlight.com Online auto purchasing in partnership with local dealership
Kozmo.com Online one hour delivery serve for entertainment and
convenience products
HomeGrocer.com Online grocer shopping and home delivery service
Living.com Online retailing of home products and services
NextCard, Inc Online issuer of consumer credit cards
Pets.com Online source for pet products, information and services
10. Advantages
1. Increased range of products and services to its customers
2. Increased revenue in the form of marketing fees from its
partners
3. Amazon‟s stake in these companies increased its market
valuation
Amazon tried to promote each of its partners by sending
emails to its customers and by including their marketing
materials in the shipments made to the customers
11. Question 1
Managing inventory is one of the most important
tasks of a retailing company. If there are not enough
goods in stock some of the customers might be
disappointed. Stocking too many will reduce the
profit margins. Do you think Amazon.com adopted
the right strategy while trying to manage its
inventory? Was it successful in its task?
12. Objectives of Amazon’s Supply Chain
Management
Have a clear understanding of customer‟s delivery needs
Coordinate with wholesale suppliers and independent
producers to make available to customers both current and
the soon to be released books
Provide two day delivery on most orders
Allow customers to query the status of their purchases
and track their own shipments
Align, supply and delivery to other functions such as
marketing, sales and customer services
13. Jeff aimed at „hassle-free operations‟, customer satisfaction, time and cost efficiency
Building warehouse cost was around $ 50 million and to finance this Amazon issued $ 2
billion as bonds
In 1999, Amazon added 6 warehouses (10 in total) in Nevada, Kansas, Kentucky,
Georgia and North Dakota
It increased its warehousing capacity from 3,00,000 sq ft to 5 million sq ft
The return rate was only 0.25% compared to the return rate of 30% in many segments
of the online retail industry
Excellent use of technology – coding, computer signals etc
Systematic Procedure
Developed proprietary software
In 1999, adopted the strategy to store all possible product range
In 2000, Amazon managed to reduce the size of its inventories because of efficiently
managing the warehouse
Careful decision about „product‟, „supplier‟ & „distribution centre‟ i.e. „which product to
buy‟, „from where‟ & „which centre it would send its product to‟
Decided to buy its books, CDs, videos etc from publishers
Maintained good relationships with vendor
Huge investment in infrastructure (revamped the layout of its warehouse) and
technology (refining its software helped in demand forecasting)
Aimed at cutting down expenses via outsourcing some of the routine activities
Partnered with other companies for shipping the inventory
14. Result
Recorded its first profit of $ 5 million in fourth quarter of
2001 (deficit of $2.86 billion in the 7years since its
launch)
Sale record: $ 1.1 billion in Q4, 2001
$ 3.12 billion in 2001
$ 3.93 billion in 2002
Key reasons: Ability to reduce costs in stocking and
shipping goods
15. Question 2
When it managed its own inventory, Amazon earned
the reputation of providing superior customer
service. Despite this it decided to outsource
inventory management. Do you think Amazon had
taken the right decision in outsourcing this key area
of its business?
16. In early 2001, Amazon decided to outsource its inventory
management with a reason to earn more profits
Keeping a stock of frequently purchased/ popular items
Acted as a trans-shipment centre between distributor to the customer
Main Distributors:
Ingram Micro – whole sale distributor, handled books &
computer
Cell Star – handled cell phone sales
In August 2001, Amazon entered into an agreement with Ingram
Micro Inc (largest wholesale dealer of electronic goods & SCM
services) to provide logistics & order fulfillment services for
desktops, laptops etc at computer store at Amazon.com. The aim
was to maximize operating efficiencies, streamline supply chain
logistics and reduce inventory costs
The „Drop-shipment Model‟ was not very effective
17. Question 3
In 2001, while Amazon was still struggling to make
a profit, it decided to shell the products of
competing retailer on its site, along with its own
products. Do you think Amazon took the right
decision in selling others‟ product on its site or
should it have concentrated on promoting its own
products?
18. In 2001, Amazon decided to include products of competing retailers
and some used items on their website.
Advantage :- Customer could now verify the prices of Amazon‟s
product vis-à-vis those of other retailers.
Reduces the cost of advertisement of there low pricing of products
as customers can compare now.
In 2003, Amazon handled the orders for Borders, Target, Circuit
City, Toys “R” Us.
Amazon only handled the net orders, the companies handled the
inventory.
Services proved to be immensely profitable for Amazon.
19. „Customers who buy used books from us go on to
buy more new books than they have ever bought
before.
They may not want to plunk down $25 for a brand
new author ,they have never tried‟.
“This Let Them Experiment”.
20. Profitable changes after implementing it
In 2003, Amazon‟s warehouses could handle thrice the volume they
used to handle in 1999.
Cost of operating then decreased from 20% of Amazon‟ revenues to
less than 10%.
Inventory efficiency :- inventory turnover which got 20 times a year
while for most other retailer it was below 15.
In 2003, Amazon decided to slash its shipping charges.
Amazon needed to stock only 15 days worth of inventory and was
paid for its sales immediately by credit card.
21. Future Challenges
Need to look at the profit prospective and should aim to make it more.
Return of products by the customer was one of the challenge to be faced.
Several incidents of thefts and product damage were reported as the
shipping goods were at times left at the customer‟s doorstep.
Should save the profits of inventory from Reverse Logistics and Multiple
Delivery.
Need to place the inventory perfect to avoid the delayed orders and lost
time. 12 % of their inventory was stored at wrong places.
Management of warehouses were required as they were too much in
numbers and sales were little less as compared to no. of houses.
