By: Rahul Hege136 Rahul Warathe137 Rajat Gupta 138

Amazon .com Get Big Fast

First online book store launched in 1995. Constantly ranked as the best site on internet Features include: one-click shopping, customer review and e-mail order verification Popular for excellent customer service and inventory management. Since 1999 adding 1 new product every 6 weeks. By 2002 : 22.3 million registered users. By 2003 : 4.7 million books, music CD, DVDs and other products.

History
Jeff Bezos, in 1995, started AMAZON.com as a virtual retailer no inventory, no warehouses, no overhead; just computers Amazon owed its popularity to its excellent customer service, which was due to its effective inventory management.

Products and services

Marketplace service Launch date

Books
Music DVD Electronics, Toys

July 1995
June 1998 November 1998 July 1999

ZShops
Home improvement Software Video games

October 1999
November 1999 November 1999 November 1999

Unique Concept of Zshops -

Increased Revenue

Value Proposition
Amazon Build four fold proposition Convenience Selection Price Customer service

Strategic Alliances To expand

Amazon acquired stakes from 17 to 49% in various

online retailers Greenlight.com, Living.com,

Drugstore.com, HomeGrocer.com Spent $160 million and these investments grow to 1.5

billion.
Amazon tried to promote each of its partner by emails , catalogs, adding in the shipment.

Amazons Partners
Company Ashford.com Audible Della.com Drugstore.com Gear.com Nature of business Luxury and premium products Internet delivered spoken audio Gift registry, gift advice Retail and info of health, beauty, wellness drugs Brand-name sporting goods

Kozmo.com
Living.com

One hour delivery service entertainment and convenience products

Home products and service

Advantages Of Investments
Provide a increased range of products. Increased revenue in the form of marketing fees from partners.

Amazon Stake in these companies increase its

market valuation.

Customer ordered

A code being generated

Computer send the code to workers

Code tell the location of the book in warehouse

Worker decide the order in which to pick up the items

Items were send to the central location

Orders matched with item barcode

Finally the items were shipped to the respective address

Inventory Management
Initially Bezos aimed at hassle-free operations Time and money not to be spent in dealing with the inventory. Satisfy customers ; forced to build warehouses. In 1999: Added 6 new warehouses to total to 10 Computerized warehouses Increased warehousing capacity from 300,000 sq. feet to over 5 million sq. feet Automation of events after placement of order to make inventory management easier

In 1999, when Amazon's sales grew 170% from the previous year, its inventories ballooned by 650%, Suria pointed out. ''When a company manages inventory properly, it should grow along with its sales-growth rate,'' he noted. When inventory grows faster than sales, ''it means simply that they're not selling as much as they're buying.'' Decided to stock all possible items that customer could demand during holiday season Appreciated; but faced a lot of problems in inventory management Thus looked for alternatives

Initial Changes
Decided to buy directly from publishers rather than distributors Upgraded software which helped to accommodate inventory as per demand Placed products which were generally bought together at one point. Eg. CDs and CD player

Deciding the Strategy

Inventory goals: right product in the right quantity to the

right place at the right time.

Reduce redundant inventory Blockage of working capital. Low inventory turnover. Cost of holding > cost of outsourcing Thus they OUTSOURCED

Innovative Inventory Outsourcing

Stocked only popular items and rest were outsourced

from distributors.
Outside distributors at Amazon for three kinds of products: cell phones, computers and books, excluding

those on best-seller lists

CellStar handled the cell phone sales Wholesale distributor Ingram Micro handled the

computers and books

Advantages of Outsourcing
Concentrate on main activities To reduce the inventory holding costs. To earn more profits

To free the working capital and increase liquidity.

Adoption of Drop-shipment model which increased the overall efficiency and streamline supply chain logistics.

Warehouses could handle thrice the volumes

Reduced the shipping charges.

Drop-Shipment Model

Disadvantages of DropShipment Model

The variable cost incurred by multiple delivery attempts and reverse logistics. Multiple delivery attempts cost the company about 20-30% of the total cost for home deliveries.

35% of orders placed at Amazon belonged

to different product categories.

Amazon.coms Customer Fulfillment Network

Steps taken for improvement

Made improvements in its distribution centre which reduced

12% of the wrong inventory to 4%

by 2002. Tightened its operation to ensure that it did not miss any customer orders.

Success Story
Till 2001 Amazon was in deficit of US$2.86 billion. Earned its first ever profit of $5 million in the 4th quarter of 2001. Year 2002 recorded sales of $3.93 billion which was 26% higher than sales of 2001. Cost of operating warehouses reduced from 20% to 10% where as the capacity increased 3 times. Inventory turnover was 20 times as compared to other retailers having 15 times.

Discussion Key Points

1. Amazon adopted right strategy to manage its inventory
Managed the inventory efficiently Bought books directly from publishers

Refined software as per the demand in different regions

Placed products like CDs, CD Players at one point Reduced split shipments Cut down expenses, Outsourced some routine activities Revamped the layout of warehouses Recorded first ever profit of $5 million in 4th quarter of 2001

Discussion Key Points

2. Outsourcing key area of Inventory Management A huge Risk To concentrate on its main activities in order to earn profit Stocked only popular & frequently purchased items Trans-shipment centre

Discussion Key Points

3. Selling other products on its site instead of concentrating on promotion of its own products? No need to advertise its low prices. Giving people the choice to buy new & used side by side is good for the customers.

Good promotion strategy free shipping on purchase of 2 or more items