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Lambton College (Mississauga Campus) Queens

College
SUP 2013 Introduction to Supply Chain Practices

ASSIGNMENT 3

Name: Amit Bansal


Student id: C0691725
Class: PG Diploma in Supply Chain Management
Dated: 08 December, 2016

Amazon
1. Why is Amazon building more warehouses as it grows? How many warehouses should it have and
where should they be located?
Ans. Amazon plays a vital role in E-shopping at global aspect, when they started, they were having very limited
warehouses but as they grew on a large scale as well as a unique E-shopping company they started introducing
new products and got new extension.
Amazon is company which sells its product online. They are mainly into books and music but as time goes they
have widespread and available for many other categories. Amazon has an organizational structure which is on
the basis of effective and efficient service which affects mainly on price and easiness of usage of online
products.
Amazon is building more warehouses in order to: Decreases transportation costs which is very high since its a
global online company; decrease response time to its customers by delivering the good fast and increasing the
customer experience/service. The most important aspect why a company like Amazon builds more facilities is
also to try to decrease total logistics costs. However, Amazon should not exceed the number of facilities that
decreases the total logistics costs otherwise at a certain point response time will start increasing. They should
have warehouses next to their main target markets; choose strategic location based on road facility access etc.
in order to minimize their total logistics costs. Should Amazon stock every product it sells?
Since Amazon tends to have many facilities thus they also have high inventory levels and costs. Thus they
shouldnt store all products they have. In my opinion Amazon should use both Push and Pull process in order to
minimize their level of inventory costs. In fact with a Pull process cycle, Amazon will only place the order from
their supplier when the customers place theirs. This process should not be used a lot since it could decrease
Amazon response time to deliver the product but it should be used at a point where it could minimize inventory
without impeding that much on response time. On another hand, Amazon should use push process more in order
to forecast the demand accurately and to get in its inventory exactly what is needed in order to not have
overstock products which will increases inventory costs.
Factors deciding the amount of warehouses

Scale economy: When the main purchase power reach a certain extent, we will intuitively build a
warehouse to cover the sales in this region.
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Strategically arrangement: Take future development into consideration.

Convenient communications: With a better communicating location, it could cooperate with the
delivery company more efficiently and lower the delivery cost.

Renting cost: After considering reasons above, the renting cost should come in now. Cost is always one
of the reasons for choosing the location.

2. What advantages does selling books via the Internet provide over a traditional bookstore? Are
there any disadvantages to selling via the Internet?
Ans. Advantages:
i.

Convenience: Customers can browse and buy from home: 24/7 shopping for customers, no
geographical barriers

ii.

Reduce physical and administrative cost: Amazon offers a much larger selection of books than a
typical bookstore. Offering the same selection at a retail store would require a huge location with
correspondingly large amount of inventory

iii.

Fulfill various customers needs: Online bookstore is able to provide more categories than traditional
store.

iv.

Build up database system: Online bookstore can analyze customers need through their purchase
history.

v.

Develop additional channel for customer to see the products

vi.

Easy to search: Its much easier for customer to find out or search their needs online.

vii.

Flexible Pricing based on customer demand

viii.

Easier and more accurate forecasting of demand and supply of books

Yes, there is another side of the coin. The disadvantages of selling over the Internet include:

i.
Payment security
ii.
Gap in perception
iii.
Response time
iv. Transportation cost
3. Should Amazon stock every book it sells?
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Ans.: No, it should stock those products which are in higher demand.
We can consider the question by dividing by two categories

Standard inventory
Amazon should store physical inventory of the popular books it sells as standard inventory in order to

fulfill these customers needs in a certain short time.

Just In Time inventory

Amazon doesnt have to stock books not in popular demand. When Amazon receives orders which arent in
stock, it can cooperate with the publisher to meet the unexpected demand. Furthermore, it can save lots of space
to reduce the inventory cost.
4. What advantage can bricks-and-mortar players derive from setting up an online channel? How
should they use the two channels to gain maximum advantage
Ans.: The performance of traditional bookstore supply chain can be improved significantly by combining the
strength of the retail and online channels. It is important to realize that the benefits of aggregation are most
significant for low- demand books whose demand is hard to forecast.

The book supply chains should be structured so that retail outlets carry many copies of best sellers for
customer purchase and one copy of low demand books to encourage customers to browse and make
impulse purchase. Terminals or internet kiosks should be provided so that customers wanting to order
low demand books that the bookstore can offer.

This approach allows the supply chain to reduce inventories by aggregating low demand books sold
online while keeping transportation costs low for best sellers sold at retail store.

Advantages:
a.
b.
c.
d.
e.

Providing another promotion and marketing channel


Saving cost on customers survey
Increasing consumers
Sense of security
Direct after-sale service

Maximum advantages:
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a. By internet, they can collect more detailed information about customers so that we can make
customer database. With that, we can build up the optimal marketing strategy.
b. Providing two channels to customers makes it more convenient and also fit their own needs. At
the same time, it could also save unnecessary cost to the company.
5. What advantages/disadvantages does the online channel enjoy in the sale of shoes/diapers relative
to a retail store?
Advantages:
1. Time to market
2. Flexible pricing, portfolio, promotions
3. low facility cost
Disadvantages:
1. Transportation cost
2. Response time
3. IT cost
6. For what products does the online channel offer the greater advantage relative to retail stores?
What characterized these products?
Ans.: Online channel offer the greater advantage for those products having large product varieties.
For example; Netflix offers a much large selection of movies than any video rental store, offering the same
selection at a store would require a huge location with correspondingly large amount of inventory.

Virtual goods such as software; funds and stocks; tickets; information


Physical goods foreign products; the product that buyers and sellers are hard to find each other
Characteristics
The feature or quality of goods can be easily showed from the limited pictures or information on the
internet.
Its traditional channel can be easily replaced by e-commerce channel
- Less cost (e.g. display and stock and rent of stores cost can be eliminated)
The searching cost in traditional channel is much higher than e-commerce.
References:

1. Ram Ganeshan and Terry P. Harrison. An Introduction to Supply Chain Management , Available at
http://lcm.csa.iisc.ernet.in/scm/supply_chain_intro.html retrieved on 07.12.2016
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2. Oliveira, A. and Gimeno, A. Customer Service Supply Chain Management: Models for Achieving
Customer Satisfaction, Supply Chain Performance, and Shareholder Value. New York: Pearson, 2014.
3. Levi D.S., Kaminsky P., and Levi E.S., Designing and Managing the Supply Chain: Concepts,
Strategies, and Case Studies, Irwin McGrawHill, 2000.
4. Chopra S., Meindl P., Supply Chain Management: Strategy, Planning & Operation, 5th Edition, Pearson,
2013