Amazon's Operational Strategy
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The document provides a comprehensive overview of Amazon's operations management, including its history, products, services, competitors, manufacturing processes, and inventory management strategies. It highlights Amazon's growth since its founding by Jeff Bezos in 1994, emphasizing its innovative practices like drop shipping and the use of robotics in fulfillment centers. Additionally, it discusses Amazon's operational strategy of maintaining low prices while focusing on customer experience and leveraging data-driven insights for efficiency.
Amazon's Operational Strategy
- 1. Operations Management TALHA MUMTAZ AHMAD 331 UMER EJAZ RANA 326 NIDA HAMEED 312 IQRA SARWAR 306 MASOOMA SHAHER BANO ZAIDI 319 SABA SADIQ 335
- 2. Table of Content: Brief History of Amazon Products/Services, Customers and Competitors Manufacturing Sourcing Layout Inventory Management Operational Strategy
- 3. Brief History of the Amazon was founded by Jeff Bezos in Bellevue, Washington, on July 5, 1994. Amazon is an American multinational E-Commerce company based in Seattle. The company started as an online marketplace for books In 2015, Amazon surpassed Walmart as the most valuable retailer in the United States by market capitalization. In 2002, the corporation started Amazon Web Services (AWS), which provided data on Web site popularity.
- 4. Amazon hired 175,000+ new employees during the COVID-19 pandemic. Amazon is currently the largest online marketplace serving countries worldwide. It has dedicated marketplaces for the United States, the United Kingdom, France, Ireland, Canada, Germany, Spain, Italy, Australia, Japan, China, India, Mexico. In Nov 2007, Amazon launched kindle where people can read books online. Amazon revenue for the twelve months ending June 30, 2020 was $321.782B, a 27.66% increase year-over-year.
- 5. Products & Services, Who are the Customers Amazon sells more than 45 million products. Amazon product lines includes E-Books, apparel, consumer electronics, Whole foods etc. Amazon refers to as three consumer Sets customers Seller customers Developer customers
- 6. Competitors of Amazon Amazon is the world’s largest online retailer and is rapidly growing its footprint in other areas such as physical retail stores, subscription service, and web service. Amazon’s retail store rivals include Target, Walmart, Best Buy, and Costco. For subscription services, Amazon competes with Netflix, Apple, and Google. In the web services category, Amazon has several rivals such as Oracle, Microsoft, and IBM. Who is Amazon’s biggest competitor? Amazon has faced stiff competition from Chinses E-commerce giants Alibaba and JD.com. When comparing Commerce as well as Cloud revenues, Amazon’s revenues are nearly 15x that of Alibaba’s. Amazons top world wide competitors are Alibaba, eBay, Walmart, JD.com, Flipkart, Rakuten, Etsy and more.
- 7. Amazon’s Difference According to Bezos, Amazon’s major difference would be providing greater value to customers by a combination of extraordinary convenience, instant access, and comprehensive selection. Jeff decided to add a foremost valuable difference – Low Prices. Amazon provide both value and low prices. With economies of scale, Amazon efficiently controls its cost. The company has formed numerous strategic alliances with many companies like Eva Technologies, Thalamic Labs, Shofar, The Orange Chef etc. It has strong value chain system which helps in maintaining a low-cost structure.
- 8. Sourcing Strategies: Drop shipping: It is a widely chosen method of product sourcing. Drop shipping is the best way if you are a seller who cannot afford to manage an inventory, own real products or ship it to the customers. Store/seller purchases the item from a third party and has it shipped directly to the customer. Retail or Online Arbitrage: This is where you buy low and sell high by looking for clearance or hugely discounted products on different websites or local stores and then selling them on Amazon .Retail sites like Target, Walmart etc. Private Label: With an Amazon Private Label strategy, you find generic products that are already available, put your own brand on them, and sell on Amazon under the brand that you created
- 9. Manufacturing Process For more than 25 years, Amazon has designed and manufactured smart products and distributed billions of products through its globally connected distribution network using cutting edge automation, machine learning and AI, and robotics, with AWS at its core Amazon is involved into 3 key business –Amazon Marketplace ,AWS and Amazon Prime AWS(Amazon web services) is subsidiary of amazon that provides on demand cloud computing platform and API’S to companies ,individuals and governments on metered pay
- 10. Exploring manufacturing processes: Product & Production Design: It focus on product and production design, not on the infrastructure needed to make it happen. Smart Factory: Focus on optimizing your factory operations, without any infrastructure. Smart Products & Services: Focus on making your products smarter for a better customer experience, not on the infrastructure needed to make it happen.
- 11. Products and services that Amazon manufacture Wholefoods (company) Kindle Fire (eBook reader) twitch (live game streaming app) Alexa (digital assistant) Fire tablets & TV (streaming service devices) Prime Music Music-Ring Door Bell (home security) IMDB (media rating platform) Goodreads (community to discuss and rate books)
- 12. Amazon Robotics (Formerly Kiva Systems) One of the most amazing aspects of Amazon fulfillment is their Amazon Robotics( Formerly Kiva Systems) approach to moving material to stewers and pickers. It is estimated that the Kiva robots reduce the fulfillment cost by 40%. How they Work? A Kiva is a small orange robot about 30cm high and weighing around 130kg. It can lift storage shelves(called pods) of up to 750 pound(340kg). These small Kiva robots carry these specialized shelves to the stewers and and pickers for them to add or remove items to/from the pods. Amazon has 120,000 KIVA Robots. Layout >175 operating fulfilment centres >150 million square feet space 110 operational facilities 100000 robot drive units, six robo-stows and 30 palletizers Main Two areas: 1)An inbound Delivery area 2)Storage Areas
- 13. How they organize themselves? Kiva know their location primarily from 2D data codes that are attached to the floor at regular intervals. When a Kiva drives across, it scans for labels to know where it is. Additional sensors help to avoid collisions. Behind it is the Amazon Fulfillment technologies(AFT) software. Inside Amazon Fulfillment centers: 1)Where products enter the warehouse 2) The Stow process 3) Picking Order 4) Quality assurance 5) Packing orders 6) Shipping orders out
- 15. Advantages of robotics by KIVA System Robots enables high level of automation. This technology can help increase productivity when combined with labor. Robotics shelves allow more products in a smaller space making stalking and picking more efficient. Kiva’s robot have been a real cost saver. Kiva robots have cut operating expenses by about 20%, adding that it would translate to roughly $22million in cost savings for each fulfillment center. Cycle time have been cut from 60 to 70 minutes to roughly 15 minutes deploying KIVA Robots. Inventory space grows 50% due to smarter use of space, such as building narrower isles or getting rid of certain handling systems.
- 16. How Amazon manage Quality? The benefits of Quality Control for Amazon ‘s Sellers Pre-Shipment Inspections Book Inspection service 3 days in advance A certified Inspectors assigned to visit the factory , the following are verified: Quality Weigh Measurements Colors Packaging Barcode
- 17. Amazon product authenticity and quality Customers trust that they can always buy with confidence on Amazon. As a seller, it is important to understand Amazon’s guidelines on product quality and authenticity. Types of Violation Violations related to product authenticity are categorized as intellectual property violations. Issues with the overall product quality including products that do not match their descriptions can be categorized as product condition violations.
- 18. Plan Manage and Store Inventory There are two inventory options. 1- Fulfillment by Amazon (FBA) 2-Fulfillment by Merchant (FBM) Fulfillment by Amazon (FBA) Fulfillment by Merchant (FBM) PROS: PROS: Prime Increased Ownership Hands-Free Fulfillment Higher Margins Shipping Discounts Fewer Fees CONS: CONS: Fulfillment Fees Prime Expectations. Long-Term Storage Fees Overhead Costs
- 19. MANAGE INVENTORY 3 inventory management strategies that Amazon uses Lean Inventory Management Vendor Managed Inventory Warehouse Management and 3PL
- 20. Amazon allows brands to manage their inventory through their internal Amazon Inventory Management System. Available — The current quantity available to ship to customers. Inbound — The amount of product that is scheduled in shipping plans, in-transit, or currently being processed at the fulfillment warehouses. Unfulfillable — Any inventory that is in a fulfillment center, but not currently able to be sold due to damage, quarantine, or awaiting inspection. Reserved — Product that is being received at the fulfillment center, associated with a current order, or in transit to another fulfillment center. Fee Preview — Estimated fees for the management of product when sold. Fulfilled By — Lists Fulfilled By Amazon or the seller as responsible for fulfillment.
- 21. Guidelines to Store Inventory Why Inventory Management is Important for Amazon Sellers Here are the main reasons why it’s critical to take control of your Amazon inventory: Attract shoppers and make sales – If you constantly run out of stock, your customers will shop your competitors. Reduce inventory losses – If you constantly monitor your inventory levels, you can reduce losses from mismanaged storage, receiving errors, and employee theft. Reduce spoilage – If you sell perishable items, inventory management helps you track sell-by dates and avoid losses due to spoiled or unsellable goods.
- 22. Guidelines to Improve Amazon Inventory Management Use Amazon inventory management software. Understand your inventory turnover rate Plan for seasonal sales fluctuations Be strategic with promotions and sales Slow down demand for your inventory when needed
- 23. COMPETITIVE ADVANTAGE TO STORE INVENTORY Smart, strategic inventory management delivers competitive advantage, yet inventory turn that little seems to change. Sustainable improvement through increasing control of systems and generates savings that can, in turn, be invested in growth initiatives. Inventory is not something that just concerns planning, production and finance. By working to better understand and control their inventory- related processes, everyone can drive improvements that will harness inventory’s potential to become a source of sustainable competitive advantage.
- 24. What is an operational strategy? Operational strategy provides a plan for the company that specifies how the company’s resources can be best used and how they can be leveraged to achieve long-term strategic success in the concerned industry. This needs to be in alliance with the holistic business objectives/strategy. Amazon’s competitive advantage is more focused on learning their consumer behavior and evolving rather than on cost or convenience. Corporate Strategy “Relentlessly focus on customer experience by offering our customers low prices, convenience, and a wide selection of merchandise.” Operational Strategy
- 25. Amazon believes in keeping the product prices low and sell more. Thus generating more revenues by selling high volumes. Amazon doesn’t hold or manage much of the inventory. Instead, the vendors associated and affiliated with Amazon offers their inventory which means Amazon doesn’t have to pay the rents or buy lands. Amazon uses small vans to deliver its products compared to heavy weight vehicles. This helps them save a large amount of money in taxes. Amazon macro-manages its sellers’ products performance, which means ensuring they can offer products at better prices by offering profit margin to its vendor. Instead, it relies on the affiliation fee for most cases. Amazon also charges a fee from its sellers. Sometimes, it also takes a dedicated commission from particular products and services sold through its platform. Amazon’s algorithms allow an employee to stop the operations if there is any defect or problem in the process (equivalent to Shingo and/or quality management system) Amazon gives free shipping if the customers are willing to wait (thus giving Amazon the time to accumulate enough orders to reduce the shipping costs) Cost
- 26. Delivery Amazon realized in the early 90’s that customers/consumers were not interested in paying for handling, packing or shipping the products. They simply wanted the “Product” delivered into their hands no matter where they were. Amazon’s supply chain algorithms help it handle the distribution system by effectively planning & predicting when, where and how to hold inventory (volume, demand, product specifications) Seller with high demands for their products are required to ship large amounts of their inventories to Amazon’s FC (Fulfillment Centers) Amazon has a long-running contract with UPS (United Postal Services) to ship millions of its products. This helps timely deliveries and discounted costs. Based on geographical trends of shopping and deliveries, Amazon’s algorithms have helped it build Fulfilment, Sort, Specialty and Non-sortable Centres at prime locations worldwide. This means most of the prime products can be delivered in less than two-hours, one-day, or two days.
- 27. Reliable Service Amazon offers 30-day pricing policy. Which means hundreds of thousands of products will be returned in a month. While on paper it may seem a loss but in actual, the guarantee gives customers the trust and credibility to stay with the company as it denotes 0 risk. Longer stay – More Products sold – more volumes – competitive prices. Customers are encouraged to leave reviews. These reviews help Amazon and other customers make better decision about the quality of products they want to buy. Prime Members receive benefits which include FREE fast shipping for eligible purchases, streaming of movies, TV shows and music, exclusive shopping deals and selection, unlimited reading, and more. Amazon’s help-center is easy to navigate.
- 28. Competitive Advantage Amazon is not reliant on a single product line or lines. Compared to Alibaba, it is a B2C business with millions of engaging and returning customers every day. Amazon offers much more perks and benefits to its customers with its Amazon. It keeps acquiring businesses that can be successful in the long run. Such as its $13.5 billion acquisition of wholefood market. Amazon offers a wide variety of products and services across multiple streams. Combining 45 million products with Entertainment streaming, web services, cloud services, analytics tools. Amazon is trying to integrate its products using IoT. Amazon makes bets that pay off well. It isn’t just reliant on its ecommerce business. Instead, it has lots of businesses and services that makes up Amazon.
- 29. Thank You