AMAZON 1 Amazon Isacc Lara, Vu Le, Jordan Wallace, Kathy Tran Professor Barbara Taylor Supply Chain Management, OPRE 3320.001 03 December 2013 AMAZON 2 Company/Mission Statement Amazon was founded in 1994 with headquarters in Seattle, Washington, growing to become a Fortune 100 company. Amazon’s mission is “to be Earth’s most customer-centric company, where customers can find and discover anything they might want to buy online, and endeavors to offer its customers the lowest possible prices.” Amazon considers itself to be a customer centric company demonstrating through their values statements which include, customer obsession, innovation, and ownership. Amazon and other sellers offer a variety of new, refurbished, and used items in all categories to customers with quick convenience and lower prices. Since 1995, Amazon has expanded their product selection greatly while also improving their worldwide network of fulfillment and customer service centers. Amazon has teams all over the world working to serve their customers at fulfillment centers providing fast and reliable shipping as well as providing outstanding 24/7 support at customer service enters. In 2000, Amazon platforms to other retailers and individual sellers, with over 2 million third party sellers offering new and used selections to customers worldwide. Executive Summary Amazon.com is now one of the world’s largest online retailers, but it didn’t start out that way. The company was founded in 1994 by Jeff Bezos, ex vice-president of D.E. Shaw, in Seattle, Washington. Bezos started his venture after reading a report that projected a staggering increase in growth on the Web. He then analyzed multiple products and finally decided selling books over the Internet would be the most promising endeavor. Amazon.com’s success came from the fact that unlike the brick and mortar book stores whose ability to store books was dependent upon storage room, Amazon.com could handle a seemingly unlimited inventory of titles. On top of that, the website was able to order directly from wholesalers and publishers AMAZON 3 allowing them to cut out the warehouse middleman. This step allowed Amazon.com to provide its customers with exclusive deals and discounts not available in stores. The low prices companied with the vast number of titles helped Amazon.com rise to the top. In 1998, with the company being such a success, Bezos decided to enter the music business and offer customers the ability to buy music off of the site. Soon after adding music, customers of Amazon.com were able to buy other items such as toys and electronics. By 2002, the flood gates had opened, and Amazon.com started offering a large array of items for consumers to search for and purchase. The company is continually growing and adding to its portfolio of items, investments, and endeavors. As just stated, two of Amazon’s biggest strengths are the partnerships it has with book producers, making it possible to offer special low prices to its customers, as well as its ability to offer such a large variety of titles. Part of what makes those two things possible is another of its strengths, technology. Amazon has been a technological leader and an innovator in the ecommerce world. The company has an extremely large core of technology and has tried to patent nearly every aspect of its e-commerce architecture. Millions of dollars have been invested to research and development of technology and to give some perspective of the magnitude of the system, as of 2005, Amazon has the world's three largest Linux databases (Layton). Their technology has also helped to keep Amazon as the low price leader by enabling the company to ship directly from producers/manufactures to the customer, cutting out the middle man and keeping prices low for the customer. This kind of innovative technology has allowed Amazon to create an innovative set of supply chain activities and landed the company a top spot on the Gartner Top 25 Supply Chains list multiple years in a row. This report studies the internal and external aspects of Amazon.com’s supply chain. AMAZON 4 Company Structure “[Amazon] operates in France, Germany, Japan, Italy, Spain, China, United Kingdom and Canada. In addition, the company has a large number of fulfillment centers all around the world which make it stand out as a company giving preference to its customers”. The global reach of company is only Europe, China and Canada; it has “51,300 employees around the world. The employees are working in the corporate offices, customer service centers, software development centers and the fulfillment centers” ("Amazon Corporate Hierarchy."). Amazon hierarchy structure is done by levels form 2-10. For some odd reason there is neither level 1 nor level 9. Level 2 and 3 is belongs to manual labors that work for the fulfillment centers Level 4 are the University graduates Level 5 is for program managers Level 6 is for senior product managers , run one particular product or feature Level 7 graduate degrees and are senior managers, they oversee levels 5 and 6 Level 8 are the directors Level 10 are the vice presidents Level 11 are senior vice presidents, the oversee digital efforts Level 12 is reserved for Jeff Bezos the CEO and founder of Amazon AMAZON 5 Here is a picture of the the coroprate hirachy from the divison standpoint. Major Customers => End Customers It is very difficult to define who Amazon major customers because they target everyone. They are not specific demographic, that Amazon does not target. It goes from teen to older adults. As long as their end customer is satisfy, it is all that it cares about even if it means losing money. Customer satisfaction and loyalty is number one priority in Amazon. Order Process from Amazon Distribution Center/Third Party AMAZON 6 Customer places an order on Amazon.com Customer is assigned closest of Amazon distribution centers Red lights at distribution center shows worker which products are ordered Worker matches barcode with order and place products in a crate on conveyor Crates ride through conveyor and arrive at central point Barcodes of products matched with orders and are sorted automatically into box Barcode identifies customer order. Boxes are packed taped and weighed Boxes shipped by USPS and/or UPS Customer receives order AMAZON 7 Customer places order Order information goes to Amazon Payments for processing Amazon Payments holds the order Amazon Payments validates the order Amazon Payments sends an order notifcation e-mail to the seller Amazon Payments remits funds to the seller for the buyer's order Seller processes the order Seller ships the order Buyer receives the order Amazon Payments invites the buyer to provide feedback about service provided by the seller AMAZON 8 Customer Service Metrics Amazon uses the following performance metrics to determine customer satisfaction: Perfect Order Percentage (POP) o The percentage of orders that are perfectly accepted, processed, and fulfilled. Order Defect Rate (ODR) o The percentage of orders that have received a negative feedback, an A-to-z Guarantee claim or a service credit card chargeback. This allows Amazon to measure overall performance with a single metric. Pre-fulfillment Cancellation Rate o This measure the seller’s in-stock rate for items sold with Amazon.com. Late Ship Rate o Orders ship-confirmed three or more days beyond the expected ship date are considered to be late. Percentage of Orders Refunded o High refund rates may be a sign of item stock-outs. Defect rate and a record of in-stock fulfillment are their primary metrics used by Amazon.com. Procurement Amazon has a unique way of procuring products for its site. Amazon uses a mutitleveled e-commerce strategy, in which it lets almost anyone sell almost anything using its platform. Since 2000, you can find goods listed by third-party sellers -- individuals, small companies and retailers like Target and Toys 'R Us. In these cases, Amazon’s distribution centers will never carry those products (Layton). The sale will go through the Amazon website to the retailer site, where the customer actually purchase the product. In other words, the AMAZON 9 purchase comes out of the retailer’s warehouse and inventory but because the customer went through the Amazon website, Amazon gets a small commission on the product. In situations like this Amazon procures items by attracting the sellers who use the site as a platform to sell their items. Another way Amazon procures products for the site is by going directly to the manufacturers and striking a deal. Most of the time, in these instances, the products will be advertised on the website but will never go to the Amazon distribution centers and instead be shipped directly from the manufacturer to the customer. Yet another way, is for companies or sellers to ship a certain quantity of their products to Amazon, for Amazon to store and sell. The sellers give Amazon an inventory requirement; when the inventory drops below the required amount, the seller is alerted and ships more to the specific Amazon distribution center. In this case Amazon gets a cut of the sales of the products and the company or seller doesn’t have to deal with any of the logistics of selling the items, they just ship the inventory to Amazon and wait. The one product Amazon does produce is the Kindle e-reader. This product is produced by Amazon and mostly manufactured in Asia. After being assembled at the plant in China, the Kindles are shipped to the U.S. to be sold. Inventory Most of their information is kept secret because that makes them unique. This was what we found about it: in the beginning, Amazon first started off with only selling books online. Since then, the company has expanded to include a variety of products. Here is a list of some of the products that Amazon currently offers. Most of these items are shipped directly from the distribution centers and are the popular items that sell the most. The other not so popular products are offered by their third party sellers. List of some of its products AMAZON 10 Books Movie, music and games Computer and electronics Home and garden Grocery, health and beauty Clothing, shoes and jewelry Sport and outdoors Tools, and auto parts They have also acquired companies that have helped its product line grow. Amazon owns companies like Zappos.com, the famous online shoe store. Here is a list that depicts some of the acquisitions / investments that were made just in the year 2009. Most of the companies are run by their own CEO and not run by Amazon. This acquisition has also helped Amazon because they can integrate their supply chain with these companies and just ship their products from their warehouses rather than Amazon distribution centers. By doing this, it has lowered inventory cost. Acquired Companies 2007 2008 2009 Digital photo Animoto Foodista Shelfari Lexcycle Abebooks Talkmarket Brilliance Engien Yard Snaptell Audio Audible.com Zappos By acquiring companies, it has helped Amazon in expanding its product line and using other company’s facilities for storage. The company has also partnered up with a lot of big merchant retailers like Sears. Third party sellers are another way they have some such inventory, basically any seller can make an account and sell through Amazon. This is called Fulfillment by Amazon AMAZON 11 helps third party sellers from managing payment to storing inventory on their warehouses. “Third-party sales has been increasing steadily (39% of Amazon’s total paid units in Q4 2012 were sold by third-party sellers)” (Payments).they also can send their inventory to Amazon fulfillment centers. This means that Amazon needs to carry fewer inventories in general and earn more money through commotion, which they charge a percent of the total sale. This has also helped Amazon to keep its price at a competitive advantage against its competitors; Amazon has a very different way of shelving inventory it does not organize it, it basically just put up by random in a way that optimized their storage space rather than sorting through an organizing it . “Amazon’s warehousing system is that it relies on something described as “"Chaotic Storage”” where products are shelved at random, and because items are stored randomly rather than categorically there’s a more efficient use of shelf space” (Adscam). They keep part of their stuff in 80 of fulfillment centers. Their entire fulfillments are equipped with special automation that allow the company to store, locate and delivery products to its customers. This helps move inventory that has been sold to a lot quicker from when it gets ordered till it gets shipped from a carrier. Some of the software that Amazon uses to keep track of inventory and its products like order, inventory and warehousing management system. Amazon is planning on moving into P&G, which is called Amazon Flex. “Amazon Flex [is] an arrangement whereby this online retail giant is taking up a chunk of square footage inside a major consumer packaged goods supplier’s distribution center and packaging, labeling and shipping staples like toilet paper, diapers and shampoo directly to consumers who order them online” (Andel). By doing this, Amazon would lower down inventory cost within their warehouse and also it would never stock out within those products and get the product quicker to the customer. Another way the company is lowering cost is by constantly trying to improve their distribution centers into moving AMAZON 12 inventory quicker. Experts also say that “keep investing heavily in its technology and building its distribution capabilities (it invested $3.8 Billion on purchasing property and software in 2012) to grow revenue (Payment). The company has being doing so and it has recently acquired “Kiva, makers of those robots used in goods-to-person order fulfillment operations. This not only made fulfillment more efficient in Amazon’s own DCs, but it controlled who else would have access to this technology” (Andel).Over the last few years Amazon’s inventory turnover percentage has been decreasing slightly. As you can see in this graph below, it has higher inventory turnover compared to its competitors. Inventory Turnover 12 10 8 6 4 2 0 2012 2011 2010 2009 Amazon 8.34 9.1 9.89 10.63 Walmart 9 9.08 8.7 8.34 BestBuy 7.33 6.61 6.56 6.08 As you can see, Amazon has been doing pretty well compared to its competitors but their inventory turnover has been decreasing through the past years. Manufacturing Amazon.com has a unique way of selling products. As discussed previously, the site gets its products by providing a platform for third party sellers as well as from working deals with outside manufactures. Amazon itself does not manufacture the vast array of products for sale on AMAZON 13 the site by itself. The one product Amazon does manufacture is the Amazon Kindle. The Kindle e-reader’s competitive advantage is its innovative e-paper display. The key components to the epaper display are the lighting and the “ink” which is actually tiny microcapsule beads used in its electrophoretic display. The special ink is designed and manufactured by a company in Cambridge, Massachusetts called E Ink. This special “ink” is imperative to the uniqueness of the product but a majority of the value added manufacturing is done in Asia. This is in part because these Asian companies are the only ones who can produce these special technological parts. The display, for example, is the most expensive part of the Kindle and is in the hands of an Asian manufacturer. Taiwan’s Prime View International produces the special patterned sheet of glass that works with the beads that E Ink produces. Another part of the Kindle is the wireless broadband data module. This is supplied by a company called San Diego-based Novatel Wireless but is made in Korea. The Kindle also requires a CDMA chip, which like a majority of the chips used in electronics, is designed in the United States but manufactured in “chip foundries” in countries such as Taiwan, Singapore, and China (Shih). These chips are also packaged in Asia then shipped to the U.S. The Kindle also uses a lithium-polymer battery, which is being manufactured in Asia as well. For the newer edition of the Kindle, the Kindle Fire, Amazon has recently partnered with Quanta to assemble the e-reader (Hoffelder). Quanta, a Chinese company, takes the various produced parts, assembles the product, and then ships it to the U.S. to be sold. For some of the other products sold on the website, that are not produced by Amazon itself, Amazon works directly with the manufacturers allowing their products to be sold directly to the customers. Logistics Facilities Network AMAZON 14 Amazon has been increasing their fulfillment centers and are mostly located around metropolitan areas near large cities. This is because of “massive volume of product[s] it sells 24/7/365, Amazon maintains 80 enormous warehousing and fulfillment centers scattered around the known universe” (Halkias). The company “spends about $200 million a year on business technology, last year launched a business unit to resell its Web-commerce and back-end fulfillment services to retailers. And it continues to seek technical advantages in its supply chain” (Bacheldor). Amazon plans it to be within hours away of most major cities in order to provide “one-day service to more markets. Today, orders must be placed before noon in Seattle and as early as 7 a.m. in Chicago for purchases to be delivered the same day (Halkias). This can only happen if every order is within hour’s drive of major cities and most popular product must be kept in each warehouse at all times. “Many analysts assume that with more warehouses, Amazon’s distribution and fulfillment costs will reduce as it will be able to service orders locally, thus reducing shipping costs” (Payment). Here is a map showing where the current locations of distribution centers are in the United States. AMAZON 15 Amazon will keep adding more distribution facilities until it is within every market reach. Where the fulfillment centers are place are based on the population of the major cities in the United States. There one state where Amazon has not placed a fulfillment centers and that place Florida. Transportation Amazon has constantly been growing and outpacing ecommerce at large. Two ideas contribute to this accelerated rate of growth. The welcoming of third party sellers as well as implementing long-term free shipping programs have both solidified this progression. Fulfillment by Amazon (FBA) tagline is “you sell it, we ship it.” Amazon has built fulfillment centers (FCs) around the country with the goal to bring products closer to customers with the intention of significantly reducing fulfillment costs. With less ground and distance between product and customer, the result will be a decrease in transportation costs. Retailers opt to the FBA program, allowing Amazon’s FCs all around to store the products. The first step is for sellers to send products to Amazon whether it is new or used. Next Amazon will store the product in the network of FCs. Third, customers will order on Amazon.com or possible other sales through Amazon’s fulfillment program. Once an order is made, Amazon will pick, package, and ship the item to the final destination. Lastly Amazon will take care of the customer service related issues and take full responsibility dealing with inquires, refunds, and returns. For continuous efforts for supply chain efficiencies, Amazon launched Transportation Central for carriers engaged by Amazon vendors to move freight to Amazon fulfillment centers. The goal is to reduce the time vendors need to schedule an appointment to the Amazon fulfillment center as well as allow a standard process from now on. This allows for more organization and quicker movement for delivery. Also, customers will be eligible for free shipping for orders over $35, AMAZON 16 and as well Amazon Prime, paying an annual fee of $79 a year which is cheaper for students. For domestic standard, the buyer will receive the order within 4-14 business days from shipment date. As for domestic expedited, the buyer will receive the order within 2-6 business days after shipment. Amazon transportation carriers are United State Postal Service, United Parcel Service, and FedEx. U.S Postal Service and Amazon.com Inc. recently negotiated a service agreement together. Now on Sundays, USPS began delivering Amazon packages to residential homes in New York and Los Angeles. The USPS relies on sales of postages, packages, and services to fund the operations. If successful, USPS intends to add on more markets such as Dallas, Houston, New Orleans, and Phoenix. USPS doesn’t intend on hiring more employees nor to pay overtime for the deliveries. Information Systems Amazon.com utilizes the Customer Relationship Management (CRM) system. Data, efficiency, and customer service are Amazon.com competitive differentiators. Amazon.com uses effective data storage and proper data analysis to undertake sales, marketing and business services. The main points of client relations that have made Amazon.com into an internet business model are: Basic Elements S&S Process (Search & Sale) Post-Sale Basic Elements The basic elements are recommendation algorithm and website usability. Recommendation algorithm is a fundamental element for offering fitting recommendations, and website usability simplifies the procedure of acquiring additional products. These two basic elements allow Amazon.com customers to see a variety of product options and in turn introduces AMAZON 17 more cross-selling. Customers buy, comment or just easily visit the website, and Amazon.com can make satisfactory recommendations. S&S Process During the search & sale process, the user receives suggestions for products that were looked at but not bought, and also products related to those items purchased by a different user. Because of this, a customer can save time and/or is shown another product that may also be needed. Post-Sale Amazon saves the e-mail of users and mails offers and recommendations based on the data retrieved from the customer’s past experience on Amazon.com Uniqueness According to SCM World, the leading global community of supply chain practitioners, Amazon is more widely admired compared to competitors. Amazon came out on top with 3 out of the 4 supply chain attributes that survey participants took place in. Those three included agility, collaboration, and execution. Agility was the ability to quickly lower cost amount with types of production and delivery to improve overall operational performance in volatile settings. Collaboration was the ability to solve systematic operational problems with organizational boundaries. Lastly, execution involved consistency and reliable delivery within budget expenses. Amazon has a very direct supply chain impact, helping to contribute to their uniqueness. Amazon has huge fulfillment space, aggressive shipping charge policies, push for same day delivery in some markets, and just continuous innovation pushing for other retailers and services to keep up. Competition AMAZON 18 Amazon is in a battle with Apple in the fast growing market of technology with tablet devices and digital content. The major rival product includes the Kindle Fire and Ipad. Other competition includes Ebay, Walmart, Google, and Facebook as well. Amazon is rumored to possibly roll out with a smartphone to cut into Apple’s iPhone market share while challenging Android smartphones too. Amazon’s smartphone could be an alternative to a low cost, low profit gadget, profiting from sale of Amazon merchandise and e-books, games, and applications. Current/Future Challenges One of Amazon’s newest product is the Kindle Fire HDX tablet, which uses Mayday ondemand video customer support feature. The feature is on the setting menu, available 24 hours a day and year round. A window pops up showing a support agent, being able to talk, draw on the screen, or even take control of the screen themselves. With the 24/7 service, Mayday will not be able to solve any kind of Internet connection issue. Having support people available anytime could work out great for customers, but very expensive for Amazon. Although if Mayday is able to be a selling point and help reduce returns, the investment and gamble could be well worth it. Recently, CEO Jeff Bezos revealed a plan for Amazon Prime Air which are little drones that can carry items from the warehouse to a front door within 30 minutes. To turn such an ambitious concept into reality, much work is ahead of them. The Octopters will need much battery life which will be the toughest problem to figure out. Also, once the package is in the air, how can they stop people from stealing the product? Bezos states, “I don’t want anyone to think this is just around the corner, this is years of additional work from this point.” Recommendations for Potential Improvement Keep doing what they have been doing all along. Amazon store Stop making the kindle Expand global reach AMAZON Better packaging with electronic Watch out for over expanding Summary – Jordan 19 AMAZON 20 Bibliography "Amazon.com Help: Order Timeline." Amazon.com Help: Order Timeline. Amazon.com, n.d. Web. 15 Oct. 2013. "Customer Metrics." Amazon.com Help:. Amazon.com, n.d. Web. 15 Oct. 2013. "Customer Metrics Scorecard FAQ." Amazon.com Help:. Amazon.com, n.d. Web. 15 Oct. 2013. "SAP and Amazon Web Services." SAP and Amazon Web Services. Aws.amazon.com, n.d. Web. 15. Oct. 2013. Adinolfi, Joseph. "Terms Of Deal For US Postal Service (USPS) To Deliver Amazon (AMZN) Packages Not Revealed By USPS Or Amazon." International Business Times. IBTimes, 14 Nov. 2013. Web. 03 Dec. 2013. Bort, Julie. "SAP Brings Its Lightning-Fast Database, Hana, To Amazon's Cloud." Business Insider. Businessinsider.com, n.d. Web. 15 Oct. 2013. ChannelAdvisor. "A Deep Dive into Amazon's Global Shipping & Fulfillment Network." – Supply Chain 24/7. N.p., 21 July 2013. Web. Constine, Josh. "Amazon Faces High-Stakes Challenge In Scaling Mayday On-Demand Support." TechCrunch. TechCrunch, 25 Sept. 2013. Web. 03 Dec. 2013. Denning, Steve. "Why Amazon Can't Make A Kindle In the USA." Forbes. Forbes Magazine, 17 Aug. 2011. Web. 29 Oct. 2013. Dixit, Puneet. "Four Looming Factors That Could Threaten Amazon's Profits." Business Insider. Business Insider, Inc, 28 Mar. 2013. Web. 23 Sept. 2013. Halkias, Maria. "Immerse Yourself in a New Experience." The Dallas Morning News. The Dallas Morning News Inc, 30 Jan. 2013. Web. 29 Oct. 2013. Hoffelder, Nate. "New Kindle Fire Reportedly Being Assembled." The Digital Reader. N.p., 05 AMAZON 21 Jul 2012. Web. 1 Dec 2013. <http://www.the-digital-reader.com/2012/07/05/new-kindlefire-reportedly-being-assembled/ Layton, Julia. "How Amazon Works." HowStuffWorks. N.p.. Web. 29 Nov 2013. <http://money.howstuffworks.com/amazon1.htm>. Lessin, Jessica. “Apple vs. Google vs. Facebook vs. Amazon.” WSJ, 25 Dec. 2012. Web. 03 Dec. 2013. Noguchi, Yuki. "Moving In With Manufacturers, Amazon Delivers A New Approach."NPR. NPR, 28 Oct. 2013. Web. 29 Oct. 2013. Roberston, Adi. "The Verge." The Verge. The Verge, 02 Dec. 2013. Web. 03 Dec. 2013. "SAP and Amazon Web Services." SAP and Amazon Web Services. Aws.amazon.com, n.d. Web. 15 Oct. 2013. Shih, Willy. "The U.S. Can't Manufacture the Kindle and That's a Problem." HBR Blog Network. Harvard Business Review, 13 Oct 2009. Web. 29 Nov. 2013. <http://blogs.hbr.org/2009/10/the-us-cant-manufacture-the-ki/>. "Shipping Rates and Services." Amazon.com Help:. Amazon, n.d. Web. 03 Dec. 2013. Strickland, Jonathan, and Bernadette Johnson. "How the Amazon Kindle Works." How Stuff Works. N.p.. Web. 29 Oct 2013. "Transportation Central." Transportation Central. Amazon, 2013. Web. 03 Dec. 2013. Trebilcock, Bob. "Supply Chain: Amazon Is Changing the Rules of the Game." MMH.com. Modern Material Handling, 14 Dec. 2012. Web. AMAZON 22 Team Contributions Company (&Division) – Kathy Executive Summary – Jordan Vision/Mission – Kathy Company Structure – Isacc Major Customers – Isacc Supply Chain Diagram – Vu Order processing – Vu o How performed o Customer Service Metrics Procurement – Jordan o Type/Structure o Supplier Information Inventory – Isacc o Strategy o What types o Where stocked Manufacturing – Jordan o Strategy o What o Where Logistics Facilities Network – Isacc o Locations o Types/Functions Transportation Methods –Kathy o Information Systems – Vu Uniqueness – Kathy o What key factors make their supply chain one of the best Competition – Kathy Current/Future Challenges – Kathy Recommendations for Potential Improvement – Isacc Summary – Jordan Bibliography / What team member did what part – Vu PowerPoint contributions: Kathy, Jordan, Isacc and Vu