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Case Study on

Amazon Supply Chain Network

Group Members:
Abel Jacob 1551351
Jithin Job 1553423
Tony Thomas Pattathil  1543259
Varadharajan Srinivasan 1507521
Vibin Mathew Saju  1587483
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1 Amazon Timeline
Contents
2 Products and Services
3 Information flow and Technology Pattern
4 Significance of Porter’s Value Chain in Amazon SC
5 Gartner’s Ranking
6 Supply Chain Key Components & Strategy
7 Amazon Business Volume & Revenue
8 Cash to Cash Cycle
9 Upstream - Amazon Market Place
10 Key Supply Chain Performance Metrics & Regulatory Standards
11 Amazon Customer Service - Downstream
12 Logistics of Supply Chain
13 Strong Points In Amazon Supply Chain
14 Inventory Planning and Management
15 Strategies/Actions to Mitigate Risks by Amazon
16 Success, Future and Suggestions for Amazon
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17 References
Amazon Timeline

2016: Net revenue $


136 Billion USD.
2005: Initiated Current Share Price
Amazon Web $886 / Share.
1998-2004: Services
Increased
product ranges
1997: Company went public
company at 18 $ / share.

1994: Jeff Bezos


launched Amazon as
an online bookstore 3
Products and Services
Amazon has a number of products and services available, including but not limited to:
 Amazon Fresh  Echo  Music
 Amazon Prime  Kindle  Music Unlimited
 Amazon Web Services  Fire tablets  Amazon Digital Game
 Alexa  Fire TV Store
 Amazon Appstore  Amazon Video  Amazon Studios
 Amazon Drive  Kindle Store  Amazon Wireless

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Global Presence

5
Information Flow and Technology Pattern

• The flow of information from


the time of ordering to the
order getting delivered
• Amazon has around 28
Hewlett Packard servers.
• Servers run Oracle 9i database
software.

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Information Flow
• Customer orders the product online.
• Web server sends message to Order manager.
• Order managers checks with the stock database.
• After conforming the order, the order manager places the order and conveys the
message to the supplier.
• The merchant system connects the customer with the bank to pay.
• The stock database communicates the amount to be paid to bank through
merchant system.
• When the transaction is confirmed, the product is released from the warehouse
and dispatched through logistics.
• Tentative date of arrival is given to the customer by the order manager.
• The order is then delivered to the customer.
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Significance of Porter’s Value Chain in Amazon Supply
Chain Network
INFRASTRUCTURE
Support HUMAN RESOURCES
PROCUREMENT
TECHNOLOGICAL DEVELOPMENT
Inbound Logistics
Profit

Marketing &

Operations
Outbound
Logistics
Primary

Service
Sales
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Activity Performance
Inbound Logistics • Products bought at lowest possible price
• Regular quality and inventory controls.
• No long term arrangements with suppliers and no dependency on suppliers
Operations • Marketplace, Prime, AWS
Outbound Logistics • Third party Dependence
• Amazon's Logistics Network Plan with own trucks, planes
Marketing and Sales • Discounts on price and shipping prior seasonal peaks
• Immense use of SEO as well as collaborative filtering
Service • 24 hours accessibility - 30 day-return policy
• Customer-centric approach
• Dedicated service pre, during and post purchase
Infrastructure • Highly advanced technological infrastructure
Human Resources • Dedicated company culture
• Provision of employee benefits
• Desire to acquire highly skilled employees
Technology • High investments into technological as well as research development
Development • In possession of largest online retailing technology
Procurement • Fast order processing due to highly advanced infrastructure

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Amazon Business Volume

Amazon Net Sales in 136 Billion


2016 USD

Amazon Net income in 2.4 Billion


2016 USD
Number of Warehouse 45,000 Robots
Robots currently
employed by Amazon
Amazon.com users 300 million

• 20 million products are available for Amazon Prime


• 30% of online shoppers in the U.S. have a Prime membership 10
Amazon Revenue
• Amazon revenue scaled from $500K in
1995 to $136B in 2016.
• 2018 revenue is expected to to hit
$200B+.
• Amazon is reinvesting all profits into
getting bigger.
• The latest trends include US e-commerce,
cloud, AI, machine learning, drones,
streaming, etc..
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Gartner’s Ranking

• Three Year Weighted Revenue


Growth - 20.4%
• Three Year Weighted ROA - 0.5

http://www.gartner.com/technology/supply-chain/top25.jsp
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Supply Chain Key Components

New Products and Services


Customer-Centric
Simple Selling Platform
Development

https://onlinebusiness.syr.edu/blog/amazon-supply-chain-
simplified 13
Supply Chain Strategy
Analogy: “A flywheel at standstill requires a substantial amount of effort
to begin spinning. However, once in motion, the flywheel begins to
develop a momentum of its own, which makes it increasingly easy to
spin.”

Steps:

 Initially protective.

 Communicating the Strategy. 

 Company alignment.

http://www.jimcollins.com/article_topics/articles.html#*flywheel
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Income Statement
https://www.google.com/finance?q=NASDAQ%3AAMZN&fstype=ii&ei=CTHlWIHuBYuSjAHOo7CYCg

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Balance Sheet
https://www.google.com/finance?q=NASDAQ%3AAMZN&fstype=ii&ei=CTHlWIHuBYuSjAHOo7CYCg

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Example:
Cash to Cash Cycle for 2016 = DSO + IDOS – DPO
= 22.38 + 44.88 – 104.66
= -37.40
DSO = Acc. Receivables * 365 = 8339 * 365 = 22.38
Revenue / Sales 135987

IDOS = Average Inventory * 365 = 10852 * 365 = 44.88


Cost of Goods Sold 88265

DPO = Acc. Payable * 365 = 25309 * 365 = 104.66


Cost of Goods Sold 88265

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Cash to Cash Cycle of Amazon for the fiscal years 2007 - 2016
0

-10 • Generate revenue from customers before it has to pay its suppliers.
• Illustrates management's efficient use of working capital.
• Amazon is generating cash from its sales regardless of whether or not
-20
each sale is profitable.
• It is an interest free way to finance operations through borrowing -27.02

-30
from suppliers. -33.3

-37.39 -37.4
-38.49 -39.18
-40 -40.47

-49.47
-50

-56.78
-58.76
-60

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-70
Upstream - Amazon Market Place
1. Amazon Warehouse

• Products when ordered are shipped from Amazon warehouse


• More than 70 fulfillment centers in the US with cutting edge robotics technology utilizing
chaotic storage model

2. Third party sellers

• Products when ordered are shipped to customer from the third party supplier’s warehouse
• 584 and counting in US alone

3. Meta sellers/ Drop-shippers

• Sellers who does not keep goods in stock but instead transfers customer orders and
shipment details to either the manufacturer, another retailer, or a wholesaler, who then ships
the goods directly to the customer 19
Supplier Tiers
• More than 60% of the sellers are in the United States
• United Kingdom has the second highest sellers
No: Market Place Number of sellers
1 US 584
2 UK 205
3 Germany 86
4 Italy 37
5 Japan 36
6 France 20
7 India 12
8 Canada 12
9 Spain 5
10 China 2
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Key Supply Chain Performance Metrics & Regulatory Standards
(Upstream)
Amazon has placed stringent performance standards for Third party suppliers
• Cancellation Rate ( Target < 2.5%)
• Contact Response time ( Target: 24 hours or less in Q1-Q3, 12 hours or less in Q4)
• Customer Service Dissatisfaction Rate ( Target < 25%)
• Late Shipment rate ( Target < 4%)
Amazon provides a probation period of 60
• Order Defect Rate ( Target < 1%) days to any supplier failing to meet the
• Return Dissatisfaction rate ( Target < 10%) performance metric scores prior to account
disabling.
• Valid tracking rate ( Target < 95%)

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Amazon Customer Service - Downstream
 Response time to customers
• Order fulfillment takes longer because of involved delivery time
 Product Variety and Availability
• Able to offer a larger choice of products and services
• Able to react faster to changing customer demand which allows the company to
forecast its figures more accurately
 Customer experience
• Personalized buying experience
• Displaying and suggesting items which are related to recent purchases by the customer
 Time to market
• Faster introduction of products via online
 Returnability
• Need to optimize this feature so as to reduce the gap when competing with retail stores

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Logistics of Supply Chain
• Uses third party freight companies (DHL, FedEx, Aramex etc.) and their own logistics
services (Amazon Prime Air, Amazon Flex) for transporting goods
• Received license from US Government and Chinese Ministry of Commerce to act as fright
forwarders for ocean container shipping
• Buys spaces for container at wholesale rate, uses it or sells it at retail rates
• First to launch same day delivery
• When other companies started this, Amazon held their upper hand by introducing one hour
delivery and Sunday delivery
• Reducing cost of logistics by introducing their own logistics services such as:
o Amazon Prime Air: Leased cargo flights for transporting their goods
o Amazon Flex: Uber like cargo service in major US cities using registered private drivers for
delivering their products

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Inventory Planning and Management
• Huge number of warehouses (more than 70 warehouses in
USA . Biggest one in Arizona of the size of 28 football
stadiums)

• Automated warehouses (45000 robots in the Warehouses)

• Chaotic Storage using Barcodes

• Re-order Points with Auto order generation for safety stock


for fast moving items

• Drop – Shipping for slow moving items ( Directly from


Manufacturer)

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Amazon Inventory Model

• Information flow takes place


from Tier 1 to Tier 3
• Physical flow takes place from
Tier 3 to Tier 1
• Amazon cut down expenses by
outsourcing some of the
activities

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Strong Points In Amazon Supply Chain
• Patience , relentless investment and innovations

• Multi level Supply chain- Other than B2B, B2C & C2B Amazon also uses a C2C
relationship

• Optimum inventory planning and management

• Product Development

• Supplier Code of Conduct

• Robotics Technology

• Logistics options

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Upcoming Challenges
• Moving into Grocery Sector AMAZON PANTRY & GO (Competing with TARGET
KROGER & WALMART )

• South East Asian and Eastern European Markets- “Yummy77” With $20M investment in
fresh food E store

• Investments in the Indian market (7 Billion)

• 3PL shipping costs (1.2 Billion in Q3 2015)

• New strong competitors in the market (DHL- de.allyouneed.com)

• Internet Dependency

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Strategies /Actions to Mitigate Risks by Amazon

Product Quality Improvement


Customer Reviews and Ratings

High Dependency on Third Party Logistics


Amazon developing their own fleet of Logistics

Third Party Supplier Performance Improvement


Implementing supplier performance metrics

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Strategies /Actions to Mitigate Risks by Amazon
Maintaining Efficiency/Responsiveness During Peak Seasons
Off Peak Discounting and seasonal high price to tackle high demand during peak seasons

IT System Disruption Risk


Coming up with the largest Web service platforms (AWS)

Supply Chain Interruption Risk


70 Warehouses Strategically placed through out the United States

Inventory Management Risk


Storing Fast moving items in Amazon warehouses
Dividing slow moving items among third party sellers and meta sellers

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Success Stories
• 30 % of American households are Prime users
(Prime members spend $1500 where as Regular
ones used to $650)

• KIVA acquisition for 775 Million - March 2012

• Automation of Warehouses reducing order


fulfillment time from 90 minutes to 15 minutes

• Getting small time vendors together to sell their


products through AMAZON platform

• Entering into Cloud computing market

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Future of Amazon Supply Chain

• Increasing the product line (Bring in 85% of the


world's products)
• Predictive shopping
• More automation (30000 more robots proposed)
• Drones Delivery (30 minutes delivery)
• AMAZON GO
• Artificial Intelligence – (Alexa –Echo)
• Expansion of Amazon Lockers
• Picking and packaging robots
• Amazon Dash Button

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Suggestions
• Better strategic Logistic partnerships - UBER , UPS, FEDEX

• Further Collaboration with public sectors (Ex:-Digitalization


of antique books in British Library)

• Green Retailing (Recyclable Packages & Energy saving


standards)

• Partnerships with telecommunication providers

• Acquiring airport spaces in strategic locations ( Frankfurt,


Houston etc.)

• Concentrating on CSR initiatives (Gartner group)

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References
• Oliver Wyman on Transportation & Logistics. "Amazon Is Using Logistics To Lead A Retail
Revolution." Forbes. Forbes Magazine.
• Michael Bentley- Partner at Revenue Analytics, a Tech-enabled Consulting Firm in Atlanta, GA.
"Fighting Amazon's Supply Chain Takeover." Recently Filed RSS.
• "The World's Top Amazon Marketplace Sellers." Web Retailer Blog.
• "Amazon's New Performance Metrics, Other Recent Changes, and How to Minimize Your
Suspension Risk." 888 Lots Blog.
• "Supply Chain Management Process." Decide Software.
• "How Does E-commerce Work?" Explain That Stuff.
• "Flywheel Concept." Business Strategy. N.p., 27 Apr. 2012. Web. 06 Apr. 2017.Amor, D. (2000).
The e-business (r)evolution. Upper Saddle River, NJ: Prentice Hall PTR.
• "The Gartner Supply Chain Top 25 for 2015." Technology Research. Gartner, Inc., 13 May 2015.
Web. 06 Apr. 2017.

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References
• IIM Raipur, OPEP. "Inventory Management at Amazon." OPEP. N.p., 18 Jan. 2015. Web. 06 Apr.
2017.

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