Amazon Confidential Amazon is launching to launch Operations in a new geography, Never-land from January 2022 onwards.

Never-land is the 30th country where Amazon plans to expand operations. Amazon does its analysis in Never-land and comes up with the following data. Based on the data, a call will be taken to setup FCs in Never-land at different locations. The country is split into 4 regions/states. These are East, West, North and South. FC will have to be setup at 1 or more than 1 of these regions depending upon demand and costs involved. The retail team has indicated that the margin per unit is 0.25 $$. All shipments will be in Eaches (i.e. 1 item in a shipment). The Fixed Cost and Variable Cost for setting a FC in 2022 in different regions/states are as follows:

Financials - Monthly ('000 $$)

Type (Fixed - F / Variable V) F (not dependent on size of FC) V (to be calculated based on # of associates) F (not dependent on size of FC) F (not dependent on size of FC) F (not dependent on size of FC) F (not dependent on size of FC) F (to be calculated based on size of FC) Description Supervisors and Managers (HC Expense) Associate/Labor salaries Facilities & Security cost Stationary and Supplies All other Opex/Utilities Travel and Entertainment Depreciation East 3.2 3.2 1.0 1.1 1.6 West 2.1 2.6 1.6 1.0 0.7 North 2.1 3.2 4.0 1.3 1.2 South 4.6 3.2 2.0 1.1 2.2 -

0.408 Cost of setting up a building (per Sq. ft.) $$

1.704

0.372

0.372

The depreciation for the FCs can be as assumed as straight line depreciation over 4 years. For 2022, the monthly depreciation = yearly depreciation/12. These projected financials are valid for first year of launch in Never-land (2022) and would remain constant throughout the first year of launch. The average monthly demand projections for 2022 are as follows: Monthly Demand ('00) 2022 East West North South 1000 1100 4000 1000

Average Monthly Volume

The maximum size of the plant possible in each of the regions/states is

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Amazon Confidential E: 100K Sq. ft. W: 50K Sq. ft. N: 200K Sq. ft. S: 100K Sq. ft.

The maximum throughput possible from a FC is 0.056 units / per day / unit sq. ft. of built FC size. The throughout per hour per associate is 85 which means that associates can process 85 units in an hour. An associate works for 7 days a week, 5 hours a day. A typical day of operations has 3 shifts of 5 hours each with a total of 15 hours of working. The balance time is used for preventive maintenance. Assume a 30 days month for all calculations. Amazon decides to have equal wages for associates in each of the regions in order to not have any parity. Therefore, the HR department decided to offer 1 $$ per hour per associate as salaries (these are all-inclusive including service tax and other benefits). The transportation cost does not vary across different regions. E.g. If the items are sent from East to any of the states/regions i.e. East, West, North or South, the shipment transportation cost remains the same. This can be considered as negligible for the analysis. a) In which of the regions should Amazon setup its FCs? What is the capacity that should be invested in each of the region? What will be the total profit on a monthly basis? Amazon launches operations as per the plan proposed in 2022 and are able to meet all demand with 100% on-time delivery and quality. Never-land came up with new state transportation rules in July 2022 and imposed shipment transportation costs between different states/regions from August 2022 onwards. The transportation cost matrix per shipment is as follows. E.g. The cost of shipping 1 package from East to West is 0.05$$ Per unit Shipment Transportation cost ($$) East West North South East 0 0.05 0.2 0.02 West 0.05 0 0.05 0.01 North 0.2 0.05 0 0.02 South 0.02 0.1 0.02 0 Amazon has already put investments in the FCs proposed in part (a) above and would not like to invest further till 2023. Also, the labor (associates) employed at each of the FCs will not be downsized because of these changes. b) What should be the new strategy for Amazon for the balance of 2022 (Aug. Dec.)? Please fill in the matrix below to give more clarity to the planners

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Amazon Confidential East Demand serviced by East Demand serviced by West Demand serviced by North Demand serviced by South West North South

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