ANALYSIS OF DIFFERENT INVENTORY AND

DISTRIBUTION STRATEGIES OF AMAZON

Team SCAlpha

Team Members:
Akashdeep Singh (1510110029)
Anirudh Chauhan (1510110054)
Dushyant Kumar Singh (1510110134)
INTRODUCTION

● Through this presentation, we would be analysing the different inventory and distribution strategies implemented
by AMAZON. We will also analyze the methods actually used by Amazon for any shortcomings and suggest
practical solutions based on the theories taught in the course.

● We have also included research results on topics including push-pull view, bullwhip effect, FBA vs FBM and the
Prime effect.

● A case study regarding Amazon transportation services (ATS) is also included along with the changes we
recommend.

● We will be using various sources including reports released by various agencies that highlight and analyze the
logistical challenges faced by Amazon and find out if anything could be improved.
ANALYSIS

The combination of multi-tier inventory management, superlative transportation, and highly efficient use of IT (Information
Technology), and its wide network of warehouses are all geared towards aligning its SCM with its competitive strategy.

Inventory

● Multi-tier inventory system

○ The first tier is the aggregation in the
distribution centers, which ensures
that Amazon holds fewer inventories
○ The next tier is comprised of the
partner distribution centers and the
wholesalers.
○ The third tier is comprised of the
networks of third party sellers,
publishers, vendors, and
manufacturers.
● Outsourcing inventory management and Insourcing logistics
○ Outsources the storage and distribution of products that are not frequently purchased nor ordered for
immediate delivery.
○ For example, Amazon has 3 different strategies to sell books:
■ Standard inventory for high demand and fast moving inventory.
■ JIT inventory
■ Third party sellers including locally-listed sellers.

● Amazon divides its customers into segments and follows a price differentiation strategy.
○ The various forms of delivery are one day delivery, scheduled delivery and prime customers delivery.
○ It offers the customers an option of paying more for faster delivery or retains the traditional lead-time.

● Push-Pull
○ Amazon follows a push-pull strategy wherein the inventory is held in a push strategy and the shipment of the
orders is done in a pull strategy.
○ Amazon follows pure pull strategies for items that it does not stock.
● Cash flow and product returns
○ Typically, Amazon will pay in two-week increments in the seller program and the cash flow is relatively
quick. However, in the vendor program, payment period is usually 60-90 days.
○ In terms of product returns, on the VC, Amazon handles all returns and will either re-sell the returned
product or return it to the brand. On SC, the sellers or brands have to take care of the returns and decide
whether to have the product returned to them or ask Amazon to trash it.
Distribution

● Distribution Channel- Digital

On-line channel has significant cost benefits

and is offered for the following :

○ E-books-Kindle reader
○ Prime video
○ Appstore
○ Cloud drive

● Distribution Channel - Physical

● Centralized distribution centers
● States and places of tax advantages
○ Faster response time
○ Lower transportation rate
● Using a hybrid approach in stocking
and pricing
● Pricing varies for delivery options
● Supply chain strategy
○ Pure pull
○ Push-pull
● FBA vs FBM and the Prime effect
○ If FBA inventory runs out, orders are routed to FBM where the seller has to fulfill the delivery individually and directly to
the customers. The sellers have to replicate the FBA services to be able to provide the same experience to customers
including free shipping, free returns, expedited delivery services etc.
○ Research also suggests that Prime customers spend around twice the amount on Amazon shopping compared to
Amazon consumers without a Prime account.

● Classes and Zones

○ Amazon set up many fulfillment centers. To make good on increasingly fast delivery promises, the company has
positioned many new warehouses in proximity to local urban markets.
○ Its warehouses are divided into five storage areas.
■ First is library prime storage stores books and magazines.
■ Next, it’s pallet prime storage stores full case products that have very high demand.
■ Next, case flow prime storage stores high demand products picked in less-than-case quantities.
■ Reverse storage accommodates irregularly shaped and low demand products.
■ Finally, its random storage area stores modern demand, smaller items.
● Amazon’s fulfilment network
○ It is the key enabler for a vast selection and fast delivery. They have been expanding their network largely over time. But
since 2013 it has seen vastly accelerated growth not just in the number of their facilities but also in the increasing type of
facilities. From fulfilment centres to sortation and delivery centres to Amazon Prime air planes and air hubs.
● How Amazon manages bullwhip effect ?
○ Amazon outsources inventory management of items that witness high seasonal demand fluctuations
or fluctuations based on unpredictable factors. (VMI)
○ Reducing order quantity of items prone to high demand fluctuations. (Reducing batch ordering).
○ All information is captured and processed via computer algorithms to reduce transmission delays.

● The Amazon Delivery Station, Sortation Center and Prime Now Hub Network :
 ● As of November 2018, to the best of our knowledge, Amazon operates the following global distribution
infrastructure:

● Amazon Transportation Services (ATS) – helping hand or grabbing hand?

Some of the problems faced by sellers and customers due to Amazon Transportation Service (ATS) :

○ Refusing pickups - Not delivering orders on time often leads to cancelation, which puts a huge financial
burden on sellers.
○ Fake delivery attempt (not delivering orders) - This is the most common and the biggest issue with
regards to ATS. This is particularly true for COD orders, as per vendors.
○ Exorbitant charges - Sellers accuse that Amazon’s premium charges for its underwhelming delivery service
are not reasonable. On one hand Amazon has increased ATS charges; on the other hand they have reduced
payouts to its delivery partners.
 RECOMMENDATION

● A solution to the problem above, we recommend Amazon to strengthen its logistics capabilities with geotagging and

new age technologies such as artificial intelligence (AI) and machine learning (ML).

Advantages of Geotagging:-

1. Providing a location for a post can give more context to users.

2. By collecting data on certain locations, interested parties can better figure out what kind of audience a location
draws, what the audience likes to do at a particular location, etc.
3. Using AI and ML would allow Amazon to flag transportation teams that flout the rules.
4. Using AI and ML would also allow amazon to better understand the delivery dynamics as to what areas are best
served by what type of delivery method .
REFERENCES

Websites

● https://indianonlineseller.com/2017/03/amazon-transportation-services-helping-hand-or-grabbing-hand/
● https://www.managementstudyguide.com/amazon-supply-chain-management-practices.htm
● https://www.thebalancesmb.com/how-amazon-is-changing-supply-chain-management-4155324
● http://www.mwpvl.com/html/amazon_com.html
● https://www.innovationtactics.com/amazon-business-model-part-1/
● http://blog.bobsledmarketing.com/blog/winning-strategies-for-amazon-inventory-management
● https://www.cpcstrategy.com/blog/2018/07/amazon-supply-chain/
● https://www.thebalancesmb.com/how-amazon-is-changing-supply-chain-management-4155324
● https://logisticsviewpoints.com/2018/01/08/amazon-supply-chain-innovative-world/
● https://www.softwareadvice.com/resources/amazon-supply-chain-management/
● https://www.supplychain247.com/article/7_amazon_supply_chain_lessons_from_jeff_bezos/
● https://www.managementstudyguide.com/amazon-supply-chain-management-practices.htm
● https://studymoose.com/a-case-study-of-amazon-on-its-supply-chain-management-essay
● https://www.businessinsider.com/amazon-aims-to-improve-shipping-profitability-2018-3?IR=T

Books

● Supply Chain Management System of Amazon (IJLTEMAS) by Sharanya , Dr. Sini V Nair
● Performance and Supply Chain strategies of Amazon and Wal-Mart (ICIIIME 2017) by Rikta Tapase Benzeer Shaikh
APPENDIX: DATA & FORMAT

Revenue
Fulfilment by Amazon
“Be afraid of our customers, because those are the folks who have the money. Our competitors
are never going to send us money”....Jeff Bezos