Amazon’s Supply Chain Description
Amazon is currently the world’s largest online retailer with the.highest level of revenue generated annually in the market. Since its starting point in 1994, Amazon has managed to increase its market share, multiply revenues, and improve performance by means of significant changes in supply chain management. The firm has reached the leading position on the retail market and remains a solid competitor for such global corporations as Walmart and Target. Overall, Amazon’s concentration of e-commerce in a combination of physical stores that all provide a wide spectrum of products allows it to obtain a competitive advantage in terms of supply chain management.
A customer-centered approach that integrates push and pulls strategies allows the company to satisfy its consumers and pursue the company’s corporate strategy of becoming a retailer of choice (“Supply chain,” 2020). Importantly, digitalization plays a significant role in the company’s supply chain management and drives all processes within the supply chain to optimize the distribution of products.
Also, Amazon employs outsourcing strategies for inventory processes of the goods that are sold on demand and not stored by the company. The warehousing approach that is called fulfillment centers is used efficiently by using logistics to store, pick, and ship separate types of products divided on the basis of their storage and transportation characteristics. Another characteristic feature of Amazon’s supply chain management is customer segmentation that determines pricing and delivery time opportunities. All these elements constitute the uniqueness of Amazon’s supply chain and contribute to its leading position.
Supply Chain Processes
The material management at Amazon is determined by the close cooperation of product suppliers who are chosen with precise attention to their compliance with the company’s supply standards. Indeed, according to the company’s official statements on the website, Amazon employs strict supplier evaluation measures to “identify the industries, countries, and issues where we have the greatest opportunities to identify and address risks and have a positive impact” (“Supply chain,” 2020).
The company is particularly reliant on third-party sellers who have been significantly increasing the percentage of its revenue for the past several years (“Annual report,” 2018). As for outbound logistics, Amazon employs outsourcing strategies to partner with delivery companies and invests in the technological advancement of its delivery and information processing systems. Amazon’s outbound logistics are characterized by a non-traditional, highly customer-oriented approach to the fast delivery system. The company guarantees two-day delivery of orders to its customers with annual subscriptions within the Amazon Prime program (Sodhi & Tang, 2017). These characteristics allow the firm to eliminate avoidable expenditures and facilitate the delivery time by means of advanced digitalization.
Supply Chain Integration
The integrated approach to supply chain management with the priority set on the alignment of the supply chain strategies with overall corporate strategy and goals allows the firm to obtain significant monetary rewards and competitive advantage in the market. Amazon demonstrates its devotion to the goals and mission of becoming a leader in online retailing by winning customers’ loyalty. Moreover, according to Lambert et al. (2017), “the level of integration of a supply chain process link could be adjusted by increasing or decreasing the number and intensity of the components implemented in that link” (p. 2).
In other words, the systematic improvements to the supply chain and the elimination of unnecessary elements might benefit such a time-efficiency-interested company as Amazon. Continuous restructuring and moving toward automation and utilization of robotics within the warehousing, storage, distribution, packaging, and delivery of goods allows for adequate supply chain integration.
Supply Chain Strategy and Planning
The supply chain strategy is inherently connected with the value chain strategy of the firm. The value-generating, through the processes in the chain, contributes to customer value by means of supply chain activities (Kandemirli, 2018). Efficient resources are allocated to outsourcing logistics, advanced technologies, and facility categorization on a global scale that allows for faster order completion and greater revenue volumes. Amazon Prime system allows for accomplishing the goals of customization of the delivery system, which is the crucial element of Amazon’s value chain strategy. Also, the company analyzes market uncertainties by attracting external experts on risk assessment to choose the most effective and safe decisions for future strategic development (“Supply chain,” 2020).
This precise assessment strategies and efficiency-oriented decision-making processes lead the planning of supply chain management toward enhanced customer experience. Moreover, the locations play a significant role in Amazon’s supply planning. Since the company operates globally, it ensures a logistically verified geographical distribution of its fulfillment centers, sorting centers, and delivery partners to ensure the least amount of time spent on the delivery of goods.
The combination of online retaining activities and several physical stores triggers the presence of both push and pull strategies in the supply chain management of Amazon.com. The inventory strategies are executed on the basis of the expected customer orders based on the analysis of consumer behavior, which is a push strategy. On the other hand, the delivery of goods is executed on the basis of customer demand and is performed by means of pull strategies. Moreover, the outsourcing approaches to the supply and distribution of the goods that are seldom purchased by Amazon’s customers are facilitated by pull strategies. A highly technological performance allows the company to respond to demand quickly by extracting goods from suppliers and minimizing storage expenses.
Supply Chain Macro Processes
The macro processes related to supply chain management include customer relationship management (CRM), internal supply chain management (ISCM), and supplier relationship management (SRM). In terms of CRM, Amazon is a highly effective and proactive company that utilizes multiple tools to enhance improved relationships with customers. According to Baran and Galka (2016), despite being an online retailer, Amazon initiates several brick-and-mortar facilities to diversify the spectrum of relationships with buyers.
Also, the firm enhances technological opportunities to connect with customers. Indeed, it has launched an app that allows for comparing the prices at Amazon with its competitors, which ensures customer trust and loyalty (Baran & Galka, 2016). ISCM is facilitated by generating a unifying system for information processing that allows multiple suppliers to work effectively and in a coordinated manner. A high level of transparency and integrity allows Amazon to facilitate its cooperating relationships with suppliers.
One of the major advantages of Amazon.com’s supply chain is the meticulously developed system of facilities, which include a distribution network of sortation centers, fulfillment centers, Prime Hubs, outbound sortation centers, and delivery stations. The facilities are distributed across strategically important geographical locations near big cities so that the delivery may be accomplished in the most cost- and time-efficient manner. The warehouses are equipped with robotics and automated tools that allow for the fastest way of order processing. The separation of key processes between various facilities, as well as the identification of specific stages of goods movement from supplier to the customer, constitute a significant strength of Amazon’s supply chain.
Amazon’s inventory operates under the push strategy; the suppliers and sellers have access to their inventories and have an opportunity to influence them. Also, there is an opportunity to outsource inventory storage to enhance the cost-efficiency of the supply management at this stage. The company employs a strategically-driven approach to clearing the inventory at the end of the season or on the basis of the analyzed goods in the inventory by providing discounts to the customers. Such an approach allows for intensifying customer relations and allows for timely management of inventory to provide space for new products.
The transportation issue is one of the most crucial for Amazon.com since the company specializes in the delivery of goods to customers. The firm has been engaged in partnership relations with some large courier companies, such as FedEx, UPS, and others, that deliver the orders to the buyers (Jain & Sharma, 2017). However, the performance of these delivery companies is out of Amazon’s control.
That is why the difficulties and underperformance in the work of the courier companies might endanger the reputation of the company since the delivery agents are the only constituents that directly interact with the customers. The increase in shipping triggers the increase in shipping costs, which are effectively covered by the increase in the number of prime customers who pay their annual contributions.
Amazon is not only an online retailer but also an IT service provider and a streaming platform. All of these services are provided due to the high level of informational technologies advanced usage at the company. Also, customer reviews and feedback are of great importance to online retailers like Amazon.com, which is why the firm invests in information processing technologies to obtain the most effective feedback from the clients to ensure continuous improvement of its performance (Wang et al., 2019).
Such an approach to customer-related information processing allows the company to accomplish its strategic objectives of operating as a customer-centered retailer. More importantly, the aspect of information analysis and exchange plays a pivotal role in the overall interdepartmental cooperation within the company, as well as between the suppliers, sellers, fulfillment centers, delivery and transportation entities, and other crucial elements of the supply chain. Indeed, the company’s highly developed and time-efficient information exchange systems allow for fast decision-making and timely order delivery that contribute to its competitive advantage.
Amazon’s supply chain management is highly reliant on outsourcing at various stages of the process. Indeed, the company needs to satisfy its logistics needs by means of outsourcing. In terms of transportation, the services of delivery are outsourced from large courier companies. Importantly, third-party sellers can outsource inventory storage, shipping, and other services necessary to enable the retailing process.
As for the brick-and-mortar facilities, such as Whole Food markets, Amazon actively outsources the products from local markets to satisfy the demand by local means (“Annual report,” 2018). Importantly, in such a manner, the firm enforces the development of the local small and medium businesses and makes a social impact on a global scale.
One of the main advantages of Amazon that enabled its achievement of the leading position in its approach to competitive pricing. The company employs a flexible pricing system with the priority set at lower costs. The pricing strategies are customer-centered and are facilitated by means of a system of discount programs and subscriptions, such as Amazon Prime, that allow for a customized approach to product and delivery pricing.
The presented analysis and assessment of Amazon.com’s supply chain management demonstrate that this world’s retail leader has developed and continues to improve a well-structured, technology-driven supply chain management system. Despite the multiple strengths and advantages identified in the course of the analysis, there are several recommendations that might be presented for the company’s supply chain management improvement to win the future. Firstly, while the active cooperation of Amazon with second-party and third-party sellers is considered a strategic advantage, there is one concern determined in relation to this aspect of supply chain management.
As it is stated in the company’s annual report, the share of third-party sellers’ revenue grows rapidly and outperforms the first-party sales (“Annual report,” 2018). Such internal competition might be used as a boost for the company’s sales volumes. It is recommended for the company to employ first-party sales performance improvements to increase the revenues and enhance the balance in the internal forces.
Secondly, the company is particularly reliant on outsourcing in the transportation and delivery department. Being partners with such large courier companies as UPS and FedEx, Amazon is bound to the underperformance on the partnering companies’ side, the occurrences of which have already caused several cases of customer dissatisfaction and the ultimate disruption of consumer loyalty trust (Jain & Sharma, 2017).
Therefore, to eliminate the risks of untimely delivery or losses due to the flaws in the work of partners who might be not ready to process the volumes of Amazon’s orders efficiently, the firm might invest more into its own delivery system. The recent achievements in the building of Amazon’s truck fleets and the launching of the Amazon Flex program have demonstrated the firm’s high-level capacity to succeed in this endeavor.
Thirdly, since the company is on the verge of facing the challenges of becoming a global logistics giant, it must continue investing in the technological aspect of its supply chain to ensure the most efficient decisions in terms of supply and delivery. Since the company is now entering a business-to-customer shipping market, it separates the technological systems from those related to business-to-business to enhance supplier transparency and improve cooperation between the constituents.
The provided analysis of Amazon’s supply chain management has shown that the company’s integrative approach and continuous adherence to improvement strategies within the supply chain have enabled its achievement of the leading position among its competitors in the market. The company’s strengths include the highly effective logistics approaches that are facilitated by outsourcing and allow for the cmmost time- and cost-efficient order processing. Also, Amazon’s customer-centered corporate strategy is inherently connected with the value chain and, ultimately, supply chain management.
The integration of technologies, robotics, and automation into the inventory, warehousing, sorting, picking, and shipping allows for achieving high results in the speed of delivery and customer satisfaction as a result. However, several recommendations are proposed to eliminate supply chain weaknesses and maintain Amazon’s leading position. They include the intensification of first-party sellers’ performance, development of Amazon-based transportation systems, and enhanced investment into the IT-sphere to separate the systems processing business-to-business from business-to-customer processes.
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Wang, X., Leng, M., Song, J., Luo, C., & Hui, S. (2019). Managing a supply chain under the impact of customer reviews: A two-period game analysis. European Journal of Operational Research, 277(2), 454-468.