AMAZON.COM’S EUROPEAN DISTRIBUTION STRATEGY

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AMAZON.COM’S EUROPEAN DISTRIBUTION STRATEGY
By
Tekler Huseyin
IBW2017539015
A Term Paper
Submitted in Partial Fulfillment
of the Requirements for the
Supply Chain Management Course
for the Master’s Degree in International Business
at University of International Business and Economics, 2018
BEIJING, CHINA
Lecturer:
Prof. Dr. HONG Junjie

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ABSTRACT
Amazon.com, Inc., known as Amazon, is an e-commerce and cloud computing company based
in the United States. Founded on July 5, 1994, by Jeff Bezos in Seattle, United States. It is the world's
largest shopping site in terms of both total sales volume and market value. Considering that Amazon
sales thousands of kinds of products in many countries, it is clear that there is a need for highly
developed SCM. To start with, Amazon’s SCM has a strategic fit with its competitive strategy of
being the retailer of choice for its customers. The combination of multi-tier inventory management,
superlative transportation, and highly efficient use of IT, and its wide network of warehouses are all
geared towards aligning its SCM with its competitive strategy. In this paper, a detailed review of
Amazon's SCM will be made.

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Contents
I. Introduction 1
a) Development of the Internet 1
b) E-Commerce 1
c) Amazon.com 1
d) Major Products and Services of Amazon.com 2
II. Introduction of the logistic/supply chain of the company 3
III. Problem identification 4
IV. Solution/suggestion 5
V. Conclusion 5
VI. Reference 7

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I. INTRODUCTİON
a. DEVELOPMENT OF THE INTERNET
Since the first website was online in August 1991, the number of websites in the virtual world has
reached approximately 2 billion1
. According to the data of Netcraft, an internet monitoring company
operating in this field since 1995, the number of websites which was 97.9 million in October 2007
increased to 1 billion 935 million in November 2018. The milestone of 1 billion websites was first
reached in September of 2014, as confirmed by NetCraft in its October 2014 Web Server Survey and
first estimated and announced by Internet Live Stats. In August 1995, when Netcraft made its first
monthly research in this area, it was stated that there are 18 thousand 957 websites on the internet.
With the development of technological infrastructures, internet usage rates are increasing worldwide.
b. E-COMMERCE
Trade has been an important force for human life since the beginning of recorded history. The
adoption of the Internet by the masses has created a series of shifts in the way of doing things today.
One of the areas where these effects are most pronounced is trade. In the past 10 years, the emergence
of a new type of trade has been witnessed; purchase of goods by means of human-computer interaction
over the internet, namely e-commerce. The traditional trade of goods and money is losing popularity
and more and more businesses are jumping into the e-commerce wagon. Nowadays, the line between
e-commerce and traditional trade is becoming more uncertain because more businesses are starting to
integrate internet and e-commerce technologies into their business processes and continue to do so. E-
commerce is a modern business methodology that addresses the needs of consumers, traders and
organizations in order to reduce costs while improving the quality of goods and services by using the
Internet and increasing the delivery speed. With the development of E-commerce, many companies
have tried to sell their goods over the internet in many countries. However, most of them did not
succeed, but some of them have achieved great successes. Amazon.com is one of these successful
companies.
c. AMAZON.COM
On July 16, 1995, the official website of the Amazon.com website was opened. Amazon.com was
launched in July 1995 with a database of at least two gigabytes containing over one million books.
Every online customer is given a unique identity when he/she enters the site. As the client proceeds on
the site, everything he does is tracked, so Amazon.com webmasters can review that person's browsing
and buying habits. When Amazon.com started providing services, half of its customers preferred to
give their credit card numbers over the phone to buy books. The company initially estimated that most
of the credit card payments would be made by telephone, but most of the payments were made through
the internet even from the first days.
Amazon.com's timing is perfect because the 1995 article was an ideal time to launch a new
shopping site. If the site had been opened in the previous year, the personal computers connected to
the internet were insufficient that the company would not be able to survive, and if it had been a year
later, the competition would take its place. With improvements in web infrastructure in the summer of
1995, many major developments have transformed the web from a static online magazine or stall into
a more attractive and user-friendly interactive environment. In 1995, the Amazon.com website was
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According to netcraft.com

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visited by 2,200 people a day, which is a very good penetration level for that period. According to
International Data Corporation, by the end of 1996, approximately 35 million people are using the web.
More than half of those who use the Web regularly have a university or higher education level; more
than 62 percent of Internet users worldwide earn at least $ 40,000 a year. This can be seen as a reason
for the success of Amazon.com. When the Amazon.com website was made available to the public use
in 1995, it became the only book retailer of Netscape and America Online websites. In 1998, Amazon
acquired Bookpages, Telebook, Internet Movie Database, Planet All, Junglee Corp. In 1999, Amazon
continued its expansion by purchasing shares of drugstore.com, HomeGrocer.com, Pets.com, and
Exchange.com. In 2000, Amazon established a strategic partnership with Toysrus.com, this was a sign
that the company was beginning to expand its range of services. Amazon opened its website in Canada
in 2002. Throughout 2003, the company increased its product variety to include 40,000 gourmet food
products, more than 60,000 pieces of jewelry and over 70,000 health and personal care products.
During 2004, the company has signed a strategic cooperation agreement with The Bombay Company
to establish new websites that will be powered by Amazon's eCommerce technology for the Bombay,
Bombay Kids, Bombay Outlet, and Bombay Canadian activities. In the same year, Amazon, Amazon
Services and American Express made a strategic agreement. This agreement provided American
Express owners with special benefits on the Amazon.com website. Also, in 2004, Amazon acquired
joyo.com and in 2005 acquired BookSurge. In October 2005, the company announced plans to open a
software development center in India. In February 2006, the company acquired Shopbop.com, a
retailer selling fashionable apparel, shoes, and accessories for women. In May 2007, the company
acquired the Internet's most comprehensive digital camera retailer and review website,
www.dpreview.com, again in the same month, it has acquired the largest independent audiobook
publisher in the US, Brilliance Audio (www.brillianceaudio.com).
Diagram1: Amazon.com’s Work Model (B2B2C)
d. MAJOR PRODUCTS AND SERVICES OF AMAZON.COM
Amazon.com, which has started to do electronic commerce as an online bookshop, has shown
great growth and development over the years. It has become a comprehensive web retailer with a wide
variety of product categories. In addition, it has started to operate with marketing, promotional and
web solutions services. The company's main products and services are shown in the table12
.
Products & Services
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Source Amazoon.com Inc. Company Profile www.dataminor.com
SUPPLIERS AMAZON.COM
CUSTOMER
S
B2C
B2B

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1 Retail Goods
2 Amazon Prime
3 Consumer electronics
4 Digital content
4.1 Amazon Games
5 Amazon Art
6 Amazon Video
7 Amazon Business
8 Amazon Drive
9 Private labels and exclusive marketing arrangements
10 Amazon Studios
11 Amazon Web Services
12 New book content production
13 Donations
14 Amazon Local
15 Amazon Wireless
16 Amazon Fresh and Amazon Prime Pantry
17 Amazon Dash
18 Amazon Go
19 Amazon Supply
20 Video Direct
21 Amazon Music Unlimited
22 Amazon Tickets
23 STEM Club
24 Amazon Books
25 Amazon Home Services
26 Amazon Destinations
27 Handmade by Amazon
28 Amazon Inspire
29 Amazon Cash/Top Up
30 Merch by Amazon
31 Other services
Table1: Amazon.com’s Products and Services
II. INTRODUCTION OF THE SUPPLY CHAIN OF THE COMPANY
To understand Amazon.com's chain of tastes, we need to understand how the whole process is
strategically planned from the very beginning. The reasons for doing the Amazon establishment in
Seattle are as follows; It was a perfect experience for us. The second reason is that it is close to a large
book wholesaler.
Since its inception, Amazon has implemented a unique procurement strategy. In the first years of
its establishment, it sold 2.5 million different books and only 2000 of these were in the warehouse of
the Seattle warehouse. The rest is ordered by Amazon when it comes to the supplier. The book reached
Amazon's distribution center in two or three days. When orders started to grow, Amazon started to
work with publishers. But it was a week before the order came from the publisher. When the order

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reached Amazon, it took four to seven days to deliver to the customer. The company grew rapidly in
1996 and 1997 and maintained its service level with its infrastructure investments.
Increased distribution center capacity. A new DC was installed in Delaware. This significantly
reduced the delivery time of orders. With the increasing competition in 1998, the Amazon decided to
establish new distribution centers. But it was not necessary to get help on where these distribution
centers would be. For this, I2 Technologies used the Supply Chain Strategist software package. With
this software, the locations of DCs have been decided by considering customer, supplier, inbound and
outbound freight rates, warehousing expenses, labor, and other cost factors. After identifying possible
locations, Amazon narrowed its list of possible destinations by additional criteria such as tax rates,
unemployment rate, and distribution infrastructure. The next steps were to build a DC near Nevada.
Later on, they started to deliver to Chicago, St. Louis, Dallas and Minneapolis with DC he built in
Kansas. By 1999, three more DCs were opened in the Midwest and Southeast. This additional 3.2
million square foot distribution capacity costed $ 320 million to Amazon. But this gave Amazon the
opportunity to send a million more packages per day. According to Jeff Bezos, ‘’ This has been the
fastest expansion of distribution capacity in peacetime history.’’3
In 1998, Amazon.com entered the European market, targeting the two countries-the United
Kingdom and Germany-that represented both the largest online markets and the largest markets for
books in Europe. Germany, for example, had approximately 2,000 publishing houses, indicating the
significant role books played in German culture. In addition, other country-specific factors made these
country markets particularly attractive for Amazon. For example, German customers were accustomed
to buying books through mail-order companies. In the UK, the end in 1995 of government-regulated
fixed retail book prices and the consequent development of new distribution channels such as
Specialty stores had spurred remarkable growth in books sales. During its first years in Europe,
Amazon had faced several challenges that led to particular Operational and organizational choices.
The key to achieving international e-commerce success is understanding one simple fact:
customers everywhere want a better selection, more convenience, and better service. After recognizing
this fact, online retailers will soon understand that the major challenge to international expansion is the
ability to bring these universal benefits to customers around the world while honoring local customs.
As a result, Amazon recognized the European market as an aggregate of regional markets and chose to
fully comply with their legal and cultural specificities. In practice, this implied significant tailoring of
Amazon.com’s traditional value chain to local needs.
III. PROBLEM IDENTIFICATION
Despite the fact that Amazon was doing admirably in Europe however, the desire was high as they
had the aim to rehash the achievement of Amazon US in Europe as well. Anyway, they were defied
with some substantial difficulties from the European markets. These difficulties could be handled yet
to do that they required some extreme change in the methodologies that Amazon connected and
received in the US.
Sales regulation in Germany and France
Prices of books sold in Germany and France were determined. These prices cannot be
discounted. The sales model for the Amazon in the United States was to offer discounts on the prices
3
Amazon.com: More Than a Merchant, by Miguel Helf, The Industry Standart, 2000

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of the books they bought from wholesalers and publishers. They could not provide discounts from
wholesalers and publishers in bulk purchases.
Payment options
In Europe, more than 62% of customers used checks to shop. Amazon's core competence was
online retail sales; this meant buying online with a credit card. This was a huge challenge for the
Amazons because they did not have a brick or mortar shop where the concept of paying by check
could be.
Different supply market factors
In the US, Amazon heavily relied on book suppliers. However, in Europe, they experienced a
decline due to the lack of wholesalers and large suppliers. Although they could manage supply with a
handful of suppliers in England, none of them were in France. This forced Amazon to connect with
fifteen publishers for book supply.
Low EDI penetration in European countries
Amazon used EDI (Electronic Data Exchange) to communicate with supply chain management of
suppliers in the United States. This has greatly increased the efficiency of its supply chain. In the event
that a supplier has a stock from a particular item in the inventory, he or she may respond to the
Amazon in real time by refusing to accept orders from the customer. This allowed Amazon to
immediately return information about the inaccessibility of the product to the customer. However, this
wasn't used much because they used the concept of emailing and faxing in Europe, but there wasn't
any real-time data sharing type.
In addition to the above-mentioned difficulties, there were other difficulties. Amazon has
extensively relied on the national postal services in the relevant countries of Europe in which it
operates. But they were competing not only in other countries but in their own countries. This created
a challenge for the Amazon because there were many shipments between countries.
IV. SOLUTION/SUGGESTION
With the challenges to be kept in mind, there were a number of options for Amazon to solve these
challenges and make the solution to the European market increasingly expanding. These
recommendations require a radical change from the strategy followed in the United States.
V. CONCLUSION
I suggest that Amazon should integrate its European operations as a whole and accept it as a single
market. With that in mind they should follow the following steps to achieve this target;
1. Build an integration strategy for European sites.
a. DCs should articulate some contracts with local transportation agencies to ship its product to the
customers. At this point, the ownership of the product must be with the DC. This will prevent
problems in the context of accounting and ownership.
b. Analyze demand patterns, transportation costs and options, IT requirements and DC capabilities,
inventory costs, and transportation for various countries in Europe.

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c. In case customer places an order with multiple items spread across DCs,
d. Analyze past data, minimize this gap
e. Try to keep such cross-items together. This reduces the risk of making more than one shipping for
order and reduces the shipping cost.
2. Strengthen the UK’s purchasing team and collaboration of whole staffs. The UK procurement team
should be responsible for the entire EU network. Local dedicated buying team is a kind of replicating
inventory and creates a redundant staff. Purchasing large volumes of goods will give a negotiation
power to Amazon. It would facilitate global sourcing from lowest vendors and allow inventory
planning at the global network level. In addition, it is a good decision to switch to the ERP system and
increasing usage of EDI electronic data interchange so that the EDN system can progress in a stream.
3. Keep these 3 DCs, support them with EDN
4. Selecting appropriate DC to fulfill orders. Keeping the right inventory, at the right amount.
Although these three DCs are geographically positioned, they are still suitable for our strategic
planning. With a strong purchasing team and a strong central decision-making unit, DCs will keep the
right inventory in the right amount, avoiding unnecessary cost of inventory. By selecting the
appropriate DCs for delivery, the quality of the customer experience will increase.
5. Increasing the use of drop shipping, B2C. Drop Shipping should be applied in all product groups
that can be implemented considering the details such as delivery time and transportation cost. The
inventory load of DCs will be reduced. With more use of B2C systems, the delivery time will be
shortened and customer satisfaction will increase.
6. Use postal injection to reduce lead time. Delivery times can be shortened by postal injection. In the
future, if Amazon wants to increase its effectiveness in Europe, it will be able to make fast deliveries
to other European countries through postal injection.
7. In short-term train the workers for implementation of EDN. In long-term enjoy the EDN's returns.
In the beginning, the management should work to stabilize the EDN system, so that the employees
should work in collaboration and the problems that will cause the system to fail need to be corrected.
After the EDN stabilized, more savings can be achieved by reducing the number of employees.
Based on all the pros and cons of the above strategies, I can conclude that keeping the DCs in
each of the three countries in conjunction with an integrated inventory management system and
virtually having just a single distribution network allows us to collate the advantages of location and
lead time pooling without considerable increase in distances between customer and DCs combined
with a negligible decrease in service levels (lead times to customers). Thus Amazon will be able to
simultaneously exploit the commercial advantages mentioned above to the fullest, decrease inventory
to a large extent and reduce transportation costs drastically. Thus it would be advisable that Amazon
implements a Centralized management system in the UK along with the three existing DCs and a
common integrated IT interface.

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VI. REFERENCE
ÖZTAŞ, Şeyma. 2009. Branding Process of E-Commerce Companies:Amazon.com and
Yemeksepeti.com. Dokuz Eylül University, İzmir. 30 pp.
Amazon.com: More Than a Merchant, by Miguel Helf, The Industry Standart, 2000
"Amazon’s Distribution Strategy." UKEssays.com. 11 2013. All Answers Ltd. 12 2018
http://teacher.tcm.ncku.edu.tw/course_file/cases/amazon.pdf
Colby Ronald Chiles and Marguarette Thi Dau ‘An Analysis of Current Supply Chain Best Practices
in the Retail Industry with Case Studies of Wal-Mart and Amazon.com‟
www.dspace.mit.edu/bitstream/handle/1721.1/33314/62312050.pdf

AMAZON.COM’S EUROPEAN DISTRIBUTION STRATEGY

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