Operation Plan

CASE STUDY ON LOGISTICS AND SUPPLY CHAIN OF AMAZON

DEEPAK KHATRI | UNIT 5003 | 15/06/2021

 Table of Contents

Introduction ……………………………………………………………………………………………… 02
Information Flow of Amazon……………………………………………………………………… 02
Amazon Innovation…………….……………………………………………………………………… 02
Operation Management……..……………………………………………………………………… 03
1- Design of goods and services ………………………………………………………… 03
2- Quality Management……………………………………………………………………… 03
3- Process and Capacity Design………………………………………………………….. 03
4- Location Strategies…………………………………………………………………………. 04
5- Layout Design and Strategies…………………………………………………………. 04
6- Supply Chain Management…………………………………………………………….. 04
7- Inventory Management………………………………………………………………….. 05
a) FBA…………………………………………………………………………………………… 05
b) Self-Fulfillment…………………………………………………………………………. 05
8- Scheduling……………………………………………………………………………………… 06
9- Maintenance………………………………………………………………………………….. 06
How Amazon Supply and Demands Works…………………………………………………. 06
Key Supply Chain Performance Standards………………………………………………….. 06
Barrier to Implement Recommendation……………………………………………………. 07
Product Return Issue…………………………………………………………………………………. 07
Evaluating Amazon Financial Performance………………………………………………….07
Cash Flow of Amazon ………………………………………………………………………………...08
Conclusion…………………………………………………………………………………………………..08
Reference……………………………………………………………………………………………………09

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• Introduction:

Nowadays, throughout the world, every single person knows very well about Amazon and
its success. Amazon was established in 1994 in Washington, USA. Initially, Amazon started
with online bookselling and expanded its online service to sell electronics, games,
software, furniture, toys, and many more items. With their continuous success in e-
commerce, in 2015 they surpassed Walmart and become the most valuable retailer in the
US market. The best part is that they didn't stop there but looking for more space to grab
other sectors too. In 2017 they acquire "Whole Foods Market" and in 2018, they started
two days delivery service and Amazon Prime surpassed 100 million subscribers
worldwide. In their web service business, they are renting data storage along with cloud
computing.
• Information Flow of Amazon:

• Amazon Innovation:

Amazon knows very well that people are loyal to them until somebody offers them a
better service. This belief encourages them to be motivated and creative in their field to
engage the peoples with them. They introduce "Alexa" the voice control intelligence
which attracted the peoples toward them. Amazon introduces Kindle where an audible
online book store where instead of reading the book or an article you can listen to the
audio versions of them. That feature is also loved by their members. Palpitate the online
gaming service. They introduce Prime Service for the exclusive members where they are
getting thousands of product with very fast delivery and free. This service raises the

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expectation to get their product same like Amazon from other companies. Then they
started Prime Now, in which they are offering to get the product in two hours for free and
in one hour for 7.99 $. This service is only available in limited areas. Prime Air, this service
is still under development but this will be a real game-changer. In this service, members
will get their orders within 30 minutes by drones. They also offer one-click purchases
where members can place an order with just one click whereas in other company they
have to fill out a form along with multiple pages to place an order. Amazon also introduces
a dah button, in which you can buy one for 5$ for your favorite brand and just one click
to reorder that item. They also built their cloud computing platform which runs faster and
smarter than the company's web service.
• Operation Management:

Amazon focused on the below-mentioned strategic operational areas for its e-commerce
business to improve its operational management.
1- Design of goods and services:
Amazon has a good vision to capture the market share. They know that advanced
information and communications technologies are the best solutions for long-
term online retail services and to target potential customers. These technologies
can be very much effective and efficient for e-commerce operations.
2- Quality Management:
The objective of this is to maximize the quality of operational output to satisfy the
expectations of the customer. Amazon is using AWS (Amazon Web Services) to
predict how fast transform lines should be done to avoid tearing. By AWS,
automatic quality inspection has been done with an extensible computer vision
solution to improve accuracy, reduce cost, and maintain the quality of the product
which is expected by the customer expectations. Also, Amazon promotes
innovative ideas among employees to encourage them and improve the business.
3- Process and Capacity Design:
An objective of this is to improve the production process and its capacity. In this
strategy, Amazon applies immense automation to streamline its business
processes. For an e-commerce business, it is very necessary to focus on
automation to accept mass orders without being delayed. They are also focusing
on DC capacity usage. Also uses population density maps overlaid with its DC
location. Finally amazon not depend on building facilities to support peak demand,
but they adapt drop shipping and works with 3PLs in addition to support its
internal efforts.

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4- Location Strategies:
This is also the main factor to maintain its good name in the market because main
consumers are placing orders, they even don't bother from where the parcel is
coming but they need the order ASAP. Therefore it is very important to maintain
the warehouse's location that is ideal with the largest possible number of online
consumers. They also took initial steps to satisfy customer's expectations. They
introduce a two-day delivery option for the prime members. They are operating
around 175 fulfillments across the world, occupying around 150 million sq. ft. of
space. Mainly there are operating in metropolitan areas. The control of
distribution and inventory is in their hand and allowing the company to fulfill the
orders for the customers at minimum cost.
5- Layout Design and Strategy:
In this strategy, the objective is to reform the movement of resources, materials,
and information. This layout concern is to maximization of shelf space and
minimization of passage to achieve flawlessly capacity with maximum efficiency.
They also introduce FBA (Fulfillment By Amazon) program through which the seller
requires to ship the product to the Amazon warehouse for the company to pick,
pack and ship the orders to the customers. Also, they offer FBA onsite program, in
which they equipped the company warehouse with their management software
and maintain control over their products while amazon is responsible to pick the
order from a seller's warehouse.
6- Supply Chain Management:
Supply chain management is most important to maintain a good relationship with
suppliers as well as consumers. Amazon does this through automation and
allowing suppliers and buyers to access its IT assets. By using their software, sellers
can identify the demand level of the product, and also buyers can track their
orders and communicate with suppliers.

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7- Inventory Management:
Its focus on maintaining immaculately inventory ordering and holding. They are
using just-in-time inventory management. In this products arrive at the
warehouses are immediately shipped to the consumer's orders and hold other
products as its finished good inventory. Also, they are offering inventory
management pieces of training to their employees to ensure ordering and holding
inventory and maximize the speed of orders from warehouses through mobile
computers linked with the central database computer and minimize the costs
while satisfying the market demand. Also, amazon focused on serving the right
product to the right customer.
They have two inventory options.
a- FBA, where they inform sellers where to end the product, then process the
delivery through their fulfillments based on sales and location.
b- Self-fulfillment, where the supplier manages the delivery by their own.

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 8- Scheduling:
Amazon is more focused on schedules to clinch resources satisfy market needs. In
this Amazon depends on suppliers for its e-commerce business. By using this tool,
merchants can access the company website to observe demand levels and
contrivance their delivery schedules accordingly. Amazon operates with
automatic shipping schedules engaging their fulfillment centers, which allows
shipping services to sellers for a fee.
9- Maintenance:
Amazon is very much emphasizing maintaining technological assets. They are
always looking for advanced technologies to improve their operational efficiency
with less downtime.
• How Amazon supply and demands works:

Recently they have added a new feature that is Probability Level Demand Forecast. This
directly impacts on member's stock levels Amazon. The demand for the products will be
based on previous sales records, glimpse, and planned sales offers. There are now three
new probability forecasts are available for the members.
1- P70: In this 70 percent chance that level of demand indicated will be purchased
by Amazon and a 30 percent chance Amazon will buy more.
2- P80: In this 80 percent chance that level of demand indicated will be purchased
by Amazon and a 20 percent chance Amazon will buy more.
3- P90: In this 90 percent chance that level of demand indicated will be purchased
by Amazon and a 10 percent chance Amazon will buy more.

• Key Supply Chain Performance Standards:

Amazon has rigid performance standard for its third-party suppliers.

1- The rate of cancellation should be less than 2.5 %

2- They should response to the customer within 24 hours or ASAP.
3- The dissatisfaction rate should be less than 25 % of their order.
4- Shipment late delivery rate should be less than 4 %.
5- The defect in order should be less than 1 %.
6- The dissatisfaction return of the order should be less than 1 %.

Amazon is providing 60 days probation period to the suppliers to meet these standard
parameters.

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• Barrier to Implement Recommendation:

The complication to utensil is fluctuating demand and high investment. Due to high
demand, the company is not sure that how much stock they should maintain in that
particular area. Therefore private fleet will cost very expensive. Moreover, the private
fleet cost is very high. Instead of doing big investments in a truck, they can be leased to
reduce the cost. The other factor is the cost of worker's training. They are liable to train
the employee according to their job description for example they have to train their
drivers to drive properly and how to use google maps. Also, the company has to keep
check and balance on mile drive to prevent fraud. To prevent this they have to install GPS
in their vehicles which also need big investment. One of the most important factors of e-
commerce is the dependency on the internet.
• Product Return Issue:

Product return is the one area where Amazon was facing problems in the beginning but
as they are progressing they are setting the best technics to resolve the issues. As we
know that most e-business doesn't have real stores. Through web pages, customers can
get information about the products. That is the main reason that most peoples do online
shopping only with well-known companies. Might be when we receive our order, the
product is not accordingly to our expectation and according to Amazon policy, most
customers pay in advance at the time of placing an order or they have to pay cash on
delivery before opening the products. Also most of the time they are doing deliveries with
a third party. Therefore, if a customer is not satisfied with the quality of the product, they
have to process their return through an online application or a customer care call. Also if
the customer gets a damaged product, then they have to show an appraisal report in
which more time is taking than the return time limit. But with the time interval, Amazon
made changes in their policies which are user-friendly and easy return and refund
process.
• Evaluating Amazon Financial Performance:

Amazon has become a world favorite e-commerce company for online retail shopping.
Every year Amazon sales are growing not only day by day but in minutes. Below is the
financial analysis from the year 2016 to 2019.

Item/Year 2016 2017 2018 2019

Assets 45,781,000 60,198,000 75,102,000 96,335,000
Liabilities 43,816,000 57,884,000 69,392,000 87,813,000
Inventory 11,461,000 16,048,000 17,175,000 20,498,000
Cash 25,981,000 30,987,000 41,251,000 20,498,000
Receivable 8,339,000 13,165,000 16,678,000 55,022,000
Total Asset 83,402,000 131,311,000 162,649,000 20,816,000
Total Liabilities 64,117,000 103,602,000 119,098,000 225,249,000

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 Total Equity 19,285,000 27,710,000 43,550,000 163,189,000
Sales 135,988,000 177,867,000 232,888,000 62,063,000
Cost of Sold 105,885,000 137,184,000 173,184,000 280,256,000
Good
EBIT 4,188,000 4,107,000 12,422,000 14,544,000
Interest 485,000 849,000 1,418,000 161,000
Net Income 2,372,000 3,034,000 10,074,000 11,589,000

As shown in the table, we can see them every year net income is increasing dramatically.
Also, every figure and item is increases every year. We can see that the asset is high than
the net income every year. They have a low net income because have a lot of liabilities
and debt collection. Every year they spend most of their money to acquire companies and
manufacturing big productions.

• Amazon Cash Flow:

In 2020, fourth quarter, Amazon cash flow increased by 72 % to 66 billion dollar.

The above table shows that 72% cash flow increases year on year.
• Conclusion:

For its better growth, Amazon is using business to customer model. Amazon is mainly
focused on customer satisfaction. They are allowing customers to provide user ratings
and reviews, facilitating them by providing them a minimum delivery fee which is key to
success for Amazon too.

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• References:

Amazon Case Study: Operations Management Assignment on effective Decision Making

Models - Total Assignment Help

(PDF) Amazon.com, Inc.: a case study analysis | Reid Berryman - Academia.edu

Case study on amazon.com (slideshare.net)

Supply Chain Management Assignment Free Essay Example (studymoose.com)

sample-case-studies-operations-scdl.pdf

IJoL23229Final20Nov207202006_PolyU_Libra.pdf

How the Amazon Supply Chain Strategy Works (tinuiti.com)

Critical-Evaluation-Of-How-Well-Placed-Amazon-Is-To-Sustain-Its-Historical-In-Online-
Retailing.pdf

file:///E:/VIT/Unit%205003/(PPT)%20Case%20Study%20on%20Amazon%20Supply%20C
hain%20Metrics.pptx%20_%20Abel%20Jacob%20-%20Academia.edu.html

file:///E:/VIT/Unit%205003/(PDF)%20A%20Critical%20Discourse%20Analysis%20of%20A
mazon.com's%20Rise%20in%20the%20Media%201995-2008.html

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