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What are the key factors that influence the design of Amazon's U.S. distribution network?
What are the main challenges for Amazon to replicate its U.S. operations in Europe?
Suppose the weekly demand for a popular tablet computer follows the normal distribution, N
(1500, 200) in UK, N (2000, 250) in Germany, and N (1200, 200) in France. Amazon sources the
tablet at $250 per unit, and the sourcing lead time is 2 weeks. Each sourcing order costs Amazon
$200 in administrative processing and transportation. The company uses a continuous review (R,
Q) policy to manage inventory and targets a 98% service level (k = 2.054). Assume an annual
interest rate of 50% to calculate inventory holding cost and 52 weeks in a year.
a. What are the order quantity Q and reorder level R for each DC? Define cycle stock as Q/2,
safety stock as R minus the expected demand during lead time, and average inventory as
the sum of cycle stock and safety stock. What is the total amount of average inventory
held in all three DCs?
b. If Amazon uses one single DC to serve the tablet demand in all three countries, what are
the resulting Q, R, and average inventory held in the DC? How many units of inventory
are saved compared to 1?
Consider the following three options of designing Amazon's European distribution network:
a. Keep the status quo (three decentralized DCs serving each country independently);
b. Keep the existing DCs but centralize the management of them by possibly allowing a DC
in one country to fulfill orders in another;
c. Combine all DCs into a single DC serving multiple countries.

What are the pros and cons of each of these strategies? What are the benefits and challenges of
centralization in Amazon's European distribution network?