Running head: VALUE CHAIN ANALYSIS

Value Chain Analysis Unit 4 Individual Project Assignment Richelle Cooper GB570 Managing the Value Chain Professor Dr. Rita Gunzelman Kaplan University March 4, 2014

VALUE CHAIN ANALYSIS Value Chain Analysis

The digital economy has emerged via the growth of globalization. From this expansion, ideas such as e-Commerce (electronic commerce) and e-Business (electronic business) have arose as the electronic substitute to the conventional way of conducting trade and/or business. During the past decades, e-commerce has become more and more vital for organizations globally. Today, technology is growing at a rapid pace and organizations are forced to implement new technologies. As organizations will need to modify their business strategies, ecommerce will play an important role. The industry of e-commerce includes data service companies such as Yahoo, Gmail and Google. The industry of e-commerce also includes retail service companies such as eBay and Amazon.com. Within this paper, we will analyze the value chain of Amazon.com. Based out of Seattle, Washington, Amazon ranks in the top 50 Fortune 100 companies. In 1994, Jeff Bezos launched Amazon.com. In 2000, merchants and vendors were offered Amazons finest platform of ecommerce. Amazon currently operates worldwide in countries such as Germany, France, Canada, Italy, the United Kingdom and Spain. The organization employs approximately 88,000 employees globally, approximately 2 million selling accounts, 150 active consumer accounts and several external developers (Amazon.com, 2014). Amazon.com was the first online organization with a concentrated focus on online book selling. Online book selling provides an organization with the ability to lessen handling, warehousing and inventory expenses. Online book selling has the ability to accommodate a vast market that is contained in a conventional bookstore. With online book, selling the organization is also able to offer convenient, value-added services with an enlarged selection at reduced prices. Besides books, today Amazon offers consumers other products such as jewelry,

VALUE CHAIN ANALYSIS

electronics, clothing, etc. Amazon.com is dedicated to their consumers. The organization has an operational team that operates and manages all activities comprised of the supply chain, transportation, fulfillment and especially customer service. Amazons focus is to ensure consumer expectation and promises are met daily worldwide (Amazon.com, 2014). When it comes to a consumer-based organization such as Amazon, one of the most significant features when it comes to consumer satisfaction is the value chain. Amazons mission is to worlds most consumer centric organization; to assemble an area where consumers can purchase what they want online (Investor Relations, 2014). Amazon can safeguard a competitive advantage via the value chain and ensure consumers receive the best possible value. The value chain has procedures that generate and increase value to raw materials. Porters value chain contains six method that include inbound logistics, operations, outbound logistics, marketing, sales, and service. Each method is validated via the organizations human resource management, infrastructure, and technological procurement and development (UKEssays, 2014). Demand Chain Analysis When an organization needs to make a decision regarding organizational precedence and growth, the value chain comes into play. The value chain connects directly to the development plan that the organization wants to follow and measures the capabilities of specific organizational strategies. The combination of the supply and demand chain working collectively makes up the value chain. The value chain is an outline for organizing the involvement of individual operations in an organization. The principles of the value chain strengthen the evaluation of operations that enhance value and eventually lead an organization into a wellconstructed supply chain.

VALUE CHAIN ANALYSIS The demand chain yields a few procedures of the value chain, such as sales and

marketing, and guarantees consumers will receive their desired product or service. The demand chain is a network of business procedures and events that assist firms in understanding, managing and creating consumer demand (Walters & Rainbird, 2007). Concerning Amazon, the organization has a demand chain that ensures consumers receive their requested products. The following sections will provide a more in-depth overview of Amazons demand chain. Identification of Customer, Market, Wants and Needs Online shoppers are Amazons target market. Amazon is extremely focused on delivering value to their customers with a concentrated focus on informative products, enhanced product diversity, reduced prices and an increased level of customization. Amazon is able to aim at a fast growing market. The organization selects new ways to attract additional customers while providing consumer friendly customer value that leads to the achievement of a competitive advantage. With a concentration on these strategies, Amazon is capable of attaining a competitive edge in marketplace operations. Amazons core values are their sound focus on selection, service, price and convenience. With a solid focus on technology and innovation, Amazon.com is able to improve the online shopping experience (Venkatesh, 2011). Market Opportunity Analysis A market opportunity analysis is a verified marketing and benchmarking tool to determine probability and desirability of success in a rising market and will assist in brand ROI improvement (Ethridge, n.d.). Because Amazon.com is an online business the organization is continuously seeking innovative technologies in order to assure consumer needs are met. Amazons innovative technologies allows the organization to employ an operative consumer relationship management by tracing consumer purchasing behaviors and allows for

VALUE CHAIN ANALYSIS recommendations of like merchandise that a consumer may wish to purchase via user

recognition. The user recognition purpose aids consumers in their purchasing decisions as well as raises the amount of up-or-cross purchasing, which enlarges the organizations total profitability (Anders, 2013). Amazon has contact with a vast network of distributor and suppliers. Though Amazon.com maintains a number of storage centers, the bulk of their merchandise is based upon time deliverable contracts by way of external manufacturers. In addition, the shipping and distributing of merchandise is performed via external contractors, making Amazons overhead costs low and provides the organization an advantage cost over conventional sellers. Identification and Analysis of Value Drivers Value drivers are objects that improve the value of service or merchandise by increasing the products perception and fundamentally offering a competitive advantage (Qfinance, 2009). The difference between Amazon and their competitors it Amazons IT system, which satisfies the tasks of all consumer relationship management essential functions. Through Amazons easyto-use website, the organization accomplished an increase in sales, gained enormous popularity and proclaimed meaningful role of e-commerce in the United States. Aside from information technology, several of the main value drivers of an organization consist of the organizations distribution; consumers and supply chain. Value Proposition Value proposition is very parallel to value drivers. It is the value that is supplied to consumers via products and service. Consumers will pay a price that they believe is fair. The value proposition draws the marketing out of the value chain and the value of the merchandise and shows consumers their products or services are valued more over other organizations. The

VALUE CHAIN ANALYSIS

value proposition begins with making sure the organization knows their target market and how to satisfy them. Next, it ensures the organization is offering quality products or services at fair prices. To create value proposition Amazon focused on the framework of community, content, connectivity, convenience, communication, customization and customer care. Value Proposition as related to Demand Chain Amazon strongly focuses on creativity and innovation to improve the value of their products or services to provide consumers with the best. Amazon offers a range of product options, which adds value to the organization to certify consumers are making purchases that satisfy their wants and needs. Amazon.com also associates its value proposition to their demand chain by guaranteeing their mobile application is working properly and always up-to-date. Providing consumers with the simplicity of using the application adds to the demand chain value, as consumer are more keen to make purchases. Value Proposition as related to Supply Chain When looking at value proposition, just as the demand chain, the supply chain holds the same importance. This creates consumer value although it may not be noticed. By controlling their inventory, Amazon has gained tremendous value proposition for their supply chain. Amazon focuses strongly on marketing, inbound and outbound logistics and its supply chain, which allows the organization to deliver products to consumers in a timely fashion. Amazon.com also has a strong IT, marketing and customer service system that supports their supply chain.

VALUE CHAIN ANALYSIS Supply Chain Analysis

Supply chain management connects all supply related organizations in a combined twoway communication system to administer high quality inventory in the most proficient and effective ways to deliver value to consumers. Amazon.com has a very modern supply chain that contains various stages. Amazons supply chain is comprised of inventory planning, inbound and outbound shipping, transportation management, demand forecasts and warehouse management. Supply chain management is a comprehensive function and all related departments and departmental functions need to be performed efficiently. Internal and external shareholders make up the supply chain. It is important that both shareholders work resourcefully. The presence of suppliers and supply chain management in the supply chain analysis results in effective performances as the proficiency among the different shareholders would expand; increase the ability to comprehend the capabilities and needs of one another, along with the capability of solving challenges. Value Production and Coordination Production is a significant measure in the supply chain process as it can enhance the supply chain value. In the value production and coordination process, an organization works with suppliers and consumers via marketing, information technology, logistics and distribution. Organizations have the ability to produce extreme value to consumers through a well-built focus on various characteristics of the value coordination. The cost of manufacturing products can be very costly and decrease value. In terms of the value of Amazons supply chain, coordination has exhibited a great impact. Amazon.com can increase the value of their coordination and production by certifying that the items listed for sell are readily available. Providing the best quality at the lowest prices betters consumer value.

VALUE CHAIN ANALYSIS Value Delivery

For an organization that is Internet based, deliver is extremely imperative. Amazon.com strongly focuses on delivery by delivering value to their consumers using inbound and outbound logistics. Minus delivery consumer value would not occur. If consumer merchandise was not delivered during the guaranteed time frame, consumer value would decrease tremendously. In addition to product delivery, customer service is another form of delivery. Amazon.com is devoted to making sure their consumers receive the best customer service at all times. Value Servicing The process of delivering value via employees is value servicing. Amazon offers service to their consumers by way the contact us feature on their website as well as internal and external operated contact centers. These attributes allow consumers the ability to carry out a range of numerous functions, which entails estimated delivery date reviews, order and shipment tracking, and order cancellations. When consumer inquiries cannot be resolved via Amazons website, customer service representatives are available 24 hours via phone and/or email. The best way to create and spread value to consumers is through customer service. In 2011, Amazon.com obtained the Customer Choice Award for customer service, holding the top position. Via the new technology of text and emails as a form of communication so that consumers can contact Amazon employees any time, has added value to the Amazon brand (Goodfellow, 2012). Enterprise Value An organizations total value and business worth is enterprise value. Enterprise value is the sum of net debt, capital leases, preferred stock, non-controlling interest and equity value. Enterprise value is a form of viewing an organizations worth should it be sold. Equity value (or

VALUE CHAIN ANALYSIS market capitalization) is the organizational value available to vendors or stockholders. An

organizations total debt minus cash and cash equivalents equals net debt. Capital leases are the elements recorded on the balance sheet at assets and payments that are recorded as debts. Preferred stock is an economic liability that is equivalent to is liquidation value and contained within net debt. Non-controlling interest is a fraction of a secondary organizations stock that is not maintained by the parent organization. Amazon.com was one of the first online stores to sell products and services to consumers. This is Amazons principal source of income. In 2013, Amazon generated sales was $74.45 billion, $61.09 billion in 2012, and $48.08 billion in 2011 (Market Watch, 2014). It is safe to say that Amazons product revenue is continuing to thrive. Over the past several years, Amazon.com has acquired organizations such as Zappos.com, Quidsi and Touchco. In 2007, the US was introduced to Amazons Kindle. Kindle is Amazons wireless portable e-reader that allows consumers to download music, books, movies, etc. Industry Drivers Industry drivers are one of several factors that can affect an organization. These factors can be economical factors, marketing factors, competitive factors and/or environmental factors. As one of the major forerunners of the global economy, e-commerce has transformed the development of the global business, improving the effectiveness of logistics and simplifying the acquisition, the promotion and sale of goods. E-commerce has assisted millions of consumers via lower prices, high standard competition, timely order processing and timely shipping. Industries of all sizes rely on e-commerce applications in order to endure and take part in local, national and global economies. By offering inexpensive, quality products and fast service to

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consumers is what powers the competition in the e-commerce industry. Amazon.com is able to contend with other organizations utilizing these industry drives to ensure they do not fail. Competitive Advantage Competitive advantage is extremely imperative. The value chain, supply chain and the demand chain all play a vital role in competitive advantage. A competitive advantage is when an organization can exceed consumer expectations over their competitors. Amazons competitors consist of eBay.com, Overstock.com, Wal-Mart.com and other organizations with an online website who offer the same products. Brand loyalty is another factor, which leads to competitive advantage. Amazon.com has millions of consumers who are loyal to their brand. In order to obtain a competitive advantage in the e-commerce market, Amazon concentrated on diversification by selling distinctive online products. Amazon.com also concentrated on partnering with distinct virtual organization to display and sell their merchandise through Amazon. Amazons introduction of their Kindle Fire shook the division of technology out of Apple, Inc. Amazon.com has slowly pierced the industry of book selling via better innovative ideas consistently collaborating with cloud space and technology to supply the utmost consumer value. Customer Delight Customer delight is when organizations exceeds consumer expectations and surprise the consumer with an experience of positivity. Consumers are the focus of any organization therefore; it should be the organizations main objective to be devoted to providing and serving consumers to the best of their abilities. Hanselman tells us there are six strategic constituents to customer delight. These constituents include the wow factor, constructing spontaneity, recognizing and comprehending the consumer, ensuring the consumer feels valued by the

VALUE CHAIN ANALYSIS organization showing their gratitude and making sure consumers realize how important their business is, furnishing genuine service, and word of mouth advertising. Customer delight is

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something consumers can feel, remember, talk about, and then come back for more (Hanselman, 2011). Amazon.com offers a purchasing comfort to consumers through a variety of online products. With a strong concentration on technology and innovation, Amazon.com has enhanced the shopping experience for their target consumers. Amazon.com provides consumers with a service that is unexpected. Amazon offers personal accounts and consumer satisfaction that ensures the consumers feel gratitude that is genuine and know they are valued. Conclusion The value chain is exceptionally vital to any organization. The supply and demand chain working together creates the value chain. Value proposition and enterprise value are key measures in confirming that the total value of any organization is completely understood. With the improvement of technological advancement and enhancing globalization, the demand for online business has considerably increased. Amazon.com has proven the organization has an effective value chain that confirms their consumers are receiving the best value possible. Through continuing to improve and work on plans of increasing their value chain, Amazon.com can continue to be the top rated online retailer for years to come.

VALUE CHAIN ANALYSIS References Amazon.com (2014). Amazon. Retrieved from http://www.amazon.com/b?node=239366011 Anders, G. (2013, November 7). No stores? No salesmen? No profit? No problem for Amazon.

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Retrieved from http://www.technologyreview.com/news/520801/no-stores-no-salesmenno-profit-no-problem-for-amazon/ Ethridge and Associates, LLC (n.d.). Marketing opportunity analysis. Retrieved from http://www.ethridge.com/communication-services/research/marketing-opportunityanalysis/ Goodfellow, P. (2012, August 28). Amazon #1 in customer service, but will this lead to sustainable loyalty. Retrieved from http://www.forbes.com/sites/prospernow/2012/08/28/amazon-1-in-customer-service-butwill-this-lead-to-sustainable-loyalty/ Hanselman, A. (2011, April 7). The six ingredients of customer delight. Retrieved from http://socialmediatoday.com/andyhanselman/551048/6-ingredients-customer-delight Investor Relations (2014). Amazon. Retrieved from http://phx.corporateir.net/phoenix.zhtml?c=97664&p=irol-faq Market Watch (2014, February 28). Amazon.com Inc. Retrieved from http://www.marketwatch.com/investing/stock/amzn/financials Qfinance (2009). Value driver. Retrieved from http://www.qfinance.com/dictionary/value-driver UKEssays (2014). Value chain and its components. Retrieved from http://www.ukessays.co.uk/essays/business-theory/value-chain-and-its-component.php Venkatesh, R. (2011). Why Amazon is the best strategic player in tech. Retrieved from http://www.forbes.com/sites/venkateshrao/2011/12/14/the-amazon-playbook/

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Walters, D., & Rainbird, M. (2007). Strategic operations management: A value chain approach. New York: Palgrave Macmillan.