St. Xavier’s College, Kolkata Logistics & Supply Chain Management 2009-2010
A CASE STUDY ON
Presented by
Nirmalya Fadikar Roll no. – 15 1|Page
Contents
1. 2. 3. 4. 5. 6. 7. 8. 9. 10. 11. 12. 13. 14. 15. 16. 17.
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Case Abstract. Introduction. Amazon At A Glance. History. Amazon.com’s Situation Analysis. Amazon.com's Inventory Management. Optimizing The Customer Fulfillment Network. Amazon.com In Europe. SWOT Analysis. Industrial Analysis. Future Challenges. Future Of Amazon.com . Future Plan Of The Company. Acquisitions And Spin Offs. Recommendations. Conclusion. Bibliography.
Abstract: Amazon.com, the world’s leading online retailer had survived for nine long years without annual profits because it was guided by a long-term vision that put into place strategies for research, and the development of technology infrastructure. The company finally turned the corner by posting profits for the first time in 2003. The case provides an overview of Amazon.com's inventory management. Jeffrey Preston Bezos the founder of Amazon.com launched the company when he realized that Internet provided immense scope for online trading. Although the site was originally launched as an online bookstore it eventually offered several other products to keep abreast of the competition. The case takes a look at the different products and features offered on the site. The case also discusses Amazon's value propositions and its criteria for choosing strategic partners. It then elaborates on the strategies adopted by Amazon for managing its inventory. With its history of not posting profits, and having turned the corner recently, the big question was whether Amazon would survive the onslaught of major competitors like E-bay, and continue to retain the No.1 position while at the same time realize reasonable levels of earnings to satisfy shareholders. This was the dilemma that founder Jeff Bezos and his team had to address.
It also explains Amazon's decision to outsource inventory management to distributors. The case takes a look at Amazon's decision to sell the products of competing retailers on its site. It concludes with a brief note on the future challenges in Amazon's warehouse management.
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Issues: » Examine the various facilities offered and the technologies adopted by online
shopping sites » Understand the value propositions adopted by e-tailing ventures and their importance in e-commerce activities
Pedagogical Objectives: •
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To study Amazon’s expansion and growth despite posting losses for many years Make a SWOT analysis of Amazon and evaluate its strategy for the future.
Introduction ''The logistics of distribution are the iceberg below the waterline of online bookselling,'' Jeff Bezos, founder and chief executive of Amazon.com. The Internet has changed the way that we perceive business and the way that we as consumers may make our purchases. In fact, the online consumer today knows the convenience of purchasing a book online and having it delivered to their door in a matter of a few days. There is no more need to fight crowds, find a parking spot, and deal with traffic. The high street and mail order systems still have a place in the mix of purchase routes; however it is no longer the only method of making purchases. The Internet revolution has seen a massive increase in the long distance purchases made by consumers, as geographical barriers are no longer as important as they were. 4|Page
The lack of geographical importance has influenced the strategy of Internet companies. One of the first companies that took advantage of this was the online bookshop Amazon.com. The case provides an overview of Amazon.com's inventory management. Jeffrey Preston Bezos the founder of Amazon.com launched the company when he realized that Internet provided immense scope for online trading. Although the site was originally launched as an online bookstore it eventually offered several other products to keep abreast of the competition. The case takes a look at the different products and features offered on the site. The case also discusses Amazon's value propositions and its criteria for choosing strategic partners. It then elaborates on the strategies adopted by Amazon for managing its inventory. It also explains Amazon's decision to outsource inventory management to distributors. The case takes a look at Amazon's decision to sell the products of competing retailers on its site. It concludes with a brief note on the future challenges in Amazon's warehouse management. The continued success of Amazon.com can be attributed to its diversity in terms of geography as well as its diverse selection of merchandise, ranging from media such as books, CD's, and videos to online auctions and house wares. Amazon.com currently operates four international websites in France, Britain, Germany and Japan giving it global Internet exposure. One of several factors that have proven Amazon.com successful is that it has the first mover advantage. Not only was it first in its industry, it has also been successfully marketed. But as with any Internet site, the actual presentation and processing are seen as a result of the underlying technology and the way the company uses it.
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Amazon.com At A Glance : Amazon.com, Inc.
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Type
Public (NASDAQ: AMZN)
Founded
1994
Founder
Jeffrey P. Bezos
Headquarters
Seattle, Washington
Area served
Worldwide
Key people
Jeffrey P. Bezos Chairman, CEO, & President
Industry
Retail
Products
Amazon.com A9.com Alexa Internet IMDb Kindle Amazon Web Services dpreview.com Javari.co.uk
Revenue
▲ US$ 24.509 billion (2009)
Operating income
▲ US$ 1.129 billion (2009)
Net income
▲ US$ 902 million (2009)
Employees
20,700 (2009)
Website
Amazon.com
Alexa rank
20
Type of site
e-commerce
Advertising
web banners and videos
Available in
English, Japanese, German, French, & Chinese
History Amazon has grown admirably from its initial beginnings as a small online bookseller to a giant superstore company. During this process of rapid growth, it has incurred significant losses and it becomes more expose to a greater competition and threats. Cutting costs and achieving profitability remain Amazon’s greatest challenges. However, there are key factors such as a strong brand, providing customers with outstanding value and a superior shopping experience, massive sales volume and realizing economies of scale which contribute a lot to the success of this company Founded as Cadabra.com by Jeff Bezos in 1994, Amazon.com was launched in 1995. It is an American electronic commerce company based in Seattle, Washington. It is one of the first major companies to sell goods over the Internet and one of the most recognized and respected online businesses. It has become the number one online retailer by steadily building its reputation and brand, beginning its operation in July of 1995. Moreover, it has expanded from its existing business of selling books to selling a wide variety of products such as DVDs, music CDs, computer software, video games, electronics, apparel, furniture, food and more (Wikipedia 2006). Similarly, Amazon aside from its domestically shared market also set up four other separate online stores in the United Kingdom, France and Japan, thus shipping globally on selected products.
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Amazon.com Situation Analysis Jeffrey Bezos started Amazon.com in 1994, after recognizing that Internet usage was growing at a rate of 2,300 percent a year. Operating from a 400square foot office in Seattle, Jeffrey launched Amazon.com on the Internet in July 1995. Amazon.com mission is to use the Internet to transform book buying into the fastest, easiest, and most enjoyable shopping experience possible. By the end of 1996, his firm was one of the most successful Web retailers, with revenues reaching $15.6 million. Almost overnight Amzon.com quickly became the world’s largest e-tail bookstore in the world. Amazon has continued to expand its customer base, and sales revenues have increased every year. The firm’s revenues increased from $15.7 million in 1996 to $2.76 billion in 2000 (Table 1). Today, Amazon.com is the place to find and discover anything you want to buy online. Amazon offers the Earth’s Biggest Selection of products to 29 million people in more than 160 countries across the world making them the leading online shopping site accessed via the World Wide Web. Over past several years Amazon.com has grown and developed very rapidly. The key core processes that have lead to Amazon’s success are convenience, selection, service, and price. Convenience can best be described when Bill Gates stated that, “I buy all my books at Amazon.com because I’m busy and it’s convenient. They have a big selection , and they’ve been reliable.” With over 106 million adults purchasing books every quarter, Amazon has capitalized on the convenience of on-line ordering. The next key process for Amazon is selection. Amazon is able to offer the world’s largest selection because they are an etailer with virtual directories. Amazon only keeps recent publications in stock for quick order fill, but directly orders any other requested books from the publisher. This business practice allows Amazon to have low warehouse cost, and offer the largest selection of books at the same time. The third key process for Amazon is service. Amazon offers customers everything from email notifications when their orders are filled, to chat rooms so customers can discuss and recommend books. Amazon also allows customers to search for books with similar titles or subject matters.
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Currently about 63% of Amazon’s business comes from repeat customers. The last key process for Amazon is price. At Amazon.com, almost all books are discounted. Bestsellers are sold at 30-40% discount and all other books are at a 10% discount. Amazon is able to offer such discounts because they have a lower cost structure than physical stores, and they turn their inventory over 150 times a year. All four key core processes have lead to the success that Amazon has experienced in its young six years of operation. People would visit amazon.com whenever they wanted to buy a book because it would be the most likely store, (physical or online) to have a particular title. After becoming satisfied customers, people would return to amazon.com to buy more books and would eventually stop looking elsewhere. In 1998, amazon.com began selling music CD’s and videotapes. The websites software can track a customers purchases and recommend similar book, CD, or video titles. In fact, the site can recommend related products in a variety of product categories now sold on amazon.com. these product categories include consumer electronics, computers, toys, clothing, art, tools, hardware software, house wares, furniture, and car parts. Amazon.com now generates significant revenue by supplying other sellers of consumer goods with tae technology to sell those goods online. Amazon.com opened its virtual doors in July 1995 with a mission to use the Internet to transform book buying into the fastest, easiest and most enjoyable shopping experience possible. Today, Amazon.com seeks to be the world’s most customer-centric company, where millions of customers in more than 220 countries can find and discover anything they might want to buy online. The Operations Division at Amazon.com is composed of fulfillment and customer service centers. It has six fulfillment centers nationwide totaling more than 3,000,000 square feet and four international centers totaling more than 1,200,000 square feet. Amazon.com built its fulfillment infrastructure to meet projected long-term growth, provide customers with fast, reliable shipping, and manage the amount of merchandise kept on hand for shipment to customers. Amazon.com also has three customer service centers nationwide totaling more than 70,000 square feet and three international centers totaling 9|Page
more than 22,000 square feet. Amazon.com designed its customer service centers to enable customers worldwide to reach a customer service representative 24 hours a day, seven days a week.
Amazon.com's Inventory Management Value Proposition Amazon built a four-fold value proposition that indicated its priorities in the establishment of the online venture. The four dimensions it focused on were convenience, selection, price, and customer service. The online venture was convenient as it was open for business all the time. The site was so designed as to keep the download time at a minimum. The site also offered its users various facilities such as reviews, e-mail notifications, reference from a previous search and product recommendations. It also provided the users with a wide range of product options, which they could select from. Amazon had an inventory consisting of millions of items which was roughly about 100 times that of a typical physical store. Strategic Alliances In order to expand in a rapid and a cost-effective manner, Amazon decided to partner with other companies. The main criterion used by Amazon for selecting a partner was the customer service provided by the company. During 1998-2000, Amazon acquired ownership stakes ranging from 17 to 49 percent in various online retailers- Greenlight.com, Living.com, Drugstore.com, HomeGrocer.com, Pets.com, Ashford.com, Gear.com, and Della.com. Amazon spent an estimated $160 million on acquiring stakes in these companies.
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Inventory Management When Bezos started his venture, he aimed at hassle-free operations. He wanted to offer his customers a wide selection of books, but did not want to spend time and money on opening stores and warehouses and in dealing with the inventory. He however realized that the only way to satisfy customers and at the same timer make sure that Amazon enjoyed the benefits of time and cost efficiency was to maintain its own warehouse. Building warehouses and operating them was a very tough decision for Bezos. Each warehouse cost him around $50 million and in order to get the money, Amazon issued $2 billion as bonds. In 1999, Amazon added six warehouses in Fernley, Nevada; Coffeyville, Kansas; Campbellsville, Kentucky; Lexington, Kentucky; McDonough, Georgia; and Grand Forks, North Dakota. On the whole, Amazon had ten warehouses. Most of these warehouses were set up in states with little or no sales tax. Innovative Inventory Outsourcing In early 2001, Amazon decided to outsource its inventory management though it knew that it was a huge risk. When Amazon managed its own inventory, it had earned the reputation of providing superior customer service, which was its biggest strength. Now, the company wanted to concentrate on its main activities and outsource inventory management in order to earn more profits. However, Amazon was apprehensive that this move would damage the hard-earned reputation of the company. Nevertheless, it decided to go ahead with the decision to outsource its inventory. Amazon did not stock every item offered on its site. It stocked only those items that were popular and frequently purchased. If a book that was not too popular was ordered, Amazon requested that item from its distributor who then shipped it to the company. In the company, the items were unpacked and then shipped to the respective customers. So, Amazon basically acted as a trans-shipment centre and ensured 11 | P a g e
that the entire process of shipping from the distributor to the customer was done very efficiently. The main distributors of Amazon included Ingram Micro and Cell Star handled cell phone sales while Ingram Micro, a whole sale distributor, handled computers and books. Amazon had external distributors for most of its products except the bestsellers. Further Amazon entered into contract with Ingram Micro Inc. for distribution of desktops, laptops and other computer accessories. Drop shipment model was very successful so Amazon decided to extend this model to all categories too. The major disadvantage of this model was if the customers ordered only a single item at a time the drop shipment model was extremely helpful, but if a single ordered had several items such as a book stocked by Ingram and a game stocked by Amazon, then the following procedure was adopted: Ingram sent book to Amazon, Amazon added the game then forwarded the whole box to the customer. Since almost 35 percent of orders placed at Amazon were of different categories the drop shipment model was not very effective. In 2001, Bezos came up with the idea of including the products of competing retailers and some used items on their website. Amazon earned almost the same profit selling on commission as it earned on retail. An advantage of this feature was customers could now verify the prices of Amazon’s products vis a vis those of other retailers. So the company did not need to advertise its low price. By 2003Amazon, s warehouse could handle thrice the volume they used to handle in 1999, while the cost of operating them decreased from 20 percent of Amazons revenue to less than 10 percent. In 2003 Amazon decided to slash down its shipping charges. Customers who visited the site were greeted with a pop up window announcing the company’s decision to provide free shipping for those who bought two or more items in any combination from the sites books, music, or video stores. The company also decided to reduce shipping charges.
Though Amazon spent millions of rupees in marketing in order to get new 12 | P a g e
customers it managed to leverage the amount spent because of its lower capital costs. Generally physical bookstores having a wide range of books needed to stock about 160 days worth of inventory. The distributors and publishers had to be paid 45-90 days after the books were bought from them, in this way Amazon used to get a month’s of interest free money.
Optimizing the Customer Fulfillment Network Mr. Jeff Wilke the Vice President of Operations successfully streamlined US Distribution Centers’ Processes by the followings1. Implement and use of Six Sigma DMAIC ( Define, Measure, Analyze, Improve, and Control ) review a tool to reduce variation and defects. In 2001, this approach was used to improve inventory record accuracy. This was just one in a series of improvements that helped reduce inventory-record accuracy errors by 50 percent in a year’s time. 2. Wilke encouraged DC staff to simulate holiday season conditions.
3. In addition, in 2001, Wilke made arrangements for additional storage capacity to be added to the system during the holiday season. To improve inventory management, Wilke’s team – a. Refined the software used to forecast customer demand by improving its ability to anticipate seasonal and regional demands, thus reducing the risk of buying too much or too little merchandise. b. Established buying rules to better allocate volumes among wholesalers and direct vendors. c. Integrated its suppliers’ management systems with it own inventory, warehouse, and transportation systems. d. Implemented a set of “cascading “ buying rules that determined which supplier offered the best price an delivery options for each item Amazon ordered. 13 | P a g e
Amazon.Com In Europe 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 largest markets for books in Europe. To accelerate its Europian entry, in April 1998 Amazon acquired a leading online book retailer in each country : Bookpages.co.uk in the U.K and Telebuch.de in Germany. Despite of huge competition Amazon quickly became the leading online bookseller in U.K and Germany. In September 2000, Amazon entered in France and built its own site from scratch. Amazon’s Challenges In Europe : Globalization And Localization According to Diego Piacent , Senior Vice President and G.M, Amazon.com Europe : “ The key to achieving international e-commerce success lies in understanding one simple fact : customers every-where want better selection, more convenience, and better service. After recognizing this fact, online retailers will soon understand that the major challenge to international expansion I the ability to bring these universal benefits to customers around the world while honoring local customs.” First Amazon started maintaining dedicated Web sites for each country. In addition, Amazon built dedicated 24- hours –a –day customer centers with native – language – speaking customer service representatives who adequately understood the needs of European shoppers. In order to comply with the local laws while keeping a competitive offering, Amazon introduced free shipping in 2001. A third critical area was payment options. Amazon chose to offer locally preferred alternatives, such as checks for French customers and postal orders for German customers. Amazon used EDI to communicate with its US suppliers, which allowed for fast confirmation at the item level of purchase orders sent by Amazon. 14 | P a g e
Finally they relied on national postal service carriers in Europe to deliver its domestic as well as international orders which was offering excellent coverage .
SWOT Analysis Analysis Strengths 1. Customer Relationship Management (CRM) and Information Technology (IT) support Amazon's business strategy. The company carefully records data on customer buyer behavior. This enables them to offer to individual specific items, or bundles of items, based upon preferences demonstrated through purchases or items visited. 2. Amazon is a huge global brand. It is recognizable for two main reasons. It was one of the original dotcoms, and over the last decade it has developed a customer base of around 30 million people. It was an early exploiter of online technologies for e-commerce, which made it one of the first online retailers. It has built on nits early successes with books, and now has product categories that include electronics, toys and games, DIY and more. 3. Product diversification from books and CD/DVD markets has provided additional customers in other product areas and indicates strategic movement to grow the business through new customer bases. 4. Strong distribution channel. 5. Leader in use of technology to delivery targeted content. 6. Negative cash cycle. 7. Has moved away form being a low price supplier of books toward a focus on delivering outstanding service at a price.
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Weakness 1. Amazon are dependent on external delivery companies to carry out the delivery function of the interface with the customer which can lead to uncontrollable service level problems and potential cost increases in line with the wider transportation industry such as rising fuel and increased vehicle taxation. If these costs are not absorbed they are passed back to the consumer both with potential negative effects. 2. As Amazon adds new categories to its business, it risks damaging its brand. Amazon is the number one retailer for books; diversification may lead to losses and decrease in brand value. 3. The company may at some point need to reconsider its strategy of offering free shipping to customers. It is a fair strategy since one could visit a more local retailer, and pay no costs. However the shipping costs could be up to $500m, and such a high figure would undoubtedly erode profits. 4. No region based sites.
Opportunities 1. Amazon.com brand has been diluted by entering a wide number of product segments. 2. There are also opportunities for Amazon to build collaborations with the public sector. For example the company announced a deal with the British Library, London, in 2004. The benefit is that customer’s can search for rare or antique books. The library's catalogue of published works is now on the Amazon website, meaning it has details of more than 2.5m books on the site. 3. Growth of internet users in the next five years, predominantly in the international market. 4. E-commerce expansion in Asia and the Pacific.
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Threats 1. Increasing transportation costs will directly impact delivery charges to customers - as these costs are not absorbed into the direct business but paid to a third party it is assumed these will be directly passed onto the consumer which can have a negative impact to brand perception from the consumer viewpoint. 2. Competition will increase due to the low barriers to entry in the market: offline companies are coming online. 3. Low economic performance of world economy. 4. The products that Amazon sells tend to be bought as gifts, especially at Christmas. This means that there is an element of seasonality to the business. However, by trading in overseas markets in different cultures such seasonality may not be enduring. 5. Hacker’s problem.
Industrial Analysis Analysis Five forces model which was proposed by Michael Porter, provides a robust and time-tested framework for analyzing any industry, reflected in the strength of the five forces (industry competitors, potential entrants, and threat of substitutes, power of buyers and power of suppliers). The collective strength of the five forces determines the ultimate profit potential in an industry.
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Threat of substitutes
Supplier’s power
Buyer’s power Inter firm rivalry
Barriers to entry
Michael Porter’s Porter’s five forces model
Barriers to Entry Threat of entry is considered medium to low. Being the first mover in online bookstore industry, Amazon would be the best example of what amateur firms would be faced. The factor that separates Amazon from the inexperienced firms is its 8-year capital intensive and continuous upgrade of services through acquisitions and alliances, nurturing the commission-based associate websites, and endless technology development and innovation. Imitating such would also require relationship building which is difficult when relationship is already established by the first mover, or in the case of untapped technology partners, 18 | P a g e
requires significant capital and strategic plan proposals to move the other party. In both cases, known industry players would be the benchmark requiring the deal a considerable amount of time and money impractical for the new player. The book retail industry has very high barriers to entry. The capital requirements necessary to establish a bricks and mortar bookstore would be virtually impossible for a newcomer. Consumers know the big name players. High product awareness and large marketing budgets make it very difficult for new entrants to enter into this industry.
Inter firm Rivalry Competitive rivalry is medium to high. There are numerous industry players; however, they can be considered niche (eBay) and overly diversified (Yahoo!) competitors of a diversified industry firm like Amazon. As a result, a head-tohead competition exists against Barneys (who is backed by retail stores) and Price line (who has the highest employee per revenue contribution in the industry) created strategic group together with Amazon. Adding the flame of intensified rivalry is the high fixed and storage costs of the industry since firms needed to stock inventory in their warehouses for ready delivery of an order. Competitors also have little product differentiation, except for auctioned product maybe and other exclusive rights of players to sell supplier’s products, making customer switching costs low. Looking at the entire book retail industry, competition is quite diverse. A consumer could purchase books from a bricks and mortar store, which could be a large chain, a non-book retail store, or a small independent store. A consumer could also choose to buy their books on-line. With the onset of Internet bookstores, price is even more of a factor in consumer book purchasing.
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Buyer Power Power Buyer power is higher when buyers have more choices. Businesses are forced to add value to their products and services to get loyalty. Many loyalty programs include excellent services that customers demand on-line. Customers want to solve their problems and many times they are more successful on-line than on-phone. Also, we see internet savvy businesses springing up offering more valuable goods and services at lower costs. Now with the advent of eBay, many people are assuming roles as drop shippers. Individuals can have a thriving business selling goods of larger companies without having to carry inventory.
Supplier Power Power Supplier power is higher when buyers have fewer choices from whom to buy. As mentioned earlier, drop shipping has increased the amount of suppliers available. All an individual has to do is form an agreement to sell products for the company. The company takes care of all the logistics. The same is true of associates programs that amazon.com and google.com offer. Associates allow a webmaster to earn money by recommending products from others. This increases supplier offerings.
Threat Of Substitute Substitute Threat of substitute products or services is high when there are many product alternatives. This is different than having many suppliers. Examples of alternatives are exchanging brand names, substituting credit card capabilities, and looking at better values from cheaper sources. The internet allows this with the "global economy". We can substitute product by purchasing from companies overseas where labor, services and products are cheaper, but of comparable quality.
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Future Challenges Although online shopping has become popular over the years, Amazon had to struggle to make profits. One of the reasons was the variable costs incurred by multiple delivery attempts and reverse logistics-the return of products by the customers. Multiple delivery attempts cost the company about 20-30 percent of the total costs for home deliveries. This was due to the additional shipping charges which had to be borne by the company. Several incidents of thefts and product damage were reported as the shipped goods were at times left at the customer's doorstep. All these incidents also led to a lot of frustration among customers. The expenses on reverse logistics and multiple delivery attempts ate into Amazon's profits and hence it had to find a solution to this problem.
The Future Of Amazon.com Market Overview • •
Amazon has built the world's strongest e-Commerce brand. But its expansion plans put the company at a crossroads.
Analysis •
• •
Competitors like eBay, Wal-Mart, and IBM threaten Amazon's bid to become all things e-Commerce. Amazon must focus on its retail business and portal strategy. The difference between "status quo" and "supercharged success" could be $8 billion.
What It Means •
Amazon will turn to downloads and Asia for growth.
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Action
•
Retailers: Push for better deal terms and account service.
Future Plan Of The Company The Company’s Current Objectives and Current StrategyThe company’s oft-stated goal is sacrificing short-term profits for building longterm growth, market share, and increased shareholder value. Amazon’s internal goals were to focus on increased market share, expand product offerings, and overall sales growth. Promotional activities, including promotional alliances and advertising is also important.
Corporate Governance According to Amazon’s corporate team the followings are their plans for the company. Focus relentlessly on our customers. Make bold investment decisions in light of long-term leadership considerations rather than short-term profitability considerations. Focus on cash. When forced to choose between optimizing the appearance of our GAAP accounting and maximizing the present value of future cash flows, we'll take the cash flows. Work hard to spend wisely and maintain our lean culture. We understand the importance of continually reinforcing a cost-conscious culture. Focus on hiring and retaining versatile and talented employees, and weight their compensation to significant stock ownership rather than cash.
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Acquisitions And Spin Spin Offs • •
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In April 1998, Amazon bought the Internet Movie Database (IMDb). In August 1998, Amazon bought Cambridge, Massachusetts-based Planet All for 800,000 shares of Amazon stock. PlanetAll operated a web-based address book, calendar, and reminder service. In the same deal, Amazon acquired Sunnyvale-based Junglee.com, an XML-based data mining startup for 1.6 million shares of Amazon stock. The two deals together were valued at about $280 million at the time. In June 1999, Amazon bought Alexa Internet, Accept.com, and Exchange.com in a set of stock deals worth approximately $645 million. In 2003, Amazon purchased the rival online music retailer CD Now. In 2004, Amazon purchased Joyo.com, a Chinese e-commerce website. It also debuted A9.com, a company focused on researching and building innovative technology. In March 2005, Amazon acquired BookSurge, a print on demand company, and Mobipocket.com, an eBook software company. In July 2005, Amazon purchased CreateSpace.com (formerly CustomFlix), a Scotts Valley, California-based distributor of on-demand DVD.Since the acquisition, CreateSpace has expanded its online services to include ondemand books and CDs, as well as video downloads. On July 30, 2007, the National Archives announced that it would make thousands of historic films available for purchase through CreateSpace. In February 2006, Amazon acquired Shopbop, a Madison, Wisconsinbased retailer of designer clothing and accessories for women. In May 2007, Amazon acquired dpreview.com, a London-based digital photography review website created by Phil Askey as his personal hobby website and Brilliance Audio, the largest independent publisher of audiobooks in the United States. In January 2007 created Endless.com, a separate e-commerce brand focusing on shoes. In January 2008, Amazon announced that it would acquire audiobook provider Audible.com for $300 million in cash. In June 2008, Amazon announced that it had acquired Fabric.com, an online fabric store. In July 2008, Amazon's IMDb subsidiary purchased Box Office Mojo, a site that tracks movie sales in theatres. In August 2008, Amazon announced it had an agreement to purchase Victoria, B.C. based AbeBooks, seller of new, used, out-of-print and rare books.Later that month Amazon announced that it would acquire
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• • •
Seattle-based Shelfari, a book-based social network site, for an undisclosed sum.As part of its acquisition of Abebooks Amazon also got an additional stake in Shelfari's competitor LibraryThing, which AbeBooks had previously purchased a 40 percent stake in, and whole ownership of Bookfinder.com, Gojaba.com, and listing-management service FillZ, all owned by AbeBooks at the time of acquisition. In October 2008 acquired Reflexive Entertainment, a casual video game development company. In July 2009 Amazon agreed to acquire Zappos, an online shoe and apparel retailer. The deal is expected to close in fall 2009. In January 2010 is said to buy Touchco.
Recommendations In order to overcome the hurdles currently facing Amazon.com, I offer the following recommendations: 1. Develop and implement a B2B exchange for supplier’s manufacturers, distributors, and retailers to use. 2. Amazon should expand its online auctions. 3. Develop an effective differentiating enterprise wide strategy to survive and prosper over the competition for the long-term future. 4. Amazon should use a web-based model to personalize service. 5. Increase advertisement to have brand awareness.
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Conclusion Amazon has grown admirably from its initial beginnings as a small online bookseller to a giant superstore company. During this process of rapid growth, it has incurred significant losses and it becomes more expose to a greater competition and threats. Cutting costs and achieving profitability remain Amazon’s greatest challenges. However, there are key factors such as a strong brand, providing customers with outstanding value and a superior shopping experience, massive sales volume and realizing economies of scale which contribute a lot to the success of this company. These factors and the people around the company help Amazon.com to face the threats pose by other online bookstores. Essentially, the company should aim to maintain its gross margins in its existing business and in future product lines such as music CDs and videos. In order to do this, Amazon.com should develop strategic partnerships with all of its main suppliers. Although online shopping has become popular over the years, Amazon had to struggle to make profits. One of the reasons was variable costs incurred by multiple delivery attempts and reverse logistics- the return of products by the customers. Despite all difficulties Amazon maintained its large inventory in a very efficient way. In the late 90s, 12% of the inventory at Amazon was stored at wrong places leading to delayed orders and lost time; by 2002 this was reduced to 4 percent because of better software and storage facilities. Despite all measures that Amazon took to manage its inventory more efficiently, logistics experts still opinioned that Amazon’s warehouses were working less than 40 percent capacity. According to experts Amazon should either reduce the number of warehouses or increase their sales. With so much of competition and problems one thing is for sure that Amazon is truly an example of how to manage inventories effectively.
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Bibli Bibliography 1. Designing and Managing the Supply Chain. By Simchi-Levi , Kaminsky, Ravi Shankar . 2. www. wikipedia.com 3. www. amazon.com 4. www. google.com 5. Harvard Business Review.
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