Running head: SUPPLY CHAIN ANALYSIS 1

Detailed Analysis of Supply Chain Management for Amazon

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Table of Contents

Detailed Analysis of Supply Chain Management for Amazon ...................................... 2

Introduction ......................................................................................................................... 2

Evolution of Amazon’s Supply Chain Structure ................................................................. 3

Push/Pull Strategy of Supply Chain Processes ............................................................... 3

Macro Processes in Amazon’s Supply Chain.................................................................. 4

Factors that Bolster Amazon’s Distribution Network ..................................................... 5

Innovation of Online E-commerce Marketplace............................................................. 6

Inventory Control Challenges Faced During the COVID19 Pandemic .............................. 7

Digital Transformation of Amazon ..................................................................................... 9

Conclusion .........................................................................................................................11

References ......................................................................................................................... 13
SUPPLY CHAIN ANALYSIS 3

Detailed Analysis of Supply Chain Management for Amazon

Introduction

Amazon ranks second among the top Fortune 500 companies of the world, with annual

revenue of around $470 billion, operating income of around $25 billion, and net income of

around $33 billion for the fiscal year 2021. Amazon is a conglomerate company dealing with

different types of businesses like e-commerce, cloud computing, A.I., digital streaming, live

streaming, retail, and many more. The founder of Amazon, Mr. Jeff Bezos, also ranked among

the top 10 richest people in the world, with a net worth of around $188 billion. Amazon started

its services as an online book marketplace in the year 1994. It became the only e-commerce

website in the year 1999 and started expanding its business by adding different products to its

online marketplace. Amazon is considered a market disruptor because it invests a large portion of

its earnings in research and development. Amazon is famous for getting a number one tag in any

business it enters. For instance, it became the largest online marketplace in the e-commerce

industy; then it became the largest cloud services provider by launching Amazon AWS; and now

its subsidiary company, Twitch has become the largest online live-streaming platform, famous

among the young P.C. and online game players. Amazon has had to face some obstacles during

the COVID19 pandemic situation related to inventory control and logistics, but it managed to

come out and earn remarkable revenues, even during the pandemic. This report discusses some

of the crucial aspects of the SCM (Supply Chain Management) of Amazon, including strategies

adopted during the COVID19 pandemic that makes it the largest online e-commerce

marketplace.
SUPPLY CHAIN ANALYSIS 4

Evolution of Amazon’s Supply Chain Structure

Amazon was started in a small garage in Bellevue, Washington, in the year 1994 by its

founder Jeff Bezos. During that time, the main business of Amazon was to sell new and old

books with the help of the internet. The flow of sales was very low at that time. Then, as the

demand for books on the Amazon e-commerce platform increases, the company has to redesign

its supply chain while introducing new SCM strategies. Amazon has introduced many new SCM

strategies to cope with the increasing online sales during the last 5 years. Amazon developed the

following SCM strategies to cope with the increasing demands: --

Push/Pull Strategy of Supply Chain Processes

All processes in a supply chain fall into two categories, i.e.; pull processes strategy,

where the order initiation is executed in response to a customer order; and push processes

strategy, where the order initiation is executed depending upon the forecasts of the customers

demands. Pull processes strategy is also famous with the name of 'reactive processes' because it

reacts to the customer demands. Similarly, push processes are famous as 'speculative processes'

because it speculates on the demand of customers. The push process is beneficial in a condition

where the demand is uncertain, while the pull process is beneficial when the demand is already

known. The push/pull analysis of the supply chain is crucial while taking strategic decisions for

the SCM (Chiles & Dau, 2005). The main goal, in this case, is to recognize an appropriate

push/pull boundary; so that the supply chain can match with the increase and decrease of

supply/demand. Amazon uses a combination of both push and pull process strategies. Amazon

has a large chain of warehouses that are placed and stored strategically, with proper forecasting

of customers' demand. Therefore, Amazon uses push strategy for the large number of products

that it stores in the warehouses. On the other hand, Amazon also has many third-party sellers
SUPPLY CHAIN ANALYSIS 5

who use its online e-commerce platform for selling their products. In this case, Amazon uses a

pull strategy while using the order-by-order fulfillment strategy.

Macro Processes in Amazon’s Supply Chain

Amazon gets millions of orders daily, and it needs a robust and flexible supply chain to

deliver the products within time. Therefore, it has divided its supply chain into 3 crucial macro

processes, i.e., CRM (Customer Relationship Management), ISCM (Internal Supply Chain

Management), and SRM (Supplier Relationship Management). CRM refers to all the processes

that target the interface between customers and firms. As the name suggests, it is beneficial for

maintaining proper relationships with the customers. CRM aims to generate leads and fulfill

customer demands while facilitating the tracking and placement of orders. It includes some

crucial processes like pricing, sales, marketing, call-center management, and order management.

ISCM refers to all the processes that are internal to the firm. The main purpose of ISCM is to

fulfill demand generated through the CRM process within the provided timeline and lowest

possible cost (Galuchi, Rosales, & Batalha, 2019). Amazon also use ISCM to plan storage

capacity, internal production, preparation of demand/supply plans, and initiation of actual orders.

Finally, SRM refers to all processes, focusing on the interface between suppliers and firms. The

main purpose of SRM is to manage and arrange supply sources for various services and goods.

SRM includes but is not limited to the selection and evaluation of suppliers, communication

regarding the order and products with suppliers, and negotiation of supply-related terms and

conditions. Amazon has integrated all these three macro processes of the supply chain for the

successful SCM.
SUPPLY CHAIN ANALYSIS 6

Factors that Bolster Amazon’s Distribution Network

Amazon not only emphasizes delivering its products within the given timeline, but it also

strives to save lots of money on warehouse and transportation. It emphasizes different factors of

its SCM like response time, product availability, product variety, returnability, visibility of

orders, and customer experience. Response time refers to the time required to deliver the product

to the customer's doorsteps. Product variety refers to the variety of products available in the

online e-commerce marketplace offered by the distribution network. Product availability refers to

the probability of getting the product ordered within the nearby warehouse. Customer experience

refers to the ease with which customers can place and receive orders, with the quality up to

which this experience is customized. Amazon customers are loyal and willing to wait longer than

those who drive to nearby Barns & Noble bookstores (Qin & Liu, 2022). In return, customers get

home delivery, with a much larger variety of books and the flexibility to return the book within a

few days if the customer doesn't like it or has some defects. On the other hand, Barnes & Noble

also provides one-day delivery facilities to its customers; therefore, it has to maintain hundreds

of stores to provide such facilities. Earlier, Amazon has not such obligations because it took a

few days to deliver the books or other products, and therefore it only had to maintain not more

than 20 warehouses in the same locations. Nowadays, when Amazon has many warehouses

throughout the USA, it has also started two-day deliveries.

Amazon also manages its inbound and outbound transportation costs effectively due to its

own fleet of trucks, planes, E-vehicles, and many other loading vehicles. Inbound transportation

costs refer to the costs incurred while bringing raw materials inside the warehouses. Outbound

transportation costs refer to the costs of sending raw materials out of the warehouses. Amazon

receives full loads of shipments of books from the inbound side but ships only a small amount
SUPPLY CHAIN ANALYSIS 7

with only a few books per customer from the outbound side. Amazon emphasizes increasing the

number of warehouses and decreasing the average outbound distance for the customers while

making outbound transportation distances fairly smaller; so that the total distance traveled by the

products decreases. This way, Amazon maintains lower transportation costs, with less time to

deliver the products to the customers (Trivedi & Madan, 2018).

Innovation of Online E-commerce Marketplace

Amazon is considered the pioneer of starting online e-commerce marketplace for books,

and later other products. Only very few websites like eBay were available when Amazon started

its e-commerce marketplace. Amazon has made many new innovations to cope with the

increasing sales of its online e-commerce business. It used and exploited many new opportunities

to increase its business by offering a selection of millions of books. Customers can search for

hard-to-find books on Amazon, and some books having special interests. People nowadays have

no time to visit a bookstore and wander through bookshelves while looking for their favorite

books. They can easily search for their favorite books on Amazon. Amazon's website also

increased the sales of books through its cookies features. Whenever someone signs up on

Amazon's website, its cookies, available in the browser, save useful information about the

customer's favorite books, books he bought, etc. Whenever the customers visit again, books that

might interest that customer are shown automatically on the website. These features increased

the sales of Amazon by many folds (Van Hoek, 2001).

Amazon also allows customers to sell their old books on its website. It earns

commissions on the sales of those old books. This way, Amazon keeps earning money from the

same books in circulation. It allows the customers to order books online, anytime, which are

delivered right to their doorsteps. The customers don't have to travel miles and spend hours
SUPPLY CHAIN ANALYSIS 8

wandering bookshelves to get their favorite books. Amazon later used all these features for other

items available on the e-commerce platform. It allowed the company attract more customers who

were already buying online books from the Amazon website. It also increased customer loyalty

because customers love to get their products at home and are willing to wait for a few days'

delivery. Amazon made its business more flexible by providing ebooks of their already famous

books on the website. Customers started loving the website more because now they can easily

download the same book within a few seconds and read it on Amazon Kindle or other devices.

Many people value time, and these features came in handy for Amazon. Amazon's business

increased by many folds after the introduction of ebooks on its website, because it increased the

availability of books and flexibility to buy are read those books to customers (Min, Zacharia, &

Smith, 2019).

Inventory Control Challenges Faced During the COVID19 Pandemic

The COVID19 pandemic in 2020 had been devastating, both in terms of casualties and

economic conditions. Many businesses like hospitality, restaurants, retail stores, etc., have to

incur heavy losses due to closing the business during the Coronavirus lockdown. However, the

business of Amazon didn't affect due to the pandemic; in fact, Amazon recorded heavy sales

during the pandemic, as reflected in the last 5 years' sales of the company below: --
SUPPLY CHAIN ANALYSIS 9

Figure 1. Amazon's Sales for the Last 5 Years (2017-21)

Amazon became a life-saver during the Coronavirus pandemic, with its fleet of hundreds

of automated vehicles and A.I. based ordering and delivery system. It became a default retailer

for most people when the retail shops were closed due to the lockdown. Amazon had to deal with

loads of online orders. Most people were ordering necessary items like sanitizers, masks, soaps,

and disinfectants in bulk; to remain safe from the virus and stay inside their homes. Amazon has

to spend billions of dollars to follow the Coronavirus safety guidelines. It spend this money on

providing all necessary safety gears to the workers (Ivanov, 2021). When the whole USA had

been facing a major decline in employment rates, Amazon was the only company hiring more

employees to match with the increasing sales. It employed around 175,000 more employees as

delivery and warehouse workers between March and April 2020 to match the increasing

customer orders. Amazon hired around 36,400 more employees within 3 months during the

pandemic breakdown, bringing its workforce strength to around 876,000, increasing around 34%

employment within a year.

The most affected stakeholders for Amazon during the Coronavirus pandemic were the

small sellers, who were using its website to provide their own products. The shipments of such

sellers were stuck in the cargo ships that were supposed to come to the country, but were halted

due to the pandemic. These sellers have to face the automatic cancellation of shipments if they

exceed the permissible inventory limit. This often happens when the automatic system of

Amazon allows the seller to create shipments in the first place. For instance, if the seller creates a

shipment of around 99 units and then another 110 units, then the second shipment will

automatically get canceled. It happened many times during the pandemic, even when the goods

were already on their way to Amazon. This created a worst-case scenario for the sellers, and their

inventory was marked as unaccounted, because the goods were already sent in but did not exist

in Amazon's system (Hobbs, 2020). A detailed analysis of Amazon’s automatic inventory system

found that the discrepancies created by the system accounted for around 2 to 4 percent of their

Amazon inventory. So, it can be said that while Amazon was busy earning money from its own

warehouses, it didn't bother about the small sellers and didn't provide them any facilities during

the Coronavirus pandemic. Although it may not affect the business of such a giant e-commerce

company, it decreased customer and seller loyalty.

Digital Transformation of Amazon

Amazon is a highly innovative organization that spends a large part of its earnings on

research and development. The introduction of some new technologies like big data, IoT

(Internet of Things), A.I., and M-commerce can further help Amazon to reach new heights of

revenue and profit maximization. Amazon is already using some technologies like A.I. for its

order fulfillment. When any customer places an order on the website of Amazon, the website

directly connects with the order sourcing engine of the company; to determine which warehouse
SUPPLY CHAIN ANALYSIS 11

could be suitable for shipping that item, considering the time and cost required. These decisions

occur in real-time, with the help of A.I.; so that the transportation costs and delivery time can be

minimized (Ross, Weston, & Stephen, 2010).

Amazon is now emphasizing on its smartphone application so that the new M-commerce

boom can be considered. Almost 93% of people in today's world consider buying any product

from their smartphones. They spend a large part of their day-to-day life on the internet on

smartphones. There was a time when most people only had computers to access the internet, but

now the time has changed, and the introduction of new technologies like 4G and 5G has changed

the internet usage pattern. Now, more people love to use their smartphones to access the internet

because of high-speed and ease of availability, and flexibility. Smartphones have made the

conditions more plausible for e-commerce giants like Amazon (Moore & Tambini, 2018). Now,

Amazon can easily monitor the locations of the customers through their smartphone application

while suggesting to them the best items that they could buy on their smartphones, available in

their nearby warehouses. The buying behavior of customers has changed, and now they are not

only willing to buy daily-need items from smartphones but also luxury and electronic items.

Amazon has joined the bandwagon of other A.I.-based smartphone applications like Google and

Cortana by launching its own A.I.-based smartphone assistance called 'Alexa.' Alexa is an A.I.

engine designed by Amazon that could answer any customer queries. These queries may contain

their favorite products, products available on Amazon, and many more. The A.I. engine of Alexa

records every information and data of customers, including the products they bought. This helps

the company to provide the best suggestions when customers ask Alexa queries related to

products on Amazon. Alexa can be integrated with the IoT devices like TVs, fridges, and other

household electronic items to provide a dream home to the customers. Alexa can automatically
SUPPLY CHAIN ANALYSIS 12

order some daily need items like groceries and cosmetic items when unavailable. Amazon is

looking forward to enhancing the capabilities of Alexa; so that it can be connected to the IoT

devices in the home (Wankhede, Wukkadada, & Nadar, 2018).

Another new technology, big data, is helping increase the sales of Amazon by many

folds. The internet is vast, and there are around total of 4.66 billion internet users in the world,

with around 307 million users alone in the USA. These 4.66 billion users create around 2.5

quintillion bytes of data, daily on different social networking channels, Web 2.0 websites, blogs,

and other sources. Earlier, it was nearly impossible through traditional data mining techniques; to

analyze such a large amount of data daily. However, with the introduction of big data, this dream

is made possible. Amazon is a giant e-commerce company, providing a wide range of products.

Most customers of Amazon would have been uploading content related to these products on their

social networking accounts and other sources. If Amazon analyzes this data, which is freely

accessible, with the help of big data, then it would help increase the sales of Amazon by many

folds. The different patterns of buying behavior and comments about the products can provide

better insights to Amazon, which could also help in making the products better. Big data is a

technology that can allow such features because it can process large data sets containing millions

of tables in the databases. The traditional database analysis cannot provide such flexibility.

Amazon is looking forward to creating new algorithms; to process databases with the help of big

data.

Conclusion

This report discusses the various aspect of Amazon's supply chain and related concepts.

The first few paragraphs discuss the various SCM strategies that Amazon has developed and

implemented in its supply chain; to increase revenues and profits. Some of these strategies
SUPPLY CHAIN ANALYSIS 13

include push/pull strategy, macro processes in Amazon’s supply chain, bolstering the distribution

network, and innovation of the e-commerce marketplace. Then, a detailed discussion is carried

out on how Amazon controlled its inventory during the COVID19 pandemic. After that, new

technologies like big data, A.I., and IoT are discussed; together with their benefits for Amazon. It

can be said in conclusive remarks that Amazon has become a part of life for many people around

the world. The 2-day delivery features, Amazon prime, and replacement warranty have made this

e-commerce a favorite choice among most customers worldwide.

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