Solent University

(ISM 703)

Assignment Number: AE1

Max Word Count: 2,500 (10% +/-)
Assignment Weight: 40%
Format: Report

Course Supply Chain Management

Professor Reza Mirmiran
Word Count 2,646
Due Date 4th November, 2019 (4:00pm)
0.0 Abstract
Amazon are one of the world’s largest retailing business competing with giants such as Flipkart
and Walmart. With traditional businesses closing down, Amazon needs to keep innovating and
focusing on improving their supply chain. The first segment of the assignment analyses the
different model of supply chain Amazon have used over the years. The second segment reports
on the benefits and disadvantages of the external environment surrounding the usage of drone
delivery. The report further provides the key challenges and structures an efficient supply chain
for Amazon with the help of various supply chain theory. The next segment provides an
understanding of the Indian consumer base and their behaviour. Finally the report concludes with
the importance social media can play in engaging with the customers and the various supply
chain businesses.

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Table of Content
0.0 Abstract................................................................................................................................Page 1

1.0 Introduction...........................................................................................................................Page 3

2.0 Data Visualisation................................................................................................................Page 3-6

Amazon as a seller..........................................................................................................Page 4
Amazon as an intermediary.............................................................................................Page 5
Amazon as an e-commerce service provider..................................................................Page 6

3.0 Increasing Perfect Order Delivery........................................................................................Page 6-7

Analysing the external environment...............................................................................Page 6-7
Recommendation..................................................................................................................Page 7

4.0 Sustainable Supply Chain Practice.........................................................................................Page 8-10

VUCA...............................................................................................................................Page 8-9
Pull and Push Method........................................................................................................Page 9
Fisher’s Matrix.................................................................................................................Page 9-10

5.0 Consumer Behavior............................................................................................................Page 10-13

Indian Consumer Behavior............................................................................................Page 10-11
Balanced Scorecard.......................................................................................................Page 12-13

6.0 Social Media in Supply Chain..............................................................................................Page 13-15

Content Calendar..................................................................................................................Page 15

7.0 Conclusion.................................................................................................................................Page 15

8.0 References.............................................................................................................................Page 16-19

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1.0 Introduction
Amazon.com is one of the world’s largest online retailing companies earning a staggering gross
income of $93.73 billion in 2018 with an overall net worth of over
$1 trillion (Amazon’s Annual Report, 2018). Operating in the competitive environment of online
retailing, Amazon faces tremendous competition from other retail giants such as eBay, Flipkart,
and WalMart, etc. However, their domestic and international success is hugely based on their
reliable and efficient Supply Chain model which will be further analyzed in this report. This
report further provides a sustainable supply chain practice for Amazon’s drone delivery in India,
providing an understanding of the Indian consumer behavior and suggests social media strategies
to improve Amazon’s engagement with various Customers and Supply Chain channels in India.

2.0 Data Visualisation

With a rising change within the realm of digital shopping combined with the changes in consumer
values and purchasing habits, shops across the world are closing down at record rates (Berg, N
and M Knight, 2019). Traditional retail businesses are failing to survive and are failing to match
the growing needs of the consumer, it is essential for retail businesses to have a strong Supply
Chain model, which can meet the growing needs of the consumers. This section of the report
analyses on the three mainSupply Chain models of Amazon to have a better understanding of their
success.
Amazon follows three models, each with its own Supply Chain strategy.
❖ Amazon as an e-business
❖ Amazon as an intermediary
❖ Amazon as an e-commerce service provider

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Amazon as e-business:
Once the customer visits Amazon’s web-page, selects a product and purchases the
product. Amazon is accountable for maintaining the relationship with the customer and is
also responsible for the logistics required for the timely delivery of the product. Amazon
further decides on the distribution center to take on the responsibility of delivering the
product (Chiles, C.R. and Dau, M.T., 2005). The distribution centers handle Amazon’s
collecting, packaging, and shipment (Maltz et al., 2004). Table 2.0.1 depicts how
Amazon’s fulfillment centers, distribution centers, and their relationship services ensure
providing product efficiently and customer satisfaction.

Table 2.0.1

(Source: Johnson.T, 2019)

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Amazon as an intermediary:
Under this model, Amazon partners with other third-party organizations to sell their
products through their website. Amazon here provides its technology and logistics
services to provide efficiency for quick delivery. Here Amazon acts as a third-party
logistics company for their third-party business while maintaining logistical control.
However, in certain cases, Amazon is not accountable for the delivery of the product and
the third party is responsible for the delivery of the product. Under this form of fourth
party logistic Amazon simply connects the customer to the seller through the website and
provide the seller with the freedom to handle the overall supply chain while Amazon
only looks after the customer relationship and technological aspect (Chiles, C.R. and
Dau, M.T., 2005). Due to this relationship between Amazon and the various third-party
sellers, Amazon was able to generate $22.99 billion in third-party seller revenues
(Hufford, J.,2019). Furthermore, Jeff Bezos had mentioned in his annual letter issued in
2018 to stake-holder that the, “Third-party sales have grown from 3% of total sales to
58%”(Amazon’s Letter to Shareholders, 2018).

Amazon as an e-commerce service provider:

In 2005, Amazon had introduced a change in its technological platform where third party
businesses can not only maintain their brand but also provide website customer
ownership. Amazon additionally shares their supply chain assets (Chiles, C.R. and Dau,
M.T., 2005). This type of an approach is known as Horizontal Collaboration. This change
introduced by Amazon lead to steady growth of third-party businesses over the years
which can be seen in Table 2.0.2 below.

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Table 2.0.2

(Source: Mantin, B., Krishnan, H. and Dhar, T., 2019)

3.0 Increasing Perfect Order Delivery

In 2013, Amazon’s CEO, Jeff Bezos made a revolutionary announcement stating that in a few
years Amazon will be able to deliver packages to the customer’s house in shorter delivery time
(Welch, A., 2015). To have a clearer understanding of Amazon’s disruptive supply chain
strategy, this section of the report analyses the issues in supply chain management to determine
the benefits and drawbacks of such a strategy.

Analyzing the external environment:

Benefits
Drones as a transportation device have garnered a significant amount of attention as a
potential solution to high traffic which has affected Amazon’s
Just-In-Time (JIT) approach in recent years. Furthermore, with advancements in

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 recent years the drones have a stronger endurance, in-built navigation system, upgraded
lithium polymer batteries have enabled drones to travel faster and cover longer distances
(Kuttolamadom, M., Mehrabi, M.G. and Weaver, J., 2010). Additionally, carbon fiber
fitting in drones is now cheaper which has resulted in a reduction in the prices of the
drones (Shavarani, S.M., Nejad, M.G., Rismanchian, F. and Izbirak, G., 2018).

Drawback
In 1952, a United States government agency called the FAA, better known as the Federal
Aviation Agency. This agency was established to ensure the safety of the US airspace.
Today the FAA has legal command over any activity taking place in the United States
airspace and has currently banned the use of drones for business-related purposes
(Welch, A., 2015).

Recommendation
While the usage of drones for commercial purposes might be a solution as a mode of delivery in
an era where Just-In-Time delivery is highly expected by the masses. With the strict regulations
surrounding the usage of drones in America, Amazon has been unable to launch its Prime Air
services. However, I believe Amazon should launch its Prime Air services in another country
with fewer regulations against the usage of drones. This provides an opportunity for Amazon to
disprove the negativity and skepticism around the usage of drones for commercial purposes. As
per my research, India is an excellent market for Amazon to launch its Prime Air services as the
Ministry of Civil Aviation has made commercial usage of drones legal (UAVcoach, 2019).

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4.0 Sustainable Supply Chain Practice
Many of the world’s leading organizations are adopting the agile approach as they provide a
tremendous amount of benefits however, a prime benefit that an Agile supply chain strategy
offers is that it enables organizations to adapt to changes and meet the real time demands of the
customers more efficiently. With the introduction of drone delivery, Amazon’s supply chain
will undergo a disruption which might lead to a change in strategy. This section of the report
uses the VUCA model to identify the key pressures Amazon’s Supply Chain could face.

Volatility
Delivery drones only have a capacity to carry upto 25 kgs and operates at flying distance
of around 50 km which would not cover delivery in all parts of India due to its large size
(Yoo, W., Yu, E. and Jung, J., 2018). However, with Amazon’s plans to expand centers
and ‘I have space’ partners, Amazon is on track of tackling this problem
(Krishnamurthy, 2014).

Uncertainty
The Ministry of Home Affairs has made it increasingly regulated for commercial drones to
operate, each drone has to obtain a unique identification number which can be expensive
but is mandatory (Rajagopalan, R.P. and Krishna, R., 2018).

Complexity
The landing spots is a large concern for consumers who live in Urban Areas. Amazon’s
promotional videos show drone deliveries happening in the suburbs. Amazon might face
challenges in drone delivery in urban apartment complexes (Lawson, AM, 2017).

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 Ambiguity
One of the prime concerns Amazon’s customers have is that the drone can be misused.
However the Pentagon had unveiled a software for their defense drones which can
prevent the misuse and hacking of drones. This software might give confidence to the
skeptic Amazon consumers, however the purchase of such a software would require an
additional high investment which would be risky for Amazon as the viability of drone
delivery is still to be tested (Vattapparamban, E., Güvenç, İ., Yurekli, A.İ., Akkaya, K. and
Uluağaç, S., 2016).

Having identified the key pressures Amazon will face, the Pull and Push method will help
identifying in creating an efficient supply chain. Traditionally, Amazon use the push supply
chain as their logistics are based on predictions of the customer’s long-term needs. However,
with the introduction of the drones and the uncertainty surrounding drone delivery, Amazon
should use the pull strategy with drone delivery, by manufacturing and supplying products
actually demanded by the customers for drone delivery to minimise wastage.

Example: Apple launch beta tests to test out the viability of a product to 100s of users to
make necessary changes based on their review (Dai Zovi, D.A., 2011). Here Apple, use a
pull strategy to test out the viability of their product, similarly Amazon can test their
delivery drones on a selection of audiences to learn more about the viability of their drone
delivery.

With the fewer wastages, Amazon should use functional products initially as they have stable
demands, low profit margins and predictable sales (2016). Using these products

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are far less expensive than the use of Innovative products as a test subject to test out the viability
of drone delivery. Furthermore, with the help of the Fisher’s Matrix, we can see that a
functional product suits an efficient supply chain (i.e: drone delivery) to ensure on time delivery.

5.0 Consumer Behavior

Supply Chain is interconnected by a network of parties such as wholesalers, manufacturers,
retailers, raw material suppliers. However, the chain begins when a customer places an order and
ends when the product is delivered to the customer (Waskita, 2007). Furthermore, as online
commerce grows, retailers have started giving importance to understanding their consumer
behavior in order to increase sales, provide satisfaction and maintain loyalty (Richards, 2016).

Indian Consumer Behavior:

❖ Consumers in India has higher disposable income as the country is modernising and
adopting an urban lifestyle. Consumers are far more aware and buyers have different
behaviors in different cities and towns. Furthermore, according to a report by McKinsey,
India is expected to grow by 2025 as the 5th biggest consumer market on the planet
(Dey, S., 2017).

❖ Festival Sales has seen a tremendous boost in online sales, retailers use Indian festivals
to market their goods with new products or with heavy discounts. India’s major festival,
Diwali arrive during the months of October-November. Competitors have created unique
names to market their products during the festive season (eg: Big Billion Day by
Flipkart). Amazon similarly have their own

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 unique name (i.e: Great Indian Shopping Festival) to market their products (Shailashree,
V., Aithal, P.S. and Shenoy, S., 2018).

Table 5.0.1

(Source: Shailashree, V., Aithal, P.S. and Shenoy, S., 2018)

Having analysed the Indian consumer behavior and their purchasing habits, the Balanced
Scorecard model will help analysing the effectiveness of the usage of drone delivery during
the festivals.

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● Financial: As seen in the pie chart in table 5.0.1, 73.3% of the shoppers purchase more
products during the festive seasons. Furthermore, Amazon rely heavily on festivals such
as Diwali and Holi for their international sales. In 2018, Amazon had an international
sales growth of 29% (Sen, 2018). With the introduction of drone delivery, more orders
can be satisfied and delivery in time. Furthermore, Amazon can track their Prime Air
profitability and efficiency on capital applied with the help of the ROCE formula
(Return on Capital Employed). The formula is Earning Before Interest and Tax (EBIT) /
Capital allocated

● Learning and Growth Perspective: When Amazon launch their drone delivery in
India, it is essential for Amazon to hire and train employees as drone delivery is a
newer concept filled with greater risks and uncertainty. This would help create jobs in
India.

● Business Process Perspective: FedEx had issued a statement in 2019 stating that
they would end ground deliveries for Amazon when their contract would expire in
August. With the loss of FedEx, this provides Amazon further incentive to shift towards
the use of drone delivery which can be seen by their request to the FAA for commercial
delivery in the United States (Corkery, 2019). However, should their request by
rejected, India would be an excellent market to start their drone delivery services.

● Customer Perspective: To derive ‘Customer Satisfaction’ it is essential for

businesses to provide higher customer value. In easier terms, the benefit that
companies provide should be superior to costs provided by the other players in
competing in Amazon’s industry. Each of the elements below ensure Amazon’s

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 competitive advantage, however, these elements need to be constantly improved,
innovative and invested. The following elements are:

1) Quality: The product purchased by the customer should work and be of the
highest quality.
2) Service: Providing exceptional service and attention to the customer
3) Costs: The cost paid by the customer including price of the product and the
life cycle cost of the product
4) Time: Taking time to listen to the customers feedback and providing
needed support

Furthermore, to track Amazon’s customer satisfaction. Amazon can check the analytics of their
website and their social media to see the engagement and learn from the feedback comments
posted by their customers.

6.0 Social Media in Supply Chain Management

According to an analyst report by Goldman Sachs, 53% of Amazon’s customers are in the age
group of 19-44 (Kosman, 2017). These audiences use social media platforms to voice their
opinions and provide feedback on Amazon’s services. Hence, having a strong online presence
and engagement with Amazon’s audience is a must.
An article posted in CFO Magazine titled, “Social Media and the Coming Supply Chain
Revolution” listed 5 key advantages that various social media channels such as Facebook,
Twitter and Instagram can provide. These advantages can help Amazon build engagement with
both the customers and the various supply chain businesses (O'leary, D.E., 2011).

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1. Listening to Feedback
With audiences posting their feedback on social media platforms, Amazon can use this
opportunity to analyse the feedback and make supply chain changes both internally and
externally.

2. Quick Decision Making

With the reach that social media provides, information in video, audio or written format
can communicate to a vast supply chain networks in real time.

3. Portable Information
Social media provides portability and quick access of information possible.

4. Connecting Supply Chain Communities

In an effort to maintain competitive advantage, the relationship with the supplier should
become more than a collaboration. Building a community of suppliers where
opportunities and information can be shared online (O'leary, D.E., 2011).

5. Engaging Suppliers
Innovation plays a critical role in the growth of an organisation. Engaging with the
suppliers with the help of social media can help in encouraging supply chain innovative
ideas.

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Furthermore, Social media can be an excellent tool in educating the masses in India about the
concept of prime air and how drone delivery is the future of on time delivery. With the help of a
Content Calendar (Table 6.0.1), Amazon can post on social media to get maximum
engagement from their audience and improve their digital presence in India.

Table 6.0.1

Social Media Minimum Post Maximum Post Best Time to Post (Indian
Standard Time)

Facebook 3 times in a week 1 or 2 times a day 6:30am - 8:30pm

Twitter 3 times a day 30 times a day 12:00pm - 6:00pm

Instagram 1 time a day 3 times a day 8:00am - 6:00pm

(Source: Myers, 2019)

7.0 Conclusion
With the growing competition, Amazon must make changes within their supply chain strategy to
maintain their position as one of the world’s largest retailing business. With Amazon’s disruptive
strategy of introducing drone delivery in India, the retail giants would have to identify the key
threats and create an efficient supply chain strategy.
Additionally, their understanding of the Indian consumer behavior and their effective use of
social media to engage with suppliers and customers will play a critical role in the success of
drone delivery.

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8.0 References

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