1. The background of the company.

The pioneer of multilevel marketing (MLM), Amway Corporation manufactures and sells its
own products as well as brand name products from other companies through a network of three
million independent distributors worldwide. Unlike many other MLM firms, Amway offered a
broad selection of items, ranging from cleaning products, cosmetics, and vitamins to travel
services, discount car purchases, and catalog merchandise. The company's manufacturing
facilities include a 3.5-million-square-foot production plant in Ada, Michigan, as well as plants
in California, South Korea, and China. Amway products were delivered to distributors in the
United States, Canada, and the Caribbean region through 12 Amway Service Centers. The
company recorded explosive growth during the 1990s, increasing its revenue volume from $1
billion in 1990 to $7 billion in 1997, largely through international expansion. In 1999 the
company formed a new company named Quixtar to sell consumer products at volume discounts
through distributors via the Internet. Expectations for Quixtar were high, with some industry
observers prognosticating that the new company could eventually eclipse the size of the
traditional Amway business.

Amway's history represents a recent chapter in the long history of direct selling, which began
in America's colonial period with unorganized Yankee peddlers selling tools and other items door
to door. By the 1800s, direct selling decreased with the advent of mass merchandising, such as
department stores and mail-order sales. In the later 19th century and early 20th century, however,
some manufacturers found direct sales had advantages over the sales of their products in large
stores. They preferred the personal touch, with salesmen making home demonstrations of their
products exclusively. By the 1920s door-to-door salesmen were marketing brushes, cooking
utensils, and other products. Retail stores fought back with local laws on peddlers. The federal
government's regulations of company-employee relations led to the independent contractor
solution. As independent contractors, salesmen were no longer employees: they were
independent businessmen who bought products for resale. The first network marketing began in
1941 when two men created a mechanism to distribute Nutrilite vitamins. Within this
mechanism, in addition to making money in retail sales, distributors earned a bonus on the sales
of those individuals whom they personally recruited.
 Amway's story began with the friendship between two youths who would become the
founders. Jay Van Andel, born in Grand Rapids, Michigan, in 1924, and Richard M. DeVos, born
in the small nearby community of Ada in 1926, became friends at Christian High School in
Grand Rapids. Their common Dutch heritage of hard work, thrift, and entrepreneurship drew
them together.

Buys direct from manufacturer

Adds mark upfor operating overhead

such as employee, salaries, building,
maintenance cost, etc

Adds distributor's ccommission

Adds distributor's "up line'

commission

Sells to you (customers)

 2. The companys core product or business. (15m)

Amway believes in delivering high-quality products and all its products are of premium
quality. Company offers nearly four hundred and fifty products in varied including personal care,
nutrition, home care, jewelry, air purifiers, water purifier, dietary supplements, insurance and
cosmetics. Amway became popular for the first time because of its multi-purpose LOC and later
SA8, cleaning product and detergent that is still one of the most in-demand products even today.
Its other popular products are antioxidants, weight management, supplements, wellness pack and
fortified beverages.

Amway uses demographic segmentation to tell that its products are for every age-group.
Most of its products are suitable for adult, children and older generation. Its important brands are
Artistry, Body Works, Nutrilite, Atmosphere and Peter England. At the end of year 2015, its
weight management and vitamin products were most in-demand products occupying 46% of its
sales figures. Amway offers its customers maintenance services to preserve home products like
air purifier and water treatment machines.

Artistry
Body Works

Nutrilite

Atmosphere

Peter England
 3. The importance of the location of the business to support its operations. (15m)

Amway is largest global company that has direct selling operations. In its early years its
operations were limited to America but it started its overseas expansion in year 1971 through
Australia and later to parts of Europe and Asia. Its network is spread over 97 countries like India,
Malaysia and China. It also has business association through various affiliated companies.
Amway operates on a unique concept of marketing and sales known as pyramid scheme. It
involves forming a chain of its employees from one to another. It pursues the concept of multi-
level marketing and has a strong distribution channel that includes employees, distributors and
founding families. Amway believes in market segmentation and hence it has divided market into
small segments of buyers with varied characteristics and needs. Amway has manufacturing
plants in India, China, United States and its organic farms in Mexico and Brazil.
 4. The issues/problems (at least 2) that the company faced in running the business. (30m)

Firstly, Amway's organization is highly decentralized, and it is management functions are

delegated to first line supervisors. These first line managers are called main distributors in the
organization. A major part of the sales revenue is based on the performance of these distributors.
For a few years ago, products were sent to distributors all over the USA and in sixty other
countries all over the world. This was a very expensive process, as it was more expensive to send
small volumes rather than sending major bulks of products to wholesalers and retailers. This was
a major problem which the corporation faced in a controllable manner, but a problem that could
be more detrimental to the corporation in the future. The corporation could face severe problems
in the process of being able to effectively compete with departmental stores, supermarkets, and
discount stores. Two years ago, top executive managers at the Amway Corporation realized that
they had to do something about the distribution process that the company faced. They realized
that they lost major market shares, mainly because of unsatisfactory speed, and the cost of the
delivery of products from only three main distribution centers serving the world. After studying
the distribution processes from the manufacturer to the direct distributors, and finally to the
customer, they realized that this process was too complicated, and there were at least two times
as many steps in the distribution channel than needed. The old distribution system was divided
into four main procedures, or distribution functions. These were for non-Amway produced items
like from manufacturer to agent/jobber, from the agent to Amway's main distribution center near
Grand Rapids in Michigan, from the grand distribution center to the private, contract or common
carrier and finally to the direct distributors, who distributed the goods to the customers. This
pathway was very time consuming, and errors could easily be made. Amway's top management
discussed the problem within the organization, and found a solution to the distribution problems,
which would decrease the costs by at least 30 percent, decrease delivery time to the customer,
and finally increase the reliability for quality of the distribution process. This basic concept of
the solution was to cut out two and in some cases three steps in the distribution process. The two
primarily steps that were cut out were the agent as the jobber and the grand distribution center.
Also, in a few isolated cases, the manufacturers for only Amway products such as detergents, and
other household products, shipped the goods directly to the direct distributors. This was a major
advantage, as it saved the corporation even more money and time. In addition to this change in
the distribution system, Amways managers decided to try to localize the distribution centers all
over the corporation's geographical market share. Instead of only having a few large and
centralized distribution centers, it was chosen to decentralize the distribution network, and
concentrate on setting up smaller distribution centers. These local "warehouses" only stock bulky
and very popular products. By decentralizing, Amway has been able to "cut the delivery time of
normal distributor goods from two weeks to an average of three working days." According to
Rich DeVos, co-owner of the corporation "Our customers are most important, and we have to
satisfy their needs, otherwise, we will not be able to compete with other organizations dealing
with similar concepts to those of the Amway corporation. By decreasing the time of delivery,
Amway has given a more competitive customer time utility for it is products. It has also been
able to save large amounts of money by using fewer steps in the distribution channel.
 5. Find solution to reduce/mitigate operations problems/issues. (30m)

Firstly, the main problem with any kind of distribution is that a company that relies upon
physical distribution of products is that there is these organizations have no or very little control
over the cost of transportation. There are too many external factors involved in this particular
situation. Such external factors include strikes, increase in fuel costs, and temporarily increase in
the demand of transportation during certain time periods. Amway Corporation has done a good
job in trying to find a good solution to it is distribution problems. This can be demonstrated by
the improvements in corporate performance. There are further improvements that can be done to
the system. It must always be taken into consideration that the customers end -up paying special
shipping fees on goods, that usually equalizes the difference between Amway's retail prices and
the prices quoted in normal shops. Amway does not want to be compared to normal retail stores,
supported by the firm's slogan; "Shop without going shopping". These is a great concept as long
as people have enough money to do shopping without going to their neighborhood departmental
store, and are able to spend more money for a door-to-door service. There are basically three
different solutions to the problem with distribution of products. These are increasing the amount
of small distribution centers throughout the geographical market share, second, start using
Amway's whole sellers as direct distributors to the customer, and finally to ship products directly
from manufacturing to the customer. The first solution would be to further develop the
distribution network. It is crucial for a corporation such as Amway to be the best in this field of
doing business, and according to Richard DeVos "there is always room for improvements."
Presently, most of the goods that the companies sell go through three of Amway's main
distribution centers, which also serve as being warehouses for some of the products. If Amway
would set up even more local, distribution centers, and increase communications between all the
steps in the distribution pathway from manufacturing of the good to the customer, it would be
easier and less expensive to serve the customer. In the future, more local distribution centers be
built, and these should not only have the most popular products in stock, such as toiletries, and
home appliances, but also a wide variety of goods. By the use of such distribution centers, the
company could also further improve the speed of delivery of the products to the direct
distributors, so that they can distribute the goods to their customers. A second possible solution
would be to develop a distribution network in which manufacturers and wholesalers would
actively work together with the Amway Corporation in the distribution process. As this process
would to rely more upon wholesalers, that would decrease the capital cost for the Amway
Corporation, and decrease the amount of funds spent on transportation from the appropriate port
to the destination and the customers. This does not mean that all the distribution centers should
be closed down, as these could deal only with directly produced Amway products. It would not
be very profitable to make wholesalers buy products produced by the corporation, as Amway
will act as a sole manufacturer in this second external step in the distribution process. Usually, a
manufacturer does not make as much money out of the product, as what a jobber as the agent,
wholesaler, and retailer do. Also, the corporation has to keep up it is company profile, by being
the sole distributor for it is own goods. Wholesalers would be responsible for the distribution
process for less numerous merchandise goods like goods that do not sell in too large quantities.
Such goods would be more effective to ship directly from the wholesaler where Amway acquire
the products, instead of sending these to one of the distribution centers first. Amway would
benefit in basically two different ways if this process is implanted. First, it would cut down on
the transportation expense and the delivery service would be faster. Second, the corporation
would be able to cut down on the cost of keeping expensive inventory in warehouses, and
decrease the risk of running out of products if the demand is great, or on the opposite, having a
surplus of products. Finally, the third, and the most revolutionary solution would be to make the
manufacturers act as distributors. As Amway can provide a large number of faithful customers,
there are presently over two thousand companies that are interesting in joining the Amway
family. Therefore, it should be possible for the corporation to demand for increased service from
the manufacturers. Amway's producers that are located within the US could send goods ordered
directly to the customer. This would in most cases skip two steps in the present distribution
process; wholesalers or agents, and Amway's own distribution centers. I understand that this
would be a too complicated process for very large amounts of goods, as this would require the
manufacturer to set up a new distribution department, but for smaller amounts of bulky goods,
this would be an excellent proposal. For instance, if a customer would like to buy a refrigerator
from Amway's mail order catalogue, this refrigerator presently has to go from the manufacturer
to the wholesaler, to one of Amway's grand distribution centers, and then to the customer. In my
final proposal, this particular product would only go through one step, from the manufacturer to
the customer.