Effective supply chain management is the backbone of every successful e-commerce business. It refers to all the interlinked processes that are required to manufacture and deliver products to consumers. It involves the development of an integrated system to manage procurement, coordination and scheduling. Furthermore, effective supply chain management requires that all procurement, production, deliveries and inventories be controlled through logistics and information processing tools. Supplying the right products to the correct location promptly improves customer service and reduce e-commerce costs in the form of refunds and returns (Xiao & Zhang 2000).
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In essence, an integrated supply chain management system maintains effective control of all processes. Ideally, this control should begin from the point where raw materials are removed from the earth to the disposal of waste products and the replacement of natural resources in the earth (Xiao & Zhang 2000). The business world is evolving at a greater speed than ever before. Supply chain management practices must be flexible enough to adapt to changes if businesses are to achieve any ambitious strategic objectives (Xiao & Zhang 2000). This paper aims to provide a case study analysis of supply chain management practices at Amazon.com by identifying the company’s successes and challenges. Recommendations in line with supply chain management best practices will also be provided.
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Amazon.com Background
Amazon’s supply chain begins in the company’s numerous fulfilment centers and is informed by the company’s strategy to control the movement of goods across the entire supply chain and increase value to the consumer. In fulfilment centers, products are stored, picked, and packed for shipping to consumers (Kargar, 2004). In 2006, Amazon created Fulfilment by Amazon (FBA). This service allowed sellers on Amazon to send their inventory for storage in fulfilment centers and have Amazon manage shipping, customer service and returns for third party retailers. This meant that Amazon would have additional control over the supply chain and errors resulting from poor inventory management and shipping mishaps by vendors would be minimized. This led to the development of “Dragon Boat”, an initiative aimed at establishing a global delivery network that could facilitate the movement of goods from China and India to The US and UK.
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However, the volume of Amazon orders was so enormous that the company could no longer rely solely on logistics provided by UPS and other carriers, especially during the holiday season. In response to this, Amazon developed a supply chain that positioned the company as a global provider of logistics services. A part of this innovative strategy, the company, purchased trucks, airplanes, drones and ships which allowed it to bypass third-party logistics providers and decrease costs significantly. Strategic considerations by Amazon today involve alteration of the supply chain management system to facilitate the company’s expansion of into consumer shipping market through shipping with Amazon.
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Analysis
Strengths: Amazon has over 300 million customers around the world and successfully operates bookstores, grocery stores, and provides premium digital content to consumers around the world. Since its foundation in 1994, it has grown from an online bookstore to a one-stop retailer of everything from food to furniture and entertainment. The company’ strategy to control the entire shipment process has increased value for consumers by allowing easy placement of orders and uninterrupted flow of logistics information. Amazon also expands supply chain hardware regularly to improve its fulfilment capabilities as evidenced by the drone-based delivery system offered by Amazon Prime Air.
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Amazon’s sophisticated supply management software seamlessly manages inbound shipping, outbound shipping, demand and supply forecast as well as inventory planning. This synergy ensures that consumer objectives of price, selection, convenience and availability are met. Transportation in e-commerce has become especially challenging due to shorter lead times, demand for smaller delivery windows, rising freight costs and globalization. Amazon has managed to rise above all these challenges by developing the Amazon global supply chain (Sohel et al. 2014). This success has also positioned the company as a leading provider of logistics services that could rival dominant carriers such as UPS and FedEx.
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Weaknesses: The massive difference between what the company charges its consumers for shipping and the costs it actually incurs have contributed to significant losses. For instance, in 2016 revenue from shipping was $8.976 billion while costs of shipping exceeded that amount by $7.191 billion. Furthermore, as more consumers become prime members, and shipping volumes increase, shipping costs are expected to increase. Strategic considerations in supply chain management should, therefore, aim to reduce these costs if any expansion into shipping is to be successful.
Threats: Collaboration between Amazon and its suppliers seems to be a threat to the success of an expanded logistics network. As shipping volumes increase and shipping costs go up, Amazon faces the daunting challenge of negotiating for better prices with its suppliers. Failure to achieve this, Amazon is likely to continue making losses in shipping, which might affect the health of the company. Moreover, giant physical distribution retailers such as Walmart are also trying to capture a share in the e-commerce market space (Mendes et al. 2014). Walmart’s also possesses sophisticated supply chain management systems that may make it a worthy rival to Amazon in the future.
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Recommendations
Opportunities: Amazon could optimize its delivery processes by investing in new technologies to expand its logistics capabilities. Amazon could also broaden its Amazon Flex program. The cheaper transportation could offset shipping personnel costs that result from leveraging dedicated local carriers such as FedEx and UPS in existing delivery routes. The incorporation of a supply chain strategy focusing on minimizing costs and maximizing profits could assist in the reduction of shipping costs (Tummala & Schoenherr 2004). While it will be challenging to navigate a cost-driven strategy together with the present value-driven supply chain strategy, its adoption is essential to ensure that Amazon’s expansion into logistics becomes a success.
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Amazon has invested considerably in innovation, which often results in impressive advances in e-commerce technology and reduction of human interference in supply chain management. However, the company’s logistic framework is not sustainable and may have contributed to the significant costs of shipping the company experiences. The company could consider investing in cheaper renewable sources of energy which could offset transportation costs. Moreover, green retailing will reduce the overall environmental costs of its planned expansion into shipping.
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Conclusion
An adequate supply chain strategy is integral to every retail process. The strategy must be in line with the company’s strategic objectives but remain flexible enough to respond to any unanticipated changes in the business environment. Amazon.com is an example of a company that has continuously provided innovative solutions to some of the challenges facing the ecommerce business today. These achievements have created a solid foundation for the company’s plans to expand into shipping. However, current supply chain strategies have contributed to significant losses in shipping for the company. It is therefore essential that cost-driven strategic consideration is incorporated into the company’s supply chain framework.
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