INTRODUCTION

Offering the best products at the lowest possible prices at the convenience of their
customers has always been Amazon’s mission. In line with its mission, the company also
envisions to be the most customer-centric business establishment among all other companies
across the different parts of the world. Additionally, Amazon envisions to build a virtual place
where people can visit on the internet to select and purchase products online. Jeffrey P. Bezos
remains to be the company’s President, Chief Executive Officer and the Chairman of the Board.
In the daily conduct of their business operations, Amazon implements three corporate
strategies. These strategies are the push-pull strategy, the supply chain strategy, and the drop
shipment approach. As a purely virtual retailer, Amazon held no inventories in the pioneering
years of its business. The main reason for this matter was the pull system strategy where Amazon
clearly had no warehouse to store their inventories which also suggested that there were no
inventory items and thus, the absence of factory overhead expenses. Nonetheless, the company
decided to use the push-pull strategy instead over the passage of time. This strategic shift, which
was directly attributable to the market growth, held and managed inventories using push systems.
Meanwhile, orders are shipped out through pull systems.
Inventories which take a long time to be completely sold out are, however, managed
through pull systems. Due to the company’s implementation of the push systems, several
distribution centres located at different cities or even countries were needed to keep inventories
until they were ordered and shipped out. These distribution centres forced Amazon to implement
its supply chain strategy where Amazon to acquired several storage facilities to hold inventories
and to coordinate with a highly efficient logistics company during the shipment process. To
complete its supply chain strategy, Amazon also took advantage of information systems which
are able to track down inventory and identify the most appropriate distribution centre for every
order placed by a customer.
Amazon’s current strategic supply chain structure has led to the emergence of its third
corporate operational strategy – the drop shipment approach. In this strategy, orders are picked
and packed in Amazon packages before shipment. Consequently, these orders are delivered by
logistics companies that Amazon is currently in partnership with. The third strategy that Amazon
has been using for several years now has saved the company from huge losses especially in the
shipping and delivery processes. However, deliveries take time especially when customers have
availed of free shipping promotional sales. Orders that were placed using free shipping promos
must be pooled until there is a full truckload. Undeniably, longer lead times in delivery most
likely cause customer dissatisfaction observable in unsatisfactory reviews and ratings.

TOOLS
This case study made use of two analytical tools – Value Chain Analysis and SWOT
Analysis. The causes and indicators of Amazon’s internal problems must be determined in
analyzing its daily operations. By doing so, the most practical, effective, and efficient solution or
alternative courses of action may be identified through establishing a decision criteria and
evaluating such solutions and alternatives in a decision table.

1. Value Chain Analysis

FIRM’S PRIMARY ACTIVITIES
Order Distribution Inspection and Shipment Delivery
Processing Centre Selection Quality Control
TOTAL COST AND IMPORTANCE
$2M $3M $5M $3M $3M
Important Important Very Important Very Important Very Important
COST DRIVERS
Order size Sales per Quality targets Sales volume Flexibility of
inventory item couriers
Number of Number of Number of
orders placed per Average value of defective items parcels shipped Number of
day sales per in a day complaints
distribution Number of items
Courier selection centre needing repairs Rescheduled
deliveries
Number of Location Product recalls
orders cancelled Returned items
per day
LINKS BETWEEN ACTIVITIES
1. Number of orders placed in a day and as well as order sizes increase sales volume to reach
full truckload
2. Locating distribution centres near customers’ locations reduces shipping and delivery costs
3. Inspection and quality control costs reduce repair costs for defective items and as well as
lessen the possibility of returned items
4. Faster shipment and delivery lessen customer complaints and reduce unsatisfactory reviews
OPPORTUNITIES FOR REDUCING COSTS
1. Encourage order placement through free shipping promotional sales for faster shipment and
 delivery. Determine cost-saving and flexible couriers for the delivery of items.
2. Pre-determine customer’s location and link it with nearby distribution centres for faster
processing of orders. This will also lessen shipping and delivery costs.
3. Always inspect items before shipping them out to avoid receiving complaints concerning
defective items and lessen repair costs for returned items or recalled products.
Table 1. Amazon’s Value Chain Analysis

2. SWOT Analysis
STRENGTHS
1. Several types of delivery
2. Multi-tier inventory management
3. Free shipping promotional sales
OPPORTUNITIES
1. Emergence of new suppliers and couriers
2. Advanced information and communication
systems
3. Amazon fleet: a company-owned courier
Table 2. SWOT Analysis of Amazon
WEAKNESSES
1. Warehouse management systems
2. Delivery lead time
3. Dependence on couriers
THREATS
1. Demand fluctuations and uncertainty
2. Competitors’ (eBay and Walmart)
promotional sales through free shipping
and discounted unit prices of items
3. Decrease in the level of customer
satisfaction due to delivery delays

PROBLEM IDEATION
Statement of the Problem
This case analysis aimed to determine the underlying problems of Amazon within their
supply chain structure.
Specifically, it sought to answer the following questions:
1. What are the problems of Amazon within their current supply chain structure?
2. What could be done to improve its supply chain structure from which the company may
find most practical and beneficial?

Causes, Indicators, and Consequences of the Problem

In the pioneering years of its business, Amazon used to gain profits in taking orders from
customers and communicating these orders to sellers. The company used to merely process
orders and link sellers and couriers in the shipment and delivery processes of completing orders.
However, due to market growth, Amazon decided to engage in a diversified business with highly
responsive customers. This allowed the company to establish four main components which must
fit together to have a successful supply chain. Amazon has already acquired several distribution
centres which served as storage facilities over the years. Inventories are managed in multi-tier
systems and are shipped out using highly efficient transportation with its partner couriers.
Distribution centres, inventories, orders, shipment, and deliveries are linked together in the
company’s information systems to provide real time information within its supply chain
structure.
Although these components are linked together and its goals are aligned with Amazon’s
competitive strategy, internal problems still lie within its supply chain. In the shipping and
delivery processes of completing the orders, the company relies on its partner couriers most of
the time. Even with the presence of their multi-optional delivery choices, lead times still take
longer than expected. Customer satisfaction levels have declined considering the fact that orders
placed by customers are needed to be delivered as soon as possible. If these situations happen
most of the time and continue to happen in the future, Amazon will most likely lose its customers
to its customers such as eBay, Walmart, Alibaba, and the like. Adverse consequences in the short
and long run will be very disadvantageous to Amazon and their weaknesses may be seen by their
competitors as opportunities.

Decision Criteria
Probable solutions to the current internal problems of Amazon especially in its supply
present supply chain structure must be assessed after being identified. Similarly, alternative
courses of action towards both strategic and competitive plans must be evaluated using a set of
identified and well-described decision criteria. Each criterion will be used to rate identified
probable tactical strategies which may be implemented by Amazon to improve its daily business
transactions. This case study used the following set of decision criteria in assessing and
evaluating the most effective, efficient, and practical tactical strategy which will generate
favorable business outcomes.
Cost. This decision criterion is concerned with cost constraints or preference for lower
cost options. Amazon should be able to reduce operating, selling, and distribution costs with a
particular tactical strategy.
 Profitability. As a pure internet retailer with several competitors in the industry, Amazon
should ship goods faster than the rest. When inventories are shipped immediately, inventory
turnovers are most likely favorable. Gains are realized faster than expected and losses are
minimized at the lowest level.
Consistency. The company should be able to implement a tactical strategy that is in line
with the company’s vision, mission, and goals. That strategy must provide a sense of fulfilment
in every customer’s transaction with the company.
Attainability. Amazon’s preferred tactical strategy should be attainable as it should be
achieved using the company’s present or future resources and capabilities.
Customer Satisfaction. This is the basis for future purchasing decisions of customers.
When customers are highly satisfied, they tend to have strong preferences for Amazon than other
online internet retailers.

DECISION TABLE
Cost Profitability Consistency Attainability Customer
Tactical Total
(25) (30) (15) (15) Satisfaction (15)
Strategies (100)
1 - - - - - -
2 - - - - - -
3 - - - - - -
Table 3. Decision Table Format

Tactical Strategies
TACTICAL STRATEGIES ADVANTAGES DISADVANTAGES
Upgrade its information  Identifying the most  Software upgrade costs
systems appropriate distribution may be higher than usual
centre for a particular order due to present conditions.
at the shortest period of  Upgrades in the
time can be Amazon’s edge information systems may
over its competitors. Nearer complicate Amazon’s
distribution centres may products and delivery
also reduce costs in the service types.
shipment and delivery
processes.
 Faster transactions may
attract customers due to
faster order processing.
 Software failures may be
lessened and customers can
shop conveniently without
delays and errors in the
process of placing orders.
 Compared to other
investments, upgrading the
company’s software and
information systems may
cost lesser.
Create its own private fleet  The company will be able  Additional costs for GPS
to have its own courier in to identify control the trackers.
delivering the goods and number of items shipped  Interest expenses for lease
services to customers based on average sales per contracts may increase
location. periodic expenses.
 Amazon may set policies  Maintenance costs may
for full truckload in terms increase for a period.
of free shipping  Average sales may vary
promotional sales. especially during different
 Transportation equipment seasons.
may be acquired through
lease contracts.
Push through with Amazon’s  Delivery may be possible  Drones are very expensive
Prime Air Service within 30 minutes right  Customers may not avail of
after an order is placed and fast yet costly delivery
confirmed considering the present
 This delivery option will be economic conditions
very convenient for orders  Operating systems for
which are needed as soon drones may be another
as possible expense that is mutually
 Delays are less likely exclusive from the costs of
especially when orders are the drones alone
delivered by drones
Table 4. Amazon’s Probable Tactical Strategies and its Respective Advantageous and
Disadvantageous Consequences

Decision Table
DECISION TABLE
Cost Profitability Consistency Attainability Customer
Tactical Total
 Strategies (25) (30) (15) (15) Satisfaction (15) (100)
Upgrade its 23 27 13 14 13 90
information
systems
Create its 20 26 13 12 14 85
own private
fleet to have
its own
courier in
delivering
the goods
and services
to
customers
Push 20 25 13 11 14 83
through
with
Amazon’s
Prime Air
Service
Table 5. Amazon’s Decision Table

SOLUTION
The results generated in Table 4 revealed that the most practical, efficient, and effective
alternative course of action that Amazon must implement is to upgrade its information systems.
This probable solution to Amazon’s internal problems within its supply chain is aligned with the
results of a study conducted by Sadeh, Birjandi, & Miremadi (2012) where it was found out that
promotion and communication strategies are very important tools for the success of the business
especially today when financial service is essential due to heavy market competition. Generally,
competition and concentration are responsible for the variation of strategies in business (van der
Wurff, 2005). Adding variations to its present information systems will be another competitive
strategy for Amazon as its advantages outnumber the likelihood of the disadvantages enumerated
in Table 4.
On the other hand, creating its own private fleet may require additional funds for
transportation equipment, GPS trackers, and additional workers. This may be quite impractical at
some point as the rapid growth rate in urban population and flow of technologies has fastened the
magnitudes and patterns of urban transportation network. It should be understood that additional
investments do not always guarantee profitability. Hence, the capacity to understand productivity
and the significance of effective operations management is necessary for every business
establishment (Saladin & Nelson, 1984). A tactical strategy that is cost-saving, profitable,
attainable, customer-satisfying, and consistent with organizational values significantly influences
the effectiveness of business management (Malbasic, Marimon, & Mas-Machuca, 2016).
Therefore, Amazon should upgrade its information systems for easier, better, and faster
transactions with its customers at the utmost convenience.

Steps in Upgrading Amazon’s Information Systems

1. Conduct surveys online after every transaction is completed.
2. Gather feedbacks from its customers and compare it with feedbacks from its employees.
3. Troubleshoot the current information systems.
4. Identify areas for improvement.
5. Communicate with the company that provides for its information systems and request for
an upgrade with the features gathered from feedbacks and troubleshoots.
6. Test the newly upgraded information systems within the workforce and compare present
transactions from previous ones.
7. Request for updating the software application from its developer and introduce the
features to the market.

Performance Measures
PROFITABILITY
Sales volume 100-200 sales transactions are processed and
confirmed in a day in every distribution centre
Number of orders completed through 400-500 parcels are delivered daily
shipment and delivery worldwide
CONVENIENCE
Ease of processing transactions 2-3 minutes of order processing and
confirmation
Number of complaints and customer 90-95% of customers give satisfactory ratings
satisfaction levels and reviews after products are delivered
Table 6. Amazon’s Performance Measures for a System Upgrade
Steps in Controlling and Ensuring Success
1. 100-200 sales transactions through orders placed online are processed and confirmed in
every distribution centre per day. These surging number of orders indicate a strong
customer preference for Amazon over its competitors. Sales reports should always be
generated every day.
2. 400 to 500 orders and deliveries are completed per day worldwide. Delivery reports from
these transactions should be submitted by its partner couriers to ensure that parcels are
delivered on time.
3. Require the sales and marketing department for a comparability report regarding its sales
in the last two months. Set targeted sales volume every month for trend projections and
give incentives and rewards for the best performing distribution centre.

REFERENCES

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https://search.proquest.com/docview/1836716445?accountid=37714

Sadeh, F., Birjandi, R. H., & Miremadi, A. (2012). Survey on the effectiveness of Promotional
and communication strategies adopted by financial services. African Journal of Business
Management, 6(44), 10925-10937. doi:http://dx.doi.org/10.5897/AJBM11.2554

Saladin, B. A., & Nelson, R. R. (1984). How small businesses view productivity and its
relationship to operations management. Journal of Small Business Management, 22(1), 16.
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van, d. W. (2005). Business magazine market performance: Magazines for the agricultural,
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