Amazon.Com’s European Distribution Strategy Case Solution
Question No 1
- Amazed started operating as a book store initially, and gradually it expanded its product line into multiple product-categories.
- After its initiation; Amazon started following an aggressive expansion strategy.
- Over all it can be said that the strength of Amazon was its strong supply chain network.
- The management was always dedicated to find new ways to improve the efficiency of the operations.
Initially Amazon relied on the wholesalers maintaining only around 5% of its orders in its ware houses. Amazon shipped the products directly from their dc, to ensure the safety of products amazon adopted split strategy whenever needed.Amazon conducted its business by drop shipping method in the initial times, allowing it to keep its storage costs low. Products were generally categorized and were dispatched accordingly to avail maximum cost reduction in transportation costs.
With an increase in orders; amazon moved towards split delivery strategy by opening direct accounts with publishers, in order to secure more discounts.Publishers were as much efficient as wholesalers, resulting in the consumption of a little more time than the wholesalers.
The fiscal years 1996 and 1997 showed exponential growth of traffic coming and sales. Amazon’s overall operations and inventory line had expanded.In 1998, amazon expanded to new product lines including music CDs, DVDs and other video content.Late 1998 brought fierce competition for amazon from buy.com, Barnes and Noble.com and CDNow when they all started cutting off their prices aggressively.
Amazon adopted an aggressive expansion strategy,intending to increase the revenue per customer. To support the strategy; product line was extended with-in a short interval of time.To implement the strategy Amazon needed to acquire multiple distribution centres thus a central distribution management centre was established.
Amazon had to decide which inventory was to be kept at the new distribution centres. Another strategy used by amazon was “drop down strategy”, which means if a product was available in dc and could have been sent directly from the wholesalers then it was preferred to control the overall costs.Inventory was placed in distribution centres according to the demand patterns. The decision of each distribution centre carrying the full array was based on transportation cost reduction strategy.
Technological advancement was widely seen as pick to light, radio frequency and verbal communication with system was introduced. This enabled the employees to pick the products with much less probability of error. Voice technology was also introduced on trial bases. Also the dc was equipped with radio frequency system which directed workers towards the right direction in ware houses minimizing the wastage of time.
The pick profiles were introduced for fast selling items. Each profile carried optimal combination of 100 products.Amazon Standard Identification Number (ASIN) was introduced for each and every single product. Storage slot location was also made to be the part of it.During the 1999’s Christmas; amazon delivered more than 99% of its orders,i.e. 20 million products and it ended up acquiring more than 2.5 million first-time customers.
Question No 2
- The number of items in Amazon’s single order directly impacted the order fulfillment of the company.
- Amazon had few pre-categorized products, which were not being shipped together, even if the orders were received from the same customer. For the facilitation of this rule, some distribution centres were also made to keep specific products. This matter raised the issue of increasing transportation costs but at that point transportation costs was not any big concern for Amazon,as it was moving towards the aggressive expansion strategy.
- Amazon also saw the quarter in 1999, when it acquired 2.5 million new customers. To attract the potential customers according to its strategy; amazon even enabled the free-of-cost shipping on the orders of above $ 25.
- To meet its needs of expansion; Amazon also partnered with other firms for new ventures.
Some items were pre-categorized, and regardless of quantity and destination; those items were not shipped together.Shipping the items individually raised the costs exponentially, at times.The fourth quarter in 1999 marked the expense $ 323 million over $ 676 million due to the Christmas season and shipping most of gift items solely was the reason behind this huge expense.Some distribution centre were also allocated with specific categories of products.
Products of similar nature were kept nearby in distribution centre to minimize the time consumption.Products that were preferred by customers to be bought together were also kept together.It did happen multiple times that a single order of multiple products was received by the customers in different time duration as separate orders. Different software were developed and used in order to anticipate the demand trend of products and customers as well.
Amazon also announced free shipping in November 1999, on all the orders of above $99. The above policy was revised twice after the initiation and ultimately amazon offered free shipping to all the orders above $25 in August, 2002.Many people were even ready to wait for 3 to 4 days just to get the order without shipment fees or delivery charges.
In 4th quarter 2002 10% of the all orders were drop shipped in order to counter the increasing costs affiliated with transportation of goods.At some point even if the order was in amazon’s distribution centre yet it was proceeded to vendors for drop off, in order to attain the maximum cost benefit.
Amazon also partnered with a toy manufacturing firm and got the responsibility of recording the order to shipping the order regardless of quantity.It was not necessary that all items on one order were to be dispatched altogether. Rather Amazon preferred shipping the items in optimized way to ensure the quality of service and product as well.
- Shipment fulfilment had been strongly impacted by the type of products being shipped.
- As many products and distribution centres were categorized to similar products, thus there was a chance that to fulfil a single order Amazon had to make two separate shipments.
- As stated, compact disk and baroque grill were never to be shipped together. Amazon also implemented top notch technological systems in its distribution centres to reduce the chances and possibilities of errors.
Flow Manger position was introduced in every distribution centre to redesign major distribution processes. Moreover to make out layouts for locating and shipping orders more efficiently and timely. For instance most of the items ordered together were placed near to other to minimize the time consumed in picking up the items………………………
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