By: Rahul Hege136 Rahul Warathe137 Rajat Gupta 138
Amazon .com Get Big Fast
• First online book store launched in 1995. • Constantly ranked as the best site on internet • Features include: one-click shopping, customer review and e-mail order verification • Popular for excellent customer service and inventory management. • Since 1999 adding 1 new product every 6 weeks. • By 2002 : 22.3 million registered users. • By 2003 : 4.7 million books, music CD, DVD’s and other products.
no overhead. started AMAZON. in 1995.History
• Jeff Bezos. just computers • Amazon owed its popularity to its excellent customer service. no warehouses.
. which was due to its effective inventory management.com as a “virtual” retailer – no inventory.
June 1998 November 1998 July 1999
Home improvement Software Video games
November 1999 November 1999 November 1999
• Unique Concept of Zshops -
.Products and services
Marketplace service Launch date
Music DVD Electronics.
Amazon Build four –fold proposition • Convenience • Selection • Price • Customer service
Strategic Alliances To expand
• Amazon acquired stakes from 17 to 49% in various
online retailers Greenlight.
• Amazon tried to promote each of its partner by emails .
Drugstore.com. adding in the shipment.com • Spent $160 million and these investments grow to 1.
. Living.com. HomeGrocer.5
Company Ashford.com Nature of business Luxury and premium products Internet –delivered spoken audio Gift registry.com Gear.com Audible Della.com
One hour delivery service entertainment and convenience products
Home products and service
. beauty. wellness drugs Brand-name sporting goods
Living. gift advice Retail and info of health.com Drugstore.
• Amazon Stake in these companies increase its
.Advantages Of Investments
• Provide a increased range of products. • Increased revenue in the form of marketing fees from partners.
A code being generated
Computer send the code to workers
Code tell the location of the book in warehouse
Worker decide the order in which to pick up the items
Items were send to the central location
Orders matched with item barcode
Finally the items were shipped to the respective address
In 1999: Added 6 new warehouses to total to 10 • Computerized warehouses • Increased warehousing capacity from 300.000 sq. feet to over 5 million sq. feet • Automation of events after placement of order to make inventory management easier
• Initially Bezos aimed at hassle-free operations • Time and money not to be spent in dealing with the inventory. forced to build warehouses. • Satisfy customers .
In 1999.'' • Decided to stock all possible items that customer could demand during holiday season • Appreciated. but faced a lot of problems in inventory management • Thus looked for alternatives
. Suria pointed out. ''When a company manages inventory properly. its inventories ballooned by 650%. ''it means simply that they're not selling as much as they're buying. When inventory grows faster than sales. it should grow along with its sales-growth rate. when Amazon's sales grew 170% from the previous year.'' he noted.
Eg. CD’s and CD player
• Decided to buy directly from publishers rather than distributors • Upgraded software which helped to accommodate inventory as per demand • Placed products which were generally bought together at one point.
• Reduce redundant inventory • Blockage of working capital.Deciding the Strategy
• Inventory goals: right product in the right quantity to the
right place at the right time. • Low inventory turnover. • Cost of holding > cost of outsourcing • Thus they OUTSOURCED
computers and books. excluding
those on best-seller lists
• CellStar handled the cell phone sales • Wholesale distributor Ingram Micro handled the
computers and books
• Outside distributors at Amazon for three kinds of products: cell phones.Innovative Inventory Outsourcing
• Stocked only popular items and rest were outsourced
• Warehouses could handle thrice the volumes
•Reduced the shipping charges.
• Adoption of Drop-shipment model which increased the overall efficiency and streamline supply chain logistics.Advantages of Outsourcing
• Concentrate on main activities • To reduce the inventory holding costs. • To earn more profits
• To free the working capital and increase liquidity.
• 35% of orders placed at Amazon belonged
to different product categories.Disadvantages of DropShipment Model
• The variable cost incurred by multiple delivery attempts and reverse logistics. • Multiple delivery attempts cost the company about 20-30% of the total cost for home deliveries.
com’s Customer Fulfillment Network
.Steps taken for improvement
• Made improvements in its distribution centre which reduced
12% of the wrong inventory to 4%
by 2002. • Tightened its operation to ensure that it did not miss any customer orders.
• Cost of operating warehouses reduced from 20% to 10% where as the capacity increased 3 times. • Earned its first ever profit of $5 million in the 4th quarter of 2001.
.86 billion.93 billion which was 26% higher than sales of 2001. • Year 2002 recorded sales of $3.Success Story
• Till 2001 Amazon was in deficit of US$2. • Inventory turnover was 20 times as compared to other retailers having 15 times.
Discussion – Key Points
• 1. Outsourced some routine activities – Revamped the layout of warehouses – Recorded first ever profit of $5 million in 4th quarter of 2001
. Amazon adopted right strategy to manage its inventory
– Managed the inventory efficiently – Bought books directly from publishers
– Refined software – as per the demand in different regions
– Placed products like CDs. CD Players at one point – Reduced split shipments – Cut down expenses.
Outsourcing key area of Inventory Management – A huge Risk To concentrate on its main activities in order to earn profit Stocked only popular & frequently purchased items Trans-shipment centre
.Discussion – Key Points
“Giving people the choice to buy new & used side by side is good for the customers”. Selling other products on its site instead of concentrating on promotion of its own products? No need to advertise its low prices.Discussion – Key Points
Good promotion strategy – free shipping on purchase of 2 or more items