January 18, 2015

Inventory Management at Amazon

A Brief about E-Commerce Industry:Types of Business Models:
  • Buy and Sell: Products are purchased by the company and stacked in warehouses. These products are displayed on the website.
  • MarketPlace: Products from multiple vendors are displayed in the website. Company take care of marketing and transactions and shipping, doesn’t hold the inventory.
Industry Analysis and Market Details:

According to a survey by ASSOCHAM E-Commerce is expected to reach USD 56 Billion by 2023.
  • More than half of the total 1.2 billion population of India falls under the ‘below 25 years of age’ bracket. 
  • 65% of India’s population, representing the working age group of 15 to 64 years, would aid the further growth of e-commerce, driven by their rising disposable income. Notably, discretionary spending in India is expected to jump to 70% by 2025 from 52% in 2005. 
                                               SWOT Analysis Of E-Commerce Industry

  • Sells products such as books, DVDs, Electronics online in more than 60 Countries.
  • Uses Amazon-to-Buyer Sale Approach 
  • Multi level E-Commerce Company.
  • Operates 7 websites that support their business operation globally and offers 20 million items for sale.

     Amazon uses Multi-Tier Inventory model where information flow takes place from tier-1(Amazon Distribution centre) to tier-3(vendors, manufacturers etc) and physical flow takes place from Tier-3 to Tier-1.

How Amazon deals the supply chain with fluctuating demand? 
Amazon.com carries high-demand title in inventory, whereas it purchases low-demand titles from distributor in response to a customer orders.Managing inventory is one of the most important tasks of a retailing company. If there are not enough goods in stock some of the customers might be disappointed. Stocking too many will reduce the profit margins.

 So Amazon Inventory management aimed at following strategies:
  • Maintain inventory of millions of items.
  • Shipment within one week.
  • Have a clear understanding of customer’s delivery needs.
  • Coordinate with wholesale suppliers and independent producers to make available to customers both current and the soon to be released books.
  • Provide two day delivery on most orders.
  • Allow customers to query the status of their purchases and track their own shipments.

Amazon Inventory management- Technology usage
  • The Central Amazon Data warehouse is made up of 28 Hewelett Packard servers, with four CPUs per node, running Oracle 9i database software.
  • The architecture handles millions of back-end operations and third party seller queries.

Amazon has Strategic Alliances with many vendors for procuring various products.
  • Ashford.com( Online retailing of luxury and premium products )
  • Drugstore.com (Online retail and information source for health, beauty, wellness, personal care and pharmacy).
Implementation of Inventory Management:
  • Amazon aimed at ‘hassle-free operations’, customer satisfaction, time and cost efficiency.
  • Amazon managed to reduce the size of its inventories because of efficiently managing the warehouse.
  • Careful decision about ‘product’, ‘supplier’ & ‘distribution centre’ i.e. ‘which product to buy’, ‘from where’ & ‘which centre it would send its product to’.
  • Huge investment in infrastructure (revamped the layout of its warehouse) and technology (refining its software helped in demand forecasting)
  • Aimed at cutting down expenses via outsourcing some of the routine activities.
  • Partnered with other companies for shipping the inventory.
When it managed its own inventory, Amazon earned the reputation of providing superior customer service. Despite this it decided to outsource inventory management and adopted following stratagies:
  • Amazon decided to outsource its inventory management with a reason to earn more profits.
  • Keeping a stock of frequently purchased/ popular items.
  • Acted as a trans-shipment centre between distributors to the customer.
  • Main Distributors:      Ingram Micro – whole sale distributor, handled books & computer                                             Cell Star – handled cell phone sales
  • In August 2001, Amazon entered into an agreement with Ingram Micro Inc (largest wholesale dealer of electronic goods & SCM services) to provide logistics & order fulfilment services for desktops, laptops etc at computer store at Amazon.com. The aim was to maximize operating efficiencies, streamline supply chain logistics and reduce inventory costs.
  • In 2001, Amazon decided to include products of competing retailers and some used items on their website.
  • Customer could now verify the prices of Amazon’s product vis-à-vis those of other retailers.
  • Reduction in the cost of advertisement of there low pricing of products as customers can compare now.
  • In 2003, Amazon handled the orders for Borders, Target, Circuit City, Toys “R” Us.
  • Amazon only handled the net orders, the companies handled the inventory.
  • Services proved to be immensely profitable for Amazon.

The Article is written by B.kiran.He is currently studying PGP 1st year at Indian Institue of Management.