„to e or not to be“ amazon's role in the retail
TRANSCRIPT
„To E or not to Be“ Amazon's role in the retail
industry How is Amazon able to differentiate itself from its
competitors and why is its supply chain strategy so significant for its success?
Bachelor Thesis for Obtaining the Degree
Bachelor of Business Administration in
Tourism and Hospitality Management
Submitted to Miguel Suarez
Nicole Bluschke
1311069
Vienna, 13 June 2016
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Affidavit I hereby affirm that this Bachelor’s Thesis represents my own written work and that I
have used no sources and aids other than those indicated. All passages quoted from
publications or paraphrased from these sources are properly cited and attributed.
The thesis was not submitted in the same or in a substantially similar version, not
even partially, to another examination board and was not published elsewhere.
13 June 2016
Date Signature
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Abstract This study aims to clarify the position of Amazon in the retail industry which it
primarily gained through high-‐level supply chain and logistics developments. The
first part of this research describes the retail industry, especially E-‐Commerce, as
well as supply chain practices whereas the second part focuses on Amazon as a
representative company. Drivers of the company's supply chain as well as numerous
product and service developments such as Anticipatory Shipping, Amazon's Chaotic
Storage Model and Amazon's Logistics Network Plan are identified and discussed. It
becomes apparent that constant innovation in a supply chain context has more
extensive and significant long-‐term effects on company success than large profit
figures. A comparison of Amazon with Apple, Google, Walmart and other relevant
companies shows that Amazon's supply chain is more diverse, implying that
numerous services that are offered by competitors are combined within Amazon
and its supply chain. Amazon's supply chain may be described by an efficient and
flexible inventory management, fast delivery fulfillment, effective collaborations
with partners, strategic acquisitions of supporting systems and companies and a high
level of customer service. The results of this research paper may direct future
studies towards the investigation of further competitive advantages of Amazon as
well as how potential threats and weaknesses a company faces may be overcome in
a supply chain context.
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Table of Contents
AFFIDAVIT 2
ABSTRACT 3
LIST OF TABLES 7
LIST OF FIGURES 8
LIST OF ABBREVIATIONS 9
1 INTRODUCTION 10
1.1 RESEARCH PROBLEM AND RESEARCH QUESTION 11
1.2 METHODOLOGY 12
2 LITERATURE REVIEW 13
2.1 INTRODUCTION TO THE RETAIL INDUSTRY 13
2.1.1 ORGANIZATIONAL CONCEPTS 13
2.1.2 TOP 250 RETAILERS WORLDWIDE 14
2.1.3 RETAIL TRENDS AND PREDICTIONS 2016 15
2.1.4 SUPPLY CHAIN APPLICATIONS IN THE RETAIL BUSINESS 16
2.2 E-‐COMMERCE 16
2.2.1 FRAMEWORK FOR ELECTRONIC COMMERCE 17
2.2.2 E-‐COMMERCE CLASSIFICATION AND CONTENT 18
2.2.3 BENEFITS OF E-‐COMMERCE 18
2.2.4 LIMITATIONS OF E-‐COMMERCE 19
2.2.5 IMPACT ON MARKET AND RETAILERS 20
2.2.6 IMPACT ON SUPPLY CHAINS AND THEIR MANAGEMENT 20
2.2.7 MASTERCARD OMNISHOPPER REPORT 21
2.3 SUPPLY CHAINS AND THEIR MANAGEMENT 25
2.3.1 DETERMINANTS OF SUPPLY CHAIN SUCCESS 26
2.3.2 SUPPLY CHAIN STRATEGY 26
2.3.3 DRIVERS OF SUPPLY CHAIN PERFORMANCE 27
2.3.4 SOURCING 28
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2.3.5 INVENTORY 28
2.3.6 TRANSPORTATION 29
2.3.7 FACILITIES AND NETWORK DESIGN 30
2.3.8 PRICING 31
2.3.9 INFORMATION 31
2.4 INFORMATION TECHNOLOGY APPLICATIONS AND SUPPLY CHAIN AUTOMATION 31
2.4.1 RFID 33
2.5 FINANCIAL MANAGEMENT IN LOGISTICS 33
3 AMAZON CASE STUDY 34
3.1 GENERAL INFORMATION AND COMPANY BACKGROUND 34
3.2 BUSINESS STRATEGY AND BUSINESS MODEL 35
3.3 AMAZONS' FINANCIAL POSITION 36
3.4 AMAZON'S SUPPLY CHAIN 38
3.5 SUPPLY CHAIN DRIVERS OF AMAZON 40
3.5.1 INVENTORY PLANNING AND MANAGEMENT 40
3.5.2 AMAZON'S FACILITIES 42
3.5.3 AUTOMATED WAREHOUSES AND KIVA ROBOTS 44
3.5.4 FBA – FULFILLMENT BY AMAZON 45
3.5.5 PRICING ADJUSTMENT STRATEGY 46
3.5.6 TRANSPORTATION 47
3.5.7 AMAZON'S LOGISTICS 47
3.5.8 ANTICIPATORY SHIPPING 48
3.5.9 AMAZON DASH BUTTON DELIVERY 48
3.5.10 INFORMATION AND TECHNOLOGY 49
3.5.11 RFID 50
3.6 AMAZON'S CUSTOMER SERVICE 51
3.6.1 RESPONSE TIME TO CUSTOMERS 51
3.6.2 PRODUCT VARIETY AND AVAILABILITY 51
3.6.3 CUSTOMER EXPERIENCE 52
3.6.4 TIME TO MARKET 52
3.6.5 RETURNABILITY 52
3.7 SUPPLIER CODE OF CONDUCT 53
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4 AMAZON'S COMPETITION 55
4.1 GARTNER LIST 59
4.2 TOP 50 E-‐RETAILERS 60
4.3 THE Q RATIO 61
5 DISCUSSION AND ANALYSIS 63
5.1 SWOT ANALYSIS 63
5.2 PORTER'S FIVE FORCES 64
5.2.1 THREAT OF SUBSTITUTE PRODUCTS OR SERVICES 65
5.2.2 THREAT OF NEW ENTRANTS 65
5.2.3 BARGAINING POWER OF CUSTOMERS 65
5.2.4 BARGAINING POWER OF SUPPLIERS 66
5.2.5 COMPETITIVE RIVALRY WITHIN THE INDUSTRY 66
5.3 GLOBAL VALUE CHAIN ANALYSIS 66
5.3.1 GLOBAL VALUE CHAIN CLASSIFICATIONS 66
5.3.2 PORTER'S GLOBAL VALUE CHAIN 67
6 CONCLUSION 70
6.1 IMPLICATIONS AND RECOMMENDATIONS 74
6.2 LIMITATIONS 75
6.3 DIRECTIONS FOR FUTURE RESEARCH 76
BIBLIOGRAPHY 77
APPENDICES 86
APPENDIX 1 AMAZON Q4 2015 FINANCIAL RESULTS 86
APPENDIX 2 MWVL OVERVIEW AMAZON FACILITIES 104
APPENDIX 3 AMAZON SUPPLIER CODE OF CONDUCT 105
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List of Tables Table 1: Organizational Concepts in Retailing (Kalakota et al., e-‐Business 2.0 – Looking over the New Horizon, 2000) Table 2: Top 250 retailers (Deloitte, Global Powers of Retailing 2016. Navigating the new digital divide, 2015) Table 3: E-‐Commerce Classification Models and Characteristics (DigitSmith, E-‐Commerce definition and types of E-‐Commerce, n.d.) Table 4: Benefits of E-‐Commerce (Turban et al., Electronic Commerce 2008, 2008) Table 5: Amazon's Competitors Table 6: Global Value Chain Classification (Gereffi et al., The governance of global value chains, 2005) Table 7: Amazon's Global Value Chain
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List of Figures Figure 1: The Dimensions of Electronic Commerce (Önder, I. New Media & E-‐Business Applications -‐ Electronic Commerce: Definitions and Concepts. (2014)) Figure 2: How has technology changed the way that you shop? (MasterCard, The Omnishopper Project, 2015) Figure 3:How often do you use technology when shopping? (MasterCard, The Omnishopper Project, 2015) Figure 4: Why don't you shop more online? (MasterCard, The Omnishopper Project, 2015) Figure 5: Where online is better than in-‐store (MasterCard, The Omnishopper Project, 2015) Figure 6: Where in-‐store is better than online (MasterCard, The Omnishopper Project, 2015) Figure 7: Supply Chain Strategy Dimensions (Lee, Aligning Supply Chain Strategies with Product Uncertainties, 2002) Figure 8: IT systems classification in a SCM context (Mangan et al., Global Logistics and Supply Chain Management, 2008) Figure 9: The Gartner Supply Chain Top 5 for 2015 (Aronow et al., The Gartner Supply Chain Top 25 for 2015, 2015) Figure 10: Top 20 e-‐retailers (Deloitte, Global Powers of Retailing 2015, Navigating the new digital divide, 2015) Figure 11: Top 10 retailers by Q ratio (Deloitte, Global Powers of Retailing 2016, Navigating the new digital divide, 2015) Figure 12: SWOT Analysis Amazon's Supply Chain
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List of Abbreviations ASEAN – Association of Southeast Asian Nations
AWS – Amazon Web Services
B2B2C – Business to Business to Consumer
B2E – Business-‐to-‐Employee
BRIC – Brazil, Russia, India, China
CEO – Chief Executive Officer
CFO – Chief Financial Officer
CPFR – Collaborative Planning, Forecasting and Replenishment
EDI – Elecfronic Data Interchange
ERP – Enterprise-‐Resource-‐Planning
EU – European Union
FBA – Fulfillment By Amazon
IT – Information Technology
MRP – Materials Requirements Planning
MRPII – Manufacturing Resource Planning
R&D – Research and development
RFID – Radio-‐frequency Identification
ROA – Return on Assets
ROI – Return on Investment
SCM – Supply Chain Management
SWOT Analysis – Strenghts, Weakenesses, Opportunities, Threats Analysis
UCLA – University of California, Los Angeles
VMI – Vendor Managed Inventory
WMS – Warehouse Management Systems
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1 Introduction Until approximately 25 years ago, a product order that was placed, took between 15
to 30 days to be entirely fulfilled (Ali, 2015). Nevertheless, even when planning was
accurate, this time frame often extended to more than 30 days. Reasons for delayed
deliveries and long lead times, meaning the time frame between an order initiation
and the completion of a production process, were mostly inventory shortages,
misplaced orders or wrong shipments (Bowersox et al., 2007). Today it is not
imaginable or acceptable for any customer to be forced to wait longer than a week
for an order. The combination of wide choice, constant availability, IT systems and
quick transportation has created “perfect orders” (Bowersox et al.,2007). According
to the authors mentioned, perfect orders are defined as „delivering the desired
assortment and quantity of products to the right location on time, damage-‐free and
correctly invoiced“ (Bowesox et al., 2007). As years ago the above mentioned
requirements were exceptions in the retail industry, today, those are every
customer's expectations. This shows that in the past 20 to 25 years the retail
industry has gone through various changes, shifts and optimization processes. One
development which mainly influenced and revolutionized the industry and the linked
customer approach, was the introduction of E-‐Commerce. Another business aspect
which has gone through numerous developments and changes, and which has
therefore gained importance in previous years, are companies' supply chains. As
evaluated by Mahdavi et al., changes and adaptions in global economy are
omnipresent, fast and dynamic. This also implies that today special emphasis is put
on the role of supply chains, supply chain management and supply networks
(Mahdavi et al., 2011).
One of the most successful companies in the E-‐Commerce sector today is Amazon
which, according to Chopra et al., is „one of the pioneers of consumer e-‐
business“(Chopra et al., 2007). The great impact of Amazon on the E-‐Business
industry cannot only be explained by the fact that the company constantly strives for
innovation and development and continuously introduces new products, but also by
the fact that Amazon is retailer and marketplace at once.
This strategic combination creates economies of scale which are, according to The
Economist, unreachable by rivaling companies (The Economist, 2011). Amazon has
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been growing rapidly since its emergence in 1994 and is the largest „pure-‐play“ E-‐
retailer world-‐wide today. As the success of “click-‐and-‐mortar”-‐ companies,
meaning organizations who are involved in E-‐commerce that do not possess physical
outlets, is closely related to supply chain management and network development,
the following research tries to identify and discuss Amazon's strategic approach in
the named fields.
The first part of this paper primarily discusses the revolution of the retail industry,
gives an insight into the E-‐commerce sector and critically reviews the importance of
supply chain strategy and management for a company. As assessed by Agarwal,
various factors such as the brand, personalization and merchandising may be
significant for a company's success. However, he concludes that the supply chain can
be seen as the basis of E-‐commerce success (Agarwal, 2014). The second half of this
research focuses on the real life implication and analysis of topic-‐related theories
based on the company Amazon and its position in the overall retailing and E-‐
commerce industry. It includes the discussion and analysis of the company's supply
chain, its financial performance and the identification of success factors as well as
differentiating factors in comparison to rivaling companies. Furthermore, along with
a supply chain-‐centered SWOT analysis, Amazon is furthermore analyzed by applying
Porter's five forces. Lastly, Amazon’s global value chain will be discussed.
At the end a conclusion will be reached, answering the central research question
concerning Amazon's ability to differentiate itself from its competitors and the
significance of its supply chain strategy, and recommendations for Amazon will be
shortly discussed.
1.1 Research Problem and Research Question This paper focuses on the development of the retail business, the introduction of E-‐
commerce and the role of supply chain management as a critical success factor. In
this context, Amazon is analyzed as a representative company.
The main research questions therefore is formulated as: “How is Amazon able to
differentiate itself from its competitors and why is its supply chain strategy so
significant for its success?”
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1.2 Methodology The information for the following paper was collected by critically reviewing
secondary data and summarizing it into a literature review. According to Hair et al.,
a literature review is a “comprehensive examination of available information that is
related to a research topic” (Hair et al., n.d.).
The purpose of a literature review is the identification, description and evaluation of
previous studies and the critical assessment of possible research gaps.
For this paper, secondary data was gathered from academic and commercial
publications, newspapers as well as official company reports.
The second part of this research follows a case study approach which will be further
discussed and explained in Chapter 3 “Amazon Case study” of this paper.
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2 Literature Review 2.1 Introduction to the retail industry The retail sector is characterized by multiple processes where businesses or
individuals sell items or services to consumers using various channels in order to
reach a specific level of financial wealth (Harper, n.d.). As summarized by Mahdavi et
al., the majority of organizations in the retail sector contains and manages five
business processes, namely buy, make, store, move and sell (Mahdavi et al.,
2011). As furthermore analyzed by Ferrara, retailing adds up to being one of the
most extensive and widely-‐expanded sectors today (Ferrara, n.d.). As Deloitte
researched, major markets involved in the retail sector are the United States, China,
Europe and Japan. Additionally, emerging markets with steadily increasing
importance, are BRIC-‐countries Brazil, Russia and India (Deloitte, 2015).
The retail industry generally contains interactions between its three core pillars,
which are Logistics, Merchandising and Stores (Sehgal, 2013). As concluded by
Deloitte, the retail industry is characterized by high sensitivity towards new market
entrants, intense price competition and dynamic consumer tastes (Deloitte, 2015).
2.1.1 Organizational Concepts
The retail sector can be categorized into three main concepts, namely brick-‐and-‐
mortar, virtual and click-‐and-‐brick (Kalakota et al., 2000) which are shortly
summarized and characterized in Table 1 below. In recent years, competition has
increased between these concepts, enlarging opportunities and threats for all
involved parties and stakeholders.
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Table 1: Organizational Concepts in Retailing (Kalakota et al., e-‐Business 2.0 – Looking over the New Horizon, 2000) 2.1.2 Top 250 retailers worldwide
In 2015, Deloitte published its “Global Powers of Retailing 2016”-‐report, containing a
highly-‐detailed analysis of the 250 strongest retailers globally. The Top 20 of the
“Global Powers of Retailing 2016”-‐report is visualized in Table 2 below whereas the
generated data which the report is based on originated in the fiscal year 2014.
Heavily decreasing oil prices determined economic winners and losers in 2014
(Deloitte, 2015). According to the research paper by Deloitte, oil importing countries
resulted in increased consumer purchasing power. Nevertheless, net profit margins
as well as the ROA generally decreased.
Out of 250 companies, 198 published net income figures whereas 90% of these
businesses were profitable. According to Deloitte, accounted revenues from the Top
250 retailers, totaled almost 4,5 trillion dollars (Deloitte, 2015). The most powerful
retailer of 2015 was US-‐based Walmart with a retail revenue of over 485 million $.
Among the Top 10, five companies originated in the United States, whereas the
other five are prominent European organizations. Carrefour, ranked on Place 6, has
the widest cross-‐country reach as it is currently operating in 34 countries. In addition
to its 250 Top Retailers-‐report, Deloitte's report furthermore includes a ranking
which is solely focusing on E-‐Commerce. An insights into the Top 50 E-‐retailers will
be given in Chapter 4.2 “Top 50 E-‐retailers” of this study.
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Table 2: Top 250 retailers (Deloitte, Global Powers of Retailing 2016. Navigating the new digital divide, 2015) 2.1.3 Retail Trends and Predictions 2016
As for every year, Vend, a retail management platform which mainly develops
software for usage in the E-‐Commerce sector, published its predictions on trends
which are likely to occur in the retail industry in 2016 (Vend, 2016). The first trends
which were identified, are increased and eased payment options for consumers. An
example which Vend named, were the broader usage opportunities of
PayPal. Furthermore, retailers will be increasingly facing the “click-‐and-‐collect”-‐
principle, meaning that consumers may order items online and, instead of receiving
these by post, may pick up the products at physical stores. This frictionless shopping
has been heavily discussed in recent trend reports – especially since the introduction
of Amazon Dash, which will be further discussed in Chapter 3.5.9 “Amazon Dash
Button Delivery” of this paper.
Moreover Vend predicts that pure-‐play offline retailers will lose importance and
therefore companies will continue working on online presence. As further evaluated
by Vend, generally technology and attached social media channels will become more
significant to a company's success.
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The MasterCard Omnishopper Report, which will be further discussed in Chapter
2.2.8 “MasterCard Omnishopper Report”, underlines this hypothesis as it analyzed
that 80% of consumers use technology while shopping (MasterCard, 2015).
2.1.4 Supply Chain Applications in the Retail Business
Haksever et al. analyzed that sales volume as well as profitability ratios are directly
affected by the level of customer exposure to products (Haksever et al., 2013). More
specifically, this implies that an increased rate of exposure typically leads to greater
sales figures and thereby to a higher ROI. This exposure rate can be easily modified
and adjusted by changing store arrangements and product allocation. Haksever et
al. evaluated that by positioning high-‐draw items at the periphery of stores,
consumer's attention would often be captured by items, which they initially did not
want to purchase when entering the retail outlet. Furthermore Haksever et al.
suggest the usage of first or last aisle positions as well as cash registers for high-‐
impulse and high-‐margin items in order to increase their exposure rate.
Furthermore, end-‐isle locations are very popular and successful in generating
additional sales (Haksever et al., 2013). Similar influential applications are used in E-‐
Commerce. By using collaborative filtering, more precisely “you may also like” and
“customers who bought this item also bought this”, as well as search engine
optimization, companies try to actively make product recommendations to their
customers.
2.2 E-‐Commerce In it's origins, E-‐Commerce is defined as “the transformation of key business
processes through the use of Internet technologies” (Schneider et al.,2000). This
definition implies that processes such as buying, selling, and the exchange of
products, happen with the help of the Internet and other related systems. Amor
further describes E-‐Commerce as a business approach which is secure, flexible and
integrated and may ease company procedures and create value by using IT (Amor,
2000).
As mentioned by Turban et al, E-‐Commerce has various features which make perfect
competition possible in this field.
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More precisely, perfect competition is characterized by numerous buyers and sellers
who can enter the market at limited entry cost (Turban et al.,2008). Furthermore
parties do not have the possibility to influence the market and offered products
must be homogenous. The final condition for perfect competition is the availability
of perfect information about “market, participants' demands, supplies and
conditions” (Turban et al.,2008).
The two most common E-‐Commerce concepts today are pure and partial E-‐
Commerce whereas the classification depends on the degree of digitization,
specifically, the ordering system(order, payment), processing (creation of
product/service) and delivery method. The classification is further detailed and
visualized in Figure 1 below.
Figure 1: The Dimensions of Electronic Commerce (Önder, I. New Media & E-‐Business Applications -‐ Electronic Commerce: Definitions and Concepts. (2014)) 2.2.1 Framework for Electronic Commerce
The field of E-‐Commerce is very broad and has various applications and usages
including home banking, online shopping, stock handling, electronic collaborations
and digital auctions (Turban et al., 2008). These diverse implementations are based
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on a highly advanced framework which is firstly supported by a developed
infrastructure.
A typical E-‐Commerce infrastructure consists of multiple hardwares, softwares and
various networks. Examples for major components are web servers, electronic
catalogues, transactional software and Internet access components (Turban et al.,
2008). A successful and stable infrastructure is especially significant to an E-‐Business
as it has to guarantee smooth global transactions fulfillment without any delays or
significant errors. Secondly, this framework is based on the five fixed supporting
pillars of E-‐Commerce which are namely people, public policy, marketing and
advertisement, support services and business partnerships (Turban et al.,2015). A
successful Electronic Commerce Application cannot be attained if the supporting
structure is incomplete or if parts of it are missing entirely.
2.2.2 E-‐Commerce Classification and Content
According to DigitSmith, there are four main classification models in E-‐Commerce
(DigitSmith, n.d.). Furthermore there are various additional existing models including
B2B2C, Intra-‐business E-‐Commerce, B2E, C-‐Commerce and E-‐Government which are
all based on the four main models. They primarily differ in the parties which are
involved in the process. These four models are shortly contrasted and characterized
in Table 3 below.
Table 3: E-‐Commerce Classification Models and Characteristics (DigitSmith, E-‐Commerce definition and types of E-‐Commerce, n.d.). 2.2.3 Benefits of E-‐Commerce
According to Priester et al., one of the main benefits and significant competitive
advantages for organizations who offer E-‐Commerce is the ability to operate the
business with a much lower inventory level in comparison to physical retailers
(Priester et al., 2010).
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Moreover, there are numerous additional advantages for businesses and consumers
which are shortly summarized and contrasted in Table 4 below (Turban et al., 2008).
Table 4: Benefits of E-‐Commerce (Turban et al., Electronic Commerce 2008, 2008) 2.2.4 Limitations of E-‐Commerce
As further discussed by Turban et al., the presence of benefits, also implies the
presence of limitations and challenges within the field of E-‐Commerce. These
limitations are of technical and non-‐technical nature (Turban et al., 2008). Technical
limitations include missing global standards in terms of quality, security and
reliability. Furthermore, softwares which are still in their development or testing
phase might limit E-‐Commerce operations. Moreover, existing network servers are
typically not as powerful as required for E-‐Commerce, implying that additional web
servers have to be developed. The development of these web servers typically has
high costs attached to it. The most crucial example for non-‐technical limitations is
the security and privacy concern faced by customers. This concern is directly linked
to some trust issues as the Internet unites numerous unknown and unfamiliar
sellers. Moreover, online fraud is increasing which adds additional danger and fear
for consumers. As investigated by Deloitte, one of the major challenges the E-‐retail
industry is currently facing, is “The new digital divide” (Deloitte, 2015). This issue is
defined as,”The gap between consumers' digital behaviors and expectations and
retailers' ability to deliver the desired experiences” (Deloitte, 2015). The new digital
divide therefore means that needs and requirements of consumers change at a fairly
unpredictable and incredibly fast speed, making it difficult for technology to catch up
and ensure customer satisfaction.
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2.2.5 Impact on market and retailers
The development of the Internet has primarily influenced the number and type of
producers that operate in an industry. However, there are still organizations which
benefit more from recent developments than others. Two main factors which have
witnessed radical changes are prices and market shares. Retailers have to deal with
increasing price competition, stagnating retail sales and reduced sales density. It is
therefore of crucial importance to invest into new channels which may make it
possible to compete with online entrants.
One disadvantage which physical retailers have in comparison to online platforms
are high fixed costs which are mainly resulting from physical outlets which need to
be operated. Therefore, retail margins are likely to decrease (AMP Capital, 2013).
2.2.6 Impact on supply chains and their management
As identified in previous chapters, since its emergence, E-‐Commerce had and still has
an impact and influence on numerous business processes and has substantially
changed the retail industry. Specifically, it was also able to affect and change
companies’ supply chains and their managements. According to Johnson et al., “E-‐
commerce has had a profound impact on the supply chains of many products”
(Johnson et al., 2002).
As further analyzed by Sell, E-‐Commerce has considerably increased direct-‐to-‐
consumer shipping as old-‐fashioned supply chains usually included the
transportation of immense product bulks to assigned brick-‐and-‐mortar retail stores
or aggregated distribution centers which would manage and control smaller bulks of
direct-‐to-‐consumer catalog purchases (Sell, 2014).
Since the introduction of E-‐Commerce, direct deliveries to consumers have therefore
increased, also changing firm's overall transportation system and
management. Another aspect which Sell discussed, were raised consumer
expectations especially towards shipping times and product availability. Consumers
are typically dissatisfied if an item is not instantly available for purchase at a retail
stores.
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This gives online providers a competitive advantage, implying that a “proactive and
responsive supply chain” (Sell, 2014) is essential for keeping consumers'
attention. Resulting from the emergence of E-‐Commerce, E-‐ Businesses have the
advantage that new products may be launched faster and especially through various
digital and non-‐digital channels. The digitization of business has positively
influenced efficiency and responsiveness of supply chains (Lee et al., 2001).
Furthermore E-‐Commerce also resulted in faster information sharing among supply
chain members. Data may be exchanged more rapidly which is especially beneficial
in the fields of stock management, manufacturing, customer care and order tracking.
According to Lee et al., the goal of most E-‐ businesses is to streamline and automate
as many processes as possible (Lee et al., 2001).
2.2.7 MasterCard Omnishopper Report
The Omnishopper Report by MasterCard is a research conducted by MasterCard
which, according to the company, analyzes what the shopping behavior of present
generations is and what thereby might be predicted for future peer goups
(MasterCard, 2015). This company report is based on a survey which more than
10,000 omnishoppers across 11 countries responded to. The overall aim of this study
was to find out more about consumers who are actively participating in online and
offline shopping within a set period of one month (MasterCard, 2015) Omnishoppers
are defined as “consumers who use technology for the full range of shopping
experiences” (Thelander, 2015). This includes the usage of desktop computers,
mobile devices and telephones. Nevertheless, omnishoppers also regularly visit local
bricks-‐and-‐mortar stores.
One specific characteristic of omnishoppers is that many consumers today use their
phones while being in a physical store to instantly look for availability and price and
compare multiple retailers. Omnishoppers are a result of the emergence of E-‐
Commerce and the further development of traditional retail businesses and their
outlets. In comparison to consumers of 20 years ago, omnishoppers typically have
high expectations towards their shopping experience, are highly communicative and
constantly connected. Furthermore, the goal of the shopping process for
omnishoppers is convenience (Thelander, 2015).
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As the omnishopper is a completely new customer segment with new opportunities
and threats to businesses, its discussion is of special interest and importance to the
retail industry. MasterCard has therefore published its statistic report which
contains a brief discussion and examination of topics as consumer perceptions of
payment methods, E-‐Commerce, information research and drivers of loyalty. The
second part of this chapter therefore gives an insight into the MasterCard
Omnishopper Report and thereby presents, analyses and visualizes a selection of
significant survey questions and their outcomes.
The first selected question for interpretation is: “How has technology changed the
way you shop?” which is visualized in Figure 2 below. Generally, technology has
increased price and product comparison among different retail competitors.
Furthermore, consumers agreed that they tend to choose a product which fulfills
their expectations more often and therefore get to avoid disappointments.
Additionally, reviews play a central role in shopping behavior today as these
comments and ratings can substantially affect consumer behavior. Possibly, these
are also the reason for the high response rate in the answer possibility “I buy more
from unfamiliar merchants”.
Figure 2: How has technology changed the way that you shop? (MasterCard, The Omnishopper Project, 2015)
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Secondly, the question “How often do you use technology when shopping?” was
chosen for evaluation. In order to find out more about trends and target groups, the
answers for this question were assessed by MasterCard based on age groups. 87% of
the youngest participants, more precisely respondents in the age of 18 to 29, always
or sometimes use technology when shopping. This means that the main target
market for E-‐Commerce is the younger part of the population as technology is
handled much easier and as the awareness of technological progress is much more
present than for older age groups. All answers are furthermore visualized in Figure 3
below.
Figure 3: How often do you use technology when shopping? (MasterCard, The Omnishopper Project, 2015)
The third question, namely “Why don't you shop more online?” gives an insight into
possible constraints consumers face concerning online shopping. Answers are
visualized in Figure 4 below. The least prominent issue is attached to the non-‐
availability of products online as this problem can usually be solved quickly because
there is an enormous variety of online shops available which offer the same product.
Typically, consumers tend to be unsure of and therefore unsatisfied with the safety
of online payments and the overall lead time of online purchases. Nevertheless, “I
want to touch and see the product” appealed to almost 50% of the sample.
This answer also implies that returns from online sales are much higher than those,
which have been made in physical stores.
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Figure 4: Why don't you shop more online? (MasterCard, The Omnishopper Project, 2015)
The following paired questions give an interesting insight into the direct comparison
between brick-‐and-‐mortar and click-‐and-‐mortar shops as MasterCard asked its
consumers: “Where is online better than in-‐store?” and “Where is in-‐store better
than online?”. Online shops score especially high as, according to survey
respondents, their usage is convenient and easily accessible. Additionally price
comparison among large selections is easy and therefore money can be saved with
less effort. In direct contrast, in-‐store shopping gets chosen as purchased items are
received immediately, the shopping experience, merchants create by giving advice
and as the after-‐sale service is usually perceived as a value-‐adding service.
Figure 5: Where online is better than in-‐store (MasterCard, The Omnishopper Project, 2015)
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Figure 6: Where in-‐store is better than online (MasterCard, The Omnishopper Project, 2015) 2.3 Supply Chains and their Management According to Mangan et al., a supply chain is the “network of organizations which
are involved through various linkages in different processes that produce value in
form of products in hands of ultimate consumers“ (Mangan et al., 2008).
A common supply chain contains interactions between suppliers, manufacturers,
distributors, retailers and consumers. Due to the remarkable growth of international
trade and the influence of globalization, Mangan et al. point out that various
companies today possess facilities which are located overseas and work closely
together with international supply chain partners. Nowadays, this is especially
possible due to established trade agreements as the EU and ASEAN.
As Mangan et al. further analyzed, globalization and international trade growth
imply increasing global competition, sourcing and presence as well as global access
to knowledge and new technologies. Therefore outsourcing and offshoring also
gained importance in previous years as both arrangements are methods which aim
to reduce costs and improve efficiency in an international context. According to
Kersten et al., companies outsource for several reasons, including cost reduction,
flexibility and the concentration on core competencies. Amazon traded these
advantages off and accepted a certain loss of control and partially the loss of direct
customer contact (Kersten et al., n.d.). A supply chain requires efficient logistics
support in order to function and maintain high performance standards. According to
Mentzer, logistics is defined as “the movement and storage of materials to meet the
26
customers need and organizational objectives“ (Mentzer, 2011). Furthermore, as
pointed out by Bowersox et al, logistics unites the overall operations and actions of
supply chain members to build a stable network (Bowersox et al., 2007). Supply
chain management is the management across these named supply chain dimensions
and evaluates the flows of materials, information and resources. The purpose of
such management process is the creation of value, efficiency enhancement and
customer satisfaction (Mangan et al., 2008). Lastly, SCM aims to achieve cost
reduction and company liquidity.
2.3.1 Determinants of Supply Chain Success
According to Talib et al., the success of a supply chain can be determined by four
main factors (Talib et al., 2014). Firstly, partner collaborations have to be viewed and
registered as strategic assets by all supply chain partners. As further developed by
the author, this implies that successful integration as well as a trustful relationship
leads to faster progress, agility and lower costs. Moreover a well-‐defined strategy is
crucial for a supply chain's success, including the evaluation of strengths and
weaknesses as well as the development of plans for improvement. Thirdly, the
author adds that information is the key to success of a supply chain. Making
information visible along the whole chain is crucial in terms of inventory, demand,
capacity and material flows.
Lastly, a supply chain is especially successful if it is fast, low-‐cost, of high quality and
customer service-‐ focused. These factors combined make up the metrics by which
supply chains are generally measured.
2.3.2 Supply Chain Strategy
According to Mangan et al, a company without strategy, is “like a ship without a
compass” (Mangan et al., 2008). In addition to the above mentioned determinants
of supply chain triumph, a company's supply chain strategy is crucial to success. As
pointed out by Qrunfleh et al., a company's supply chain strategy indicates which
goals and objectives the business has (Qrunfleh et al., 2014). Such strategic approach
usually contains a company's demand management, the sum of sourcing,
procurement and inventory management as well as a detailed transportation
27
planning. Monczka et al. summed up that the overall goals of such a strategy are the
maximization of company skills in terms of customer satisfaction as well as
increasing company value (Monczka et al., 2014).
Main drivers of such strategy are consumer requirements, demand and supply.
Figure 7: Supply Chain Strategy Dimensions (Lee, Aligning Supply Chain Strategies with Product Uncertainties, 2002) As visualized in Figure 7 above, Lee states that demand and supply uncertainty may
be set at a low or high level, depending on product type and the mobility of the
process (Lee,2002). Agile supply chains are a combination of responsive and risk-‐
hedging supply chains, implying tight collaborations with suppliers and
customers. Risk-‐hedging supply chains are characterized by high safety stocks and
component standardization and responsive supply chains may react quickly to
unpredictable demand. The combination of predictable demand and adequate
supply creates efficient supply chains which are additionally very low cost-‐oriented.
2.3.3 Drivers of Supply Chain Performance
The performance of a supply chain gets determined by a well-‐planned supply chain
strategy, the company's customer approach and additional factors which vary across
industries. Nevertheless, this assessment typically involves a critical judgment and
planning process of sourcing, inventory, transportation, facilities, pricing and
information (Chopra et al., 2007).
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2.3.4 Sourcing
Sourcing is mainly concerned with decisions on the distribution of business
processes. This means that sourcing manages the identification of parties which will
perform specific supply chain activities including transportation, inventory control or
production (Chopra et al., 2007). Based on a critical assessment of the named
dimensions, companies may decide whether to keep or outsource parts of their
operations. Sourcing decisions have direct influence on efficiency and
responsiveness of a supply chain (Chopra et al., 2007). Moreover, outsourcing
operations may lead to increased efficiency but lower responsiveness and longer
lead times whereas keeping operations might imply the exact opposite.
2.3.5 Inventory
One of the three most important flows which can be managed through a supply
chain, is the flow of material and inventory. Stock, which is one of the key-‐assets a
company possesses and manages, can be held in many different forms and at
various locations.
Most prominent examples are finished goods at the supplier and raw materials at
the manufacturer (Mangan et al., 2008). Companies usually make use of three types
of inventory – cycle, safety and seasonal inventory. Cycle inventory is the stock a
company holds in order to satisfy regular operating customer demand. Prominent
examples are items which can be found on shelves in local retail outlets. Safety
inventory is the product stock, which is hold by companies to better prepare for
uncertain or variable demand. Seasonal inventory is held in order to be prepared for
periods of higher demand, mainly Christmas, Easter and other public
holidays. Overall, higher inventory levels typically imply higher possible
responsiveness as well as increasing inventory carrying costs. Inventories typically
have high costs involved and as analyzed by Mangan et al., stock is binding working
capital and has a large effect on cash flows (Mangan et al., 2008). Moreover,
inventory requires space to be stored as well as employees who handle and control
this stock on a regular basis. The overall goal for inventory management is therefore
the reduction of inventory holding while keeping operations at a stable level that
satisfies customer demand.
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As a result, many companies today put increased emphasis on implementing
strategies which continuously help reducing inventory.
For example, a reduction of safety stock may be achieved by limiting variation in
terms of lead time, demand, supply and quality (Mangan et al., 2008).
2.3.6 Transportation
Companies typically have two types of transportation directions, namely inbound
and outbound. Inbound transportation involves the process of bringing material or
finished goods into a facility whereas outbound transportation describes the sending
process out of a facility to customers (Chopra et al., 2000). These two transportation
directions may be fulfilled by six main transportation modes, namely air, road, rail,
water, pipeline and electronic transportation (Davidsson et al., 2005). When
organizations evaluate which transportation mode is appropriate to use, this
decision typically depends on “volume and value of the freight, the distance to be
travelled, the availability of different services and freight rates to be charged”
(Mangan et al., 2008).
The following comparison, published by Mangan et al. shortly contrasts the six
previously named transportation modes based on relative costs and operating
characteristics. This comparison is especially important as today competition among
transportation providers is very high. Trucks which transport freight on roads, have
relatively low fixed costs as needed infrastructure is fully financed by public funding.
Furthermore, variable costs as fuel expenses, maintenance and congestions charges
are comparably low, always depending on the extent of vehicle usage. As
summarized by the author, advantages of roads are speed, availability, dependability
and frequency whereas disadvantages are a trucks' limited capacity on freight
weight and volume. Due to very price-‐intensive equipment, rail transport has higher
fixed costs than trucks. Nevertheless, trains are considered very fast, dependable
and capable of transporting larger quantities of freight than trucks. Airplanes have
relatively low fixed costs but again very high variable costs – especially as fuel is very
expensive. As pointed out by Mangan etc al, the biggest strength of planes as a
transportation mode, is their speed. Nevertheless, air transport typically needs to be
combined with other transportation modes as a plane rarely is able to reach the
desired final destination. Water transportation has a medium level of fixed costs and
30
a very low level of variable costs, especially as ships may typically carry enormous
volumes of freight. However, ships are typically fairly slow and can, similar to
planes, rarely reach their end consumers without being dependent on another
transportation mode which is more mobile. Pipelines and electronic transportation
are limited in their usage as they can only be applied in few situations and for very
specific products.
2.3.7 Facilities and network design
Facilities are defined as the “actual physical locations in the supply chain network
where product is stored, assembled, or fabricated” (Chopra et al., 2007). As further
evaluated by Sople, facility networks are typically built based on the facility's duty
area, geographic position, volume as well as their flexibility (Sople, 2012).
Therefore, the processes which will be performed at facilities, have to be clearly
defined before allocating specific operations to a certain space. Another factor
which is crucial on this decision path is the assessment on where a company may still
operate on a low budget while still ensuring customer satisfaction.
Clear information about needed floor space and capacity is mandatory as well as the
identification of the market which will be served. Moreover, potential supply
sources have to be identified in order to ensure supply availability for the facility's
operations. In conclusion, one may say that all of these questions and their answers
are highly dependent on and influenced by each other. When deciding which
strategy to follow when allocating and managing facilities and their locations, firms
may generally decide whether to build one single global distribution center or
multiple depots within a single or within multiple countries. This decision is mainly
based on overall fixed facility costs as well as variable costs and consumer
requirements. Generally, warehouses receive items, put them into their storage,
wait for an order to arrive, pick and pack the items and dispatch them at the end. An
alternative would be the usage of cross-‐docks, overcoming the necessity of storage.
A value-‐adding warehouse strategy contains the creation of bulks, for other cases
the breaking of bulks, combining goods and smoothing. In order to manage
warehouses more efficiently, Warehouse Management Systems may be introduced,
improving information flows while minimizing human efforts needed, time, costs
31
and errors. Furthermore WMS may improve standardization in warehouse processes
as well as overall performance accuracy.
2.3.8 Pricing
Buyers behavior is directly affected by the prices companies charge for their goods
and services. It is therefore also determining the level of demand and thus the level
of supply.
2.3.9 Information
Forecasting processes, enabling technologies and aggregate planning are factors
which need to be considered and discussed when managing information.
Information and data analysis play a special role in supply chains and their
management as pricing, sourcing, inventory, facilities and transportation are all
based on accurate information.
This implies that information is the most important driver of supply chains and
companies in general as information has direct effects on each of the above
mentioned driver.
2.4 Information Technology Applications and Supply Chain
Automation As supply chains have evolved, grown and optimized, so have Information
Technologies and Applications (Mangan et al, 2008). It is especially significant to
mention these two developments in the same context as IT has essentially
contributed to various innovations in the supply chain context.
The following chapter therefore shortly identifies the main Information technologies
and their characteristics developed for the global supply chain business. Generally,
all three flows which have been named in foregone chapters, namely materials,
resources and information may be controlled, managed and therefore improved
more efficiently by using automated computer systems. The overall development
and implementation of a computer system may take some years and typically has
high investments attached to it. Nevertheless IT usage is able to effectively increase
32
productivity and efficiency in comparison to prior-‐IT business procedures. As
analyzed by Qrunfleh et al., companies typically use Information systems to improve
efficiency or flexibility. Information systems which aim to increase efficiency, more
precisely, EDI, workflow automation systems and ERP typically improve the control
of day-‐to-‐day internal and external company processes. As further evaluated by the
author, the above mentioned systems register transactions, publish information
about these, structure workflows and enhance standardization. Information systems
which may lead to more flexibility include market information systems and strategic
decision support systems. Moreover these systems aim to enhance the decision-‐
making process of companies (Qrunfleh et al., 2012).
IT systems in a SCM context can be further categorized based on two factors, more
precisely overall reach and general application. As explained by Mangan et al.,
Figure 8 below visualizes the main classification of IT systems in SCM.
Figure 8: IT systems classification in a SCM context (Mangan et al., Global Logistics and Supply Chain Management, 2008) Enterprise resource planning, materials requirements planning and manufacturing
resource planning are systems which may be installed inside organizations in order
to increase effectiveness of internal planning processes. Collaborative planning,
forecasting and replenishment is another planning system which, however, is inter-‐
organizational, meaning systems from different companies may be connected.
Electronic Data Interchange -‐ which, according to Chopra et al. especially facilitates
order placements with suppliers, speeds up transactions and collects data more
33
accurately (Chopra et al.,2013) -‐ and Vendor Managed Inventory are two systems
which are used in an inter-‐organizational context in order to support a specific
process execution. Warehouse Management systems are used at the execution
stage of supply chains and are intra-‐organizational, meaning, they increase efficiency
of company-‐operated warehouses.
2.4.1 RFID
When RFID is applied in a supply chain context, these technologies serve to monitor
the movement of goods and thereby enables an automated identification and
location detection of physical freight (Mangan et al., 2008). Furthermore, RFID is
often used in order to improve real time communication as well as visibility when
used in combination with a developed supply network (Mahdavi et al., 2011).
The underlying concept of RFID implies that items which a company desires to track,
get tags implemented which transmit radio frequency signals that can be detected
by RFID readers. These tags may be attached to individual objects, freight batches
or entire containers (Mangan et al., 2008).
RFID has a significant importance in supply chain management as it can be efficiently
used for asset tracking and management whereby increased security of freight may
be guaranteed, stock management is improved and errors in product data handling
are generally reduced. As further evaluated by Mangan et al., the emergence of
RFID in a supply chain context resulted from the desire to maximize agility, react
faster to product spread as well as demand volatility (Mangan et al., 2008).
2.5 Financial Management in Logistics As pointed out by Mangan et al., trade is based on financial flows (Mangan et al.,
2008). Furthermore he evaluates that accounting and supply chain management are
closely related to each other. Finance in this context is described as “the use of
financial or accounting information by management at all levels to assist in planning,
making decisions and controlling the activities of an enterprise”(Mangan et al.,
2008).Financial management however primarily oversees how companies manage
their funds in a long term perspective.
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3 Amazon Case study The following part of this paper contains a simplified case study on the company
Amazon which Brad Stone refers to as “The Everything Store” (Stone, 2013). The
case study approach was chosen as, according to Simons: “a case study is a study of
the singular, the particular, the unique” (Simons, 2009). As Amazon is undeniably an
exception in the retail industry, more specifically in E-‐Commerce, and unique in its
nature and retailing approach, the company case will be studied in depth in the
following. The goal of a case study in general is to gain a comprehensive and
detailed insight into a specific field and topic (Simons, 2009), whilst applying
theoretical knowledge onto a real-‐life company. According to Stake, a case study
focuses on the identification of the extraordinary rather than on abstract
generalities (Stake, 1995).
Stake concludes that it is furthermore special in its nature as it represents the
identification of “particularity and complexity” (Stake, 1995) of a certain single case.
3.1 General Information and Company Background Amazon.com Inc. was originally founded in the 1994 by CEO Jeff Bezos. The
organization is a multinational E-‐Commerce company with headquarters in Seattle.
Today, it is the largest online retailer of the world (Li, 2015) and as Simpson predicts,
85% of all products available world-‐wide will be purchasable on Amazon in the near
future (Simpson, 2016).
The Amazon River was Bezos' inspiration when choosing the company name as the
river's image is best described by being exotic and different. Furthermore the name
reflected Bezos' plan of following the path of the Amazon River as it is one of the
largest of its kind in the world (Rouse, 2014). Originally started as a basic online
bookstore, Amazon now continuously adds new products to its range, including
various merchandise items as DVDs, CDs, video games, furniture and food.
Furthermore Amazon also added video and music downloading services and a
streaming platform to its range. This shows that the company has partial and pure E-‐
Commerce features.
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As summarized by Turban et al., product purchasing from Amazon is partial E-‐
Commerce as the item which was bought, is physically delivered. Nevertheless,
downloading an E-‐Book or music from Amazon may be summarized as pure E-‐
Commerce as all business processes are in a digital format (Turban et al.,
2008). Markets which Amazon targets and currently covers and serves are mainly
North America, Western Europe, Brazil, Japan, India and China. Currently, India
represents a special market for Amazon as, according to the company's financial
analysis of 2015, sellers who sold their products through Amazon.in, achieved higher
sales figures in Q4 of 2015 than in all quarters combined in 2014 (Amazon.com,
2015). Further expansions to Southeast Asia and Eastern Europe are scheduled
(Amazon.com, 2015). According to Amazon's mission statement, the company aims
at becoming the „Earth’s most customer-‐centric company for four primary customer
sets: consumers, sellers, enterprises, and content creators“ (Amazon.com, 2015) .
In order to fulfill customers' expectations, the E-‐Giant also works on various product
developments and has launched a large variety of items until now. One of them is
Amazon's E-‐Book reader “Kindle” which has been introduced to the market in 2007
and has foregone various updates and improvements ever since.
A more recent product development by Amazon is “Amazon Locker” that has been
firstly brought to the market in 2011 and which has expanded rapidly in the
beginning of 2016. The system behind “Amazon Locker” is similar to the principle
behind DHL packing stations in Germany. Currently these lockers are solely available
for testing in certain cities in the United States as well as London as the only
European metropolis. This self-‐service was primarily developed for users who are
not able to receive parcels due to long working hours which make it impossible to
reach post offices on time
3.2 Business Strategy and Business Model According to Farhi, Jeff Bezos had three main points he wanted Amazon to follow
when setting up his company. Firstly, Bezos aimed at developing Amazon to be as
customer-‐oriented as possible. Furthermore one of his goals was not to remain a
simple selling platform, but to actively create and invent products and services.
However Bezos realized that building up and establishing a company takes much
36
time and patience (Farhi, 2013). According to the CEO, these three main strategic
ideas are still the main reason for the company's success. Amazon's business model
can be further described by the “flywheel”-‐strategy, which was developed by Jim
Collins. As analyzed by Tonner, Collins' flywheel gives a significant insight into how
Amazon is able to manage and guide its everyday business procedures (Tonner,
2016). As Brad Stone analyzes, the flywheel of Amazon implies that lower prices are
typically followed by higher customer traffic to a website. By attracting more
potential buyers, sales increase and thereby higher commissions may be generated
which are payed by third-‐party sellers (Stone, 2013). Moreover, this strategic
approach resulted in lower fixed costs and generated increased efficiency. Therefore
lower prices could be guaranteed. Setting a flywheel in motion is tedious at first.
However, once the process has started, effects will be increasingly visible and
generally faster to achieve (Tonner, 2016).
In order to keep the flywheel spinning, Amazon is required to manage a constant
flow of new products, suppliers, customers and promotions, as well as timely
delivery. Another strategic business goal, which Amazon is trying to constantly
reach is to gain competitive advantage in the fields of choice, convenience and price
(Furtwengler, 2015). As Amazon is an Internet-‐based company, this goal is easier to
attain than for physical retailers. Their inventory model, which will be further
discussed in Chapter 3.5.1 ”Inventory Planning and Management” includes
company-‐owned inventory, partner inventory and third-‐party sellers. This large
variety gives consumers the opportunity to browse through the entire selection of
products available on the Internet. This suggests that Amazon summarizes every
possible and imaginable product category, implying that potential consumers do not
have to browse through websites of other product providers anymore.
In summary, Amazon follows a customer-‐centric flywheel-‐ business model which is
especially characterized by putting special emphasis on choice, convenience and
price.
3.3 Amazons' financial position As analyzed by Laudon et al., few businesses have gone through rapid changes in
performance similar to Amazon's (Laudon et al., 2014). The company has exceeded
37
expectations in regards to growth as such an expansion and growth pattern is not
typical for the industry. Having witnessed extensive losses shortly after, Amazon was
able to eventually slowly reach profitability after almost ten years of operations
(Laudon et al., 2014). When operations started in 1995, Jeff Bezos announced that
Amazon would not be a profit-‐generator in its nature. Furthermore, Edward
analyzes that reaching enormous profits was never the primary goal of the company
(Edwards, 2015). Surprisingly, Amazon managed to generate its first positive profit
figures in 2003 (Chopra et al, 2013). Amazon's most impressive performance
indicators are its sales figures. Taking Cyber Monday 2015 as an example, consumers
ordered around 500 items a second from Amazon as USA Today published in an
article (Siegal, 2015). This sums up to more than 42 million products which have
been purchased in one day. On January 28th 2016, Amazon published its financial
results for the last quarter of 2015, ended in December 2015, containing a detailed
financial analysis of Amazon as well as the company's financial statements.
The entire company report may be found in Appendix 1 of this paper. For their
fourth quarter in 2015, Amazon reported the following financial results: The
company's net sales totaled $35,7 billion, representing an increase of 22% in
comparison to Q4 of 2014. The operating income in Q4 of 2015 totaled $1.1 billion
which is an increase of 88% when compared to the same period of the previous
year. Amazon furthermore reported a net income totaling $482 million, showing a
large increase in comparison to Q4 2014, where net income totaled $214 million.
When looking at the bigger picture and therefore evaluating the full year 2015, net
sales increased by 20% and operating income totaled $2.2 billion in comparison to
$178 million which was generated in 2014. Furthermore, net income was $596
million whereas in 2014, a net loss of $241 million was noted. The first part of the
company report gets concluded by a quote by Jeff Bezos, saying: “Twenty years ago,
I was driving the packages to the post office myself and hoping we might one day
afford a forklift. This year, we pass $100 billion in annual sales and serve 300 million
customers” (Amazon.com, 2015). He adds, that he is aware of the fact that the
industry he positioned himself in is highly dynamic and continuously re-‐defining
opportunities and consumer expectations, making operations and the generating
competitive advantages, much harder.
38
Another financial aspect which Amazon included in its end-‐year report, is a financial
guidance for 2016, containing goals which the company wishes and expects to attain
through Q1 of 2016. According to Amazon these predictions are however subject to
change and uncertainty. Examples for factors which may critically affect these
desired predictions are exchange rates, the overall global economy and consumer
purchasing power. Furthermore, Amazon's actual performance is highly dependent
on the following factors below which have been directly retrieved from their report:
• the amount Amazon invests in new business opportunities and the timing of those investments
• the mix of products sold to customers
• competition
• international growth and expansion
• data center optimization
• seasonality
• payment risks
• risks attached to new products, services and technologies
• government regulation and taxation.
Amazon finally wishes to generate net sales totaling between $26.5 billion and $29
billion. Furthermore a sales growth of 17% to 28% in comparison with Q1 of 2015 is
their goal. Furthermore operating income in Q1 of 2015 totaled $225 million – for
Q1 of 2016, Amazon desires to achieve operating income laying between $100
million and $700 million.
3.4 Amazon's Supply Chain According to Mahdavi et al., a well-‐functioning supply chain network is characterized
by being agile, adaptable and aligned (Mahdavi et al., 2011). Amazon's supply chain
is one of the strongest world-‐wide as it is firstly agile, meaning that it can react
speedily to sudden changes in demand and supply. Furthermore, it is highly
adaptable to changes in market structures and strategies and lastly their supply
chain is able to align interests of all participants in a supply network, implying that
when optimizing the performance of a supply chain, also the participants interests
39
get maximized (Lee, 2004). Being a top performer in these three dimensions gives a
sustainable competitive advantage to Amazon. When firstly overlooking Amazons'
supply chain, the company itself is part of two main cycles. Firstly Amazon is
involved in the customer order cycle when a consumer buys items from Amazon
online. The consumer represents the buyer in this case, whereas Amazon is the
supplier. Nevertheless, when Amazon orders items which it does not store in its
warehouses or which are out of stock, the company is involved in the replenishment
cycle as the buyer. This explanation implies that, once a customer places an order
online, there are two process possibilities that might follow. Firstly, if Amazon stores
the product itself, Amazon's ERP identifies the closest distribution center to the
customer which has the item stored.
Alternatively, the distributor who is going to fulfill the consumer's order, is identified
on Amazon's behalf.
Looking into option one, orders get received at the distribution center by a flow
master who assigns orders to specific employees or KIVA robots. Once an item gets
ordered, it gets marked by illumination until the picker gets the item from its bin. By
using conveyor belts, picked items get transported to a central point where the
individual product barcodes get matched with order numbers (Turban et al., 2015).
Following, items get packed into parcels, the freight gets weighed, labeled and
placed onto trucks (Lee, 2004).
As investigated by Bacheldor, Jeffrey Wilke, who is the senior vice president of
Amazon worldwide, says that the company is going to further focus on price,
selection and availability in order to achieve growth. However, Wilke concluded that
a success in these three fields may only be possible with a well-‐functioning supply
chain (Bacheldor, 2004). In summary, Amazon's innovative supply chain is following
a Triple A-‐approach and is diverse yet cohesive as the company obtains its supplies
from many varying resources, making it a valuable partner to cooperating
businesses.
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3.5 Supply Chain Drivers of Amazon The main goal of every company's supply chain, including Amazon, is to reach a
balance between responsiveness and efficiency by making decisions in the fields of
inventory, facilities, pricing, transportation and information. The following chapter
therefore analyses how Amazon manages these factors and what influence this
management has on their supply chain.
3.5.1 Inventory Planning and Management
Inventory Management is one of the drivers of supply chain success and therefore of
significant importance to Amazon. In comparison to direct competitors which will be
further discussed in Chapter 4 “Amazon's Competition”, Amazon offers one of the
widest product ranges on the Internet. The first assumption Bezos had about
Amazons' inventory and storage capabilities at the beginning of the company's
operations, was to equip warehouses with everything the CEO thought, consumers
might buy during the holiday season in order to ensure immediate product
availability.
Additionally, Amazon wanted to avoid the situation of a consumer not finding an
item on the website and therefore going to a competitive company. Clearly,
customer satisfaction and service were very high in this period. Nevertheless, this
idea resulted in a large company loss by the end of 2001. Following this, Amazon
started outsourcing parts of its inventory management and redesigning its
warehouses by introducing their “Chaotic storage” (Schofield, 2016). Traditional
warehouses today are typically arranged based on product categories or levels of
demand. However, Amazon decided to distance itself from the constant need of
rearranging complete isles in case of new product introductions or deliveries of large
quantities of items.
Therefore, the company developed a simple grid of items which are randomly
assigned to isles, sections and shelfs and can be easily identified with the help of
their barcodes. By assigning an individual barcode to every item, products can be
stored and found more efficiently and much faster. Furthermore, the registration
system which these barcodes are based on is able to update item availability on a
41
real-‐time basis. This implies that once an item gets ordered by a consumer and
scanned by an employee, the available number of goods gets lowered instantly.
Additionally, for specific, especially high-‐demand products, Amazon is currently
working on the implementation of reorder points. These points include automated
reordering systems which, once inventory gets down to a certain point,
automatically generate an order for new stock without the need for human
intervention.
Today, Amazon has the ability to lower inventory levels and costs without limiting
product selection by improving the match between supply and demand.
Nevertheless, the company is not using the same strategy for all of its products, but
differentiates between high-‐ and low-‐demand items. One of Amazon's initial
strategies is the aggregation of stock at a few facilities (Chopra, n.d.). In order to
increase its reach, this number is growing and much larger today than 20 years ago,
but however still smaller than the number of retail outlets of many competitors. As
further argued by Chopra, this inventory aggregation is especially beneficial for low-‐
demand items with high variability (Chopra, n.d.).
This means that the reduction of inventory is mainly useful for low-‐demand items
with high demand uncertainty as this also saves storage in warehouses which can be
used for other, more popular items, which also have a higher inventory turnover and
therefore generate larger profits. This also implies that a reduction of inventory for
best-‐sellers is not advisable as Amazon would thereby risk inventory shortage and
dissatisfied customers. In order to better manage inventory, Amazon has
furthermore introduced Drop-‐Shipping. This method is a supply chain technique
where, according to Chopra et al., orders are directly shipped to the consumer from
the manufacturer. In this setting, Amazon only manages the request and does not
physically fulfill the order (Chopra et al., 2007). Therefore, for certain items, Amazon
does not carry inventory but relies exclusively on direct manufacturers. The biggest
benefit Amazon gets from drop-‐shipping, is the partial centralization of stock at
manufacturers (Chopra et al., 2007). Additionally, Chopra analyzed that especially
slow-‐moving items might benefit from drop shipping. Specifically, inventory turnover
may increase by a factor of six or higher (Chopra et al., 2007). Nevertheless this
advantage in inventory management gives Amazon additional costs for
42
transportation arrangements as typically manufacturers are positioned further away
from end consumers. This cost disadvantage is especially present when consumers
order multiple items which have to be sent individually.
In summary, this means that Amazon stores high-‐demand products and directly
purchases items with a lower demand from distributors when orders by customers
have been placed. Amazon therefore accepts the trade-‐off between product
availability and cost reduction. This means, that increased inventories would clearly
improve product availability and margin captures from customer purchase. However
more stock would also mean increased inventory holding costs.
3.5.2 Amazon's facilities
Most e-‐retailers, including Amazon, began their operations with a single distribution
center in order to centralize operations and save costs. The original strategy of
Amazon was to place its fulfillment centers and warehouses at places where local
taxes were relatively low. Geographic proximity to potential consumers and target
markets was not the company's priority at the beginning. Taking the US as an
example, some states only raised sales taxes for brick-‐and-‐mortar stores.
However, fulfillment centers and warehouses do not belong to the same
classification group as retail stores (Hansen Harps, 2005). This low-‐cost advantage
made specific states especially appealing to Amazon. Furthermore, comparing the
cost of shipping resulting from the distance between tax-‐free facilities and
customers still resulted in higher returns on equity and assets compared to potential
fulfillment centers located closer to customers. However, as the supply chain
furthermore drives customer experience, Amazon has invested heavily into
additional distribution centers in order to limit distance to its customers and to
enable faster delivery and transportation (Misch, 2014).
Today Amazon operates 293 active facilities world-‐wide on over 113,000,000 square
feet. Furthermore 27 additional facilities are planned for the future (MWPVL
International, 2016). A detailed overview over Amazon's facilities and their locations
can be found in Appendix 2 of this paper.
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There are two main types of facility costs where the first one comprises all costs
which are related to the number and the location of a company's facilities. The other
type represents costs which are associated with the operations that take place at
these facilities. Companies with customers who typically don't require a short
response time may operate efficiently by only operating few facilities which do not
have to be located at a close distance to its customers (Chopra, n.d.). Therefore,
Amazon's advantage in comparison to brick-‐and-‐mortar companies in this context is
the ability to centralize operations and thereby save on network facility costs by
having a relatively small amount of facilities. Amazon today operates around 300
active facilities whereas comparable, well-‐known and established book stores may
have up to 500 facilities, including numerous retail outlets. Certainly, also Amazon's
facility costs are growing with their continuous expansion and growth, however,
they are still much lower than costs of physical retailers. Identifying the number of
boxes and packages which Amazon ships per day is almost impossible as the
company generally keeps these information confidential. Nevertheless, the Michigan
State University performed an estimated calculation based on figures which were
researched for 2013. Amazon's revenue for 2013 totaled $74.45 million which the
authors then multiplied by an estimated percentage of physical goods totaling 85% -‐
excluding E-‐books and AWS (Michigan State University, n.d.).
Assuming that the average order cost is around 50$ and that there is one box used
per order and that there are approximately 360 days in a year where Amazon
operates, MSU came up with the following calculation:
$74.45*.85/$50*1/360 = 3,515,694 packages per day.
When items arrive at a warehouse from Amazon, employees typically manually
transport the freight from trucks and position it onto conveyer belts at the entry of
the warehouse. The parcels are opened, unpacked and placed into special sorting
carts which get assigned to sorting teams of the warehouse. These teams then
position the newly-‐arrived items into storage units which have been assigned to
them by Amazon's inventory algorithm which follows their well-‐known “chaotic
storage method” which has been discussed in Chapter 3.5.1 ”Inventory Planning
and Management” of this paper.
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Replenishing warehouses with items and the fulfillment of orders, is very time-‐
consuming for Amazon and its employees. In addition to the time factor, this process
requires an immense number of employees, considering the high number of orders
that are placed daily. Despite the fact that this method is still used on a daily basis in
many warehouses worldwide, Amazon sought for possible improvements of the
“find, select, pick and pack”-‐process. The result was the acquisition and new
introduction of KIVA robots into Amazons warehouses in 2012. The automation of
the company's warehouses and KIVA Robots will be discussed in the following
chapter.
3.5.3 Automated Warehouses and KIVA Robots
As mentioned in the foregone Chapter, Amazon's overall goal for the optimization of
its warehouses was the minimization of human power needed for operations
(Kaplan, 2015). Furthermore Amazon's traditional warehouse management had two
main points which could be improved. Firstly, the company realized that putting
manual inputs of sales figures into their inventory management software and system
was neither effective nor efficient. Moreover, Amazon had issues with
communication among their warehousing parties.
As connections and communication among partners are automated today,
consumers who place an order get information about the order's arrival date within
some seconds. Additionally, if the order contains more than one single item, Amazon
calculates in real time if the products will reach the consumer as a single delivery or
in separate parcels on different dates. In order to ensure more efficient warehouse
operations, KIVA Robotics, a company which develops automated material handling
order fulfillment systems (Robotics Business review, n.d.), became a subsidiary
company of Amazon. As a consequence, the company officially changed its name to
Amazon Robotics LLC in 2015. The robot, which has been introduced to American
warehouses first, often gets referred to as the strongest and busiest employee of
Amazon (Tam, 2014) as it is able to perform various tasks, does not require breaks
and as it is much faster and more efficient than humans. The main task the robot
performs is the identification of items which have been ordered and the attached
transport to assigned picking-‐ employees.
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When a consumer purchases an item on Amazon, a robot gets assigned
automatically by the system to identify the location of the product and to carry it to
the picker. To finalize the order, the picker then only has to select the item, register
and scan it and prepare it for the packing process.
As pointed out by Tam, Amazon's senior vice president Dave Clark states that the
robot itself had immense effects on the order packing process of Amazon – limiting
the average fulfillment time of an order from 90 to only 15 minutes (Tam,
2014). Currently, in order to further speed up and optimize the fulfillment process
and to minimize human intervention, Amazon is looking into the development of a
picking and packing robot. In addition to increased efficiency and faster possible
operation, warehouse automations also result in better allocation of floor space as
less employees and less supersize forklifts are needed.
3.5.4 FBA – Fulfillment by Amazon
“You sell it, we ship it” (Amazon.com, n.d.) is the prominent headline of the
company-‐operated fulfillment service of Amazon which does not only support the
growth of Amazons marketplace, but also has various benefits to third-‐party sellers
that use Amazon's services.
One of Amazons all-‐time goals is the reduction of fulfillment and transportation
costs. Therefore they increased the number of warehouses and therefore fulfillment
centers in recent years. FBA was developed for interested retail parties which store
products in Amazon's Fulfillment Center network and when the product is ordered,
Amazon picks, packs and ships the chosen item to its destination. It additionally
handles customer service on behalf of the company. This service was primarily
developed for retailers of a smaller size which have a limited budget. Therefore,
collaborating with firms which already possess advanced technologies, might be
especially interesting for these organizations. Furthermore, as analyzed by Channel
Advisor, over 60% of sellers, which use FBA reported an increase in sales of more
than 20% since they joined the program by Amazon. Moreover, almost a quarter of
sellers reported sales which doubled in comparison to previously collected data
prior-‐FBA (Channel Advisor, 2016). For providing this service, Amazon gets a
percentage of revenue which these companies generate.
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3.5.5 Pricing Adjustment Strategy
Pricing is one of the main success factors in the retailing industry and price wars are
typical for this industry sector. As quoted by The Wharton School of the University of
Pennsylvania, Thomas Szkutak, the CFO of Amazon, confirms that pricing has been
extremely competitive since the first day of operation (The Wharton School of the
University of Pennsylvania, 2009). The company therefore had to develop various
differing pricing strategies which appeal to numerous potential clients with
dissimilar needs and requirements. As specified by Chopra et al., the pricing menu
which was developed by Amazon, allows the company to target a large variety of
consumers which furthermore have differing levels of desired responsiveness
(Chopra et al., 2007).
Moreover this pricing approach is very flexible in its nature. This means that it is able
to provide responsiveness to consumers who require it whilst remaining at a low-‐
cost level to improve the company efficiency (Chopra et al., 2007). Amazon is
especially successful in changing and adjusting its pricing and demand strategies in
response to seasonality. Most retailers are facing this seasonal peak and are
implementing various different manners to overcome product unavailability or an
extended lead time and thereby late deliveries.
Amazon therefore regularly offers “off-‐peak discounting”, implying that specific
discounts are given on shipping and products themselves when orders are made in
advance before Christmas. By this manner, demand from the Christmas-‐peak may
get partially transferred to an off-‐peak season, easing operations and demand
management of the company. Another strategic approach which Amazon developed
in order to get consumers attention, is their promise that if orders are placed well in
advance, they will eventually arrive on time, which is not self-‐evident during
seasonal peaks. Moreover, in order to further influence its consumers to shift
purchases to November or early December, Amazon also applies the exact reverse
strategy, meaning that the company might charge higher prices during peak
periods. By applying these manners, Amazon manages to increase its internal
efficiency without harming responsiveness.
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3.5.6 Transportation
The fact that Amazon does not only sell physical items, but also provides a platform
for downloadable music and software, removes some cost dimensions associated
with transportation. Nevertheless, for nondigital items, Amazon's main issue
remains the misbalance between its inbound and outbound transportation costs.
The company receives very large truckloads of items on the inbound side.
Nevertheless, on the outbound side, Amazon only ships out small packages which
typically contain few items. This therefore stands for high costs attached to
transportation – also as many of Amazons' shippings are free of charge for
customers. Therefore, when rating Amazon based on the drivers of supply chain
performance, transportation is Amazon's weakest part. In the transportation sector,
Amazon has various partnerships and cooperations with international logistics
providers and parcel couriers, including UPS, FedEx and DHL. Nevertheless, Amazon
is not the only party that relies on these companies, which make promises as “Same-‐
day-‐delivery” harder to achieve. As grasped by Saito, Brian Olsavsky, the CFO of
Amazon analyzes that today, the above named transportation providers are not
advanced and fast enough anymore in order to fulfill Amazon's expectations and
needs (Saito, 2016). This also implies that Amazon cannot fully rely on these third
party transportation providers anymore in times of busy operations.
Therefore the company decided to introduce “Amazon Logistics” to the market,
which will be further discussed in the following chapter.
3.5.7 Amazon's Logistics
Since 2015 Amazon has been planning on launching its own-‐account logistics
network in order to get the opportunity to rely less on third-‐party logistics providers
like DHL and UPS. As mentioned by Saito, CFO Olsavsky clearly stated that the
purpose of this network was to supplement partners, not to replace them (Saito,
2016). This also implies that Amazon does not intend to compete against these
carriers.
Primarily, Amazon therefore developed this network to gain the ability to react
faster when third parties are not able to fulfill the company's needs. In its last 10-‐K
report which is based on the fiscal year 2015, Amazon firstly referred to itself as a
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transportation service provider. These recent developments are not surprising
industry experts as the company has already made use of its own trucks to move
goods out of its warehouses in recent years in order to decrease its rising outbound
external transportation costs. Furthermore, as analyzed by Oreskovic, Amazon has
recently leased airplanes which will mainly operate in the United States in order to
ensure fast deliveries (Oreskovic, 2016). The second goal of Amazon's „Logistics
Network Plan 2016“ is to gain the ability to better control delivery times (Pymnts,
2016). As analyzed by Bensinger from the Wall Street Journal, Colin Sebastian, a
Baird Equity Research analyst states that the overall market containing delivery
processes as well as overall logistics currently has a potential wealth of $400 billion
(Bensinger, 2016). Primarily and currently, this service was developed exclusively by
and for Amazon in order to support its own transportation and growth. Nevertheless
Sebastian also analyzes that Amazon will most-‐likely offer services and expertise to
third parties in the near future. Another future outlook on Amazon's Logistics is the
possible acquisition of Frankfurt-‐Hahn Airport, as Oreskovic analyzed. This airport
would be mainly used in order to serve the European market.
3.5.8 Anticipatory Shipping
Another unique strategic approach which Amazon had recently patented in 2014
that could further minimize delivery and lead time, is its Anticipatory Shipping.
As analyzed by Kopalle, Amazon is planning on sending items to consumers before
an actual order has been received (Kopalle, 2014). According to Kopalle, Amazon
tries to successfully predict customer demand based on previously placed orders,
consumers' product searches, registered wish lists, shopping-‐cart contents, return
and time spent scrolling through a certain product category on the website (Kopalle,
2014). These pre-‐ordered packages may be stored at specifically allocated storages
or on trucks until an actual order takes place.
3.5.9 Amazon Dash Button Delivery
Since the beginning of Amazon's operations the company has invested heavily into
its Research and Development department in order to achieve a reduction of its
delivery and lead time. Promising same-‐day delivery to specific customers today
represents an additional pressure to the company. Therefore, following a similar
49
path as Amazon's Anticipatory Shipping, meaning, fulfilling orders before customers
realize that the need for a specific product exists, the company developed the
Amazon Dash Button. Amazon Dash is currently still in its testing phase and
therefore only available on the North American market. The button's main benefit is
the functional ability for consumers to send out orders to Amazon without having to
use a computer or any other technological device. The Dash Button gets attached to
devices as the dish washer or the washing machine where a certain supply, in this
case a dishwasher tab or washing powder, is needed for the machine to
operate. Once the consumer realizes that one of these supplies, is used up, pressing
and releasing the button instantly generates an order (Amazon.com, n.d.).
3.5.10 Information and Technology
Without the constant development and change in the field of Information
technology, successful E-‐Businesses would not be able to continuously and
sustainably improve their operations. By using computer systems, Amazon is able to
successfully handle Big Data, more precisely massive data sets including page traffic,
clicks, time spent on the website, demographics, social information and timing
(Vend, 2015) as well as share significant demand and supply information with every
party along its supply chain to increase visibility.
This is why Bezos has decided to invest heavily into IT development from the
beginning of the company's operations. In recent years, Amazon has implemented
services and systems in the fields of Website management, search, customer
interaction, recommendation, transaction processing and fulfillment.
As these services all require high investments and an extremely well-‐developed
technological infrastructure, Amazon currently possesses the largest quantity of
online retailing technologies (Laudon et al., 2014). Information technologies play a
crucial role for Amazon as the company needs to deal with a very high number of
products, different status inquiries, gift-‐wrapping requests and various shopping
methods. Amazon's Inventory and Order Management, especially their Amazon
Marketplace, is supported by the Appath cloud software. As stated on Appath's
website, selling on Amazon is beneficial for most companies. Nevertheless, Amazon
as a selling platform is typically not easy to manage (Appath, n.d.).
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Moreover, Amazon uses its competitive advantage in Information Technologies in
order to further differentiate itself from its competitors. Amazon Web Service is a
software which was specifically programmed to offer storage and computing
services to corporate customers. For a fee, corporate customers may get limited
access to Amazon's IT, which also creates a new revenue stream for Amazon. The
Wharton School of the University of Pennsylvania analyzed that, according to Xavier
Dreze, a marketing professor at UCLA, AWS is especially fitted to companies which
do not have financial measures to invest in IT (The Wharton School of the University
of Pennsylvania, 2009).
3.5.11 RFID Amazon currently uses RFID technologies on a moderate level. Bacheldor analyzed
that Jeff Wilke, current CEO Worldwide Consumer of Amazon, evaluates that
presently, RFID only plays a role for the company when it notes poor inventory
accuracy, if it witnesses an unusually high shrink rate or if Amazon requires more
real-‐time information (Bacheldor, 2004). When directly contrasting Amazon with
Walmart, Walmart firstly equipped whole cases, pallets and trucks with RFID tags to
be able to control inbound transportation more effectively. However, Amazon faces
little issues with their inbound transportation.
Therefore, the company's preference would be the implementation of RFID tags
onto single items to be able to better control and track outbound transportation.
The points concerning supply chain drivers of Amazon discussed above, more
precisely inventory management, facilities, pricing, transportation and information,
suggest that Amazon's supply chain is driven by its Chaotic Storage model, flexible
pricing, increased closeness to customers, real time inventory tracking and the
company's ability to lower inventory levels without limiting product selection. Based
on the named factors along with Amazon's Logistics Network Plan, same-‐day
deliveries might be feasible in the close future for a large number of markets.
Furthermore, Amazon's unique retail advancements, namely Drop Shipping,
automated warehouses, Anticipatory Shipping, the company's Dash Button and FBA
might become increasingly important in the future as they offer increasing flexibility
and services to customers.
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3.6 Amazon's Customer Service Amazon is a B2C business which fulfills orders placed by individual customers who
purchase through their online platform. Amazon's target consumer is a well-‐
educated shopper who has access to the Internet and furthermore puts high
emphasis on selection, convenience and price. Customer service plays a major role
for CEO Jeff Bezos who argues that competitors play a secondary role for the
company whereas customers and their feedback are the priority and guideline for
Amazon (Baldacci, 2013). Amazon's business strategy has an influence on various
departments and furthermore on its supply chain and distribution network.
Most prominent examples are response times, product variety and availability,
customer experience, time to market and returnability. This chapter therefore
focuses on an analysis of the above mentioned factors and how Amazon handles and
controls each of them.
3.6.1 Response time to customers
When a product gets sold online which cannot be downloaded, E-‐Businesses, which
do not have physical outlets, have a longer lead time. This means that order
fulfillment takes longer because of involved delivery time. Therefore Amazon is
usually not an option for consumers, who require short response times.
This also implies that Amazon mainly trades off fast response time, which might be
requested by consumers for a large variety of products. Nevertheless, this is only
valid for the partial E-‐Commerce side. For pure E-‐Commerce however, in this case
linked to products, which can be downloaded, this disadvantage is invalid as it takes
shorter time to download an item than to go to a store where similar items can be
bought.
3.6.2 Product Variety and Availability
In terms of product variety, Amazon has an advantage over traditional retailers as E-‐
Businesses are generally able to offer a larger choice of products and
services. Amazon is furthermore able to react faster to changing customer demand
which allows the company to forecast its figures more accurately. Following
improved forecasts and therefore more accurate views of customer demand, a
better match between supply and demand is possible and feasible which is a further
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step towards the elimination of excessive supply. Furthermore, better search
options as well as customer awareness of competitive assortments furthermore
increase the need for companies to increase product variety and availability.
3.6.3 Customer experience
Amazon as an E-‐Business stands for access, customization and convenience. As a
result of successful programming and strategic developments, Amazon is able to
create a “personalized buying experience” (Howen, 2014) which aims at having
similar effects as offered at physical retail stores. Amazon achieves this by displaying
and suggesting items which are related to recent purchases by the customer or
browsing results.
3.6.4 Time to market
The most beneficial advantages for businesses who are also or solely E-‐Businesses, is
their product's time to the market. As Amazon introduces its products by making
them available online, the introduction of new items or services happens much
faster than for retailers that use physical channels.
3.6.5 Returnability
Returnability for E-‐Businesses represents another trade-‐off for consumers. The risk
for returns of products which have been purchased online, is much higher as
consumers are not able to physically touch a product before purchasing it. Generally
speaking, returning items to retail stores, is much easier in comparison to online
stores.
In terms of customer service, Amazon performs especially well due to its unique
product variety and availability, its personalized customer experience and a short
time to the market. In order to further increase the level of customer satisfaction
and service, Amazon might optimize its response time as well as returnability, which
can be more difficult to complete in comparison to companies which possess
physical retail stores.
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3.7 Supplier Code of Conduct As Amazon is currently the largest E-‐retailer world-‐wide, the company has various
partnerships and agreements with its suppliers and other third parties from varying
sectors. Although Amazon performs regular quality controls and audits, it is a
challenge for the company to ensure ethical behavior as well as accurate face-‐to-‐
face supervision of all processes at all time.
As stated by Amazon, each site audit contains the inspection and analysis of the
following factors which are listed below:
• the site and any living quarters
• confidential worker interviews which are conducted without management presence
• review and analysis of site documents to assess workers' age, contracts, compensation, working hours and workplace conditions
• audit and review of current licenses and any past compliance issues
• identification of areas for improvement and development of a remediation plan (Amazon.com, 2016).
The company has introduced its “Supplier Code of Standards and Responsibilities”,
which, according to Misch aims to ensure high performance in the fields of “service,
business practices and conduct” (Misch, 2014) among all supply partners.
This general Code of Conduct was developed as Amazon is dedicated to manage its
overall business in a morally stable and ethical way and thereby corporate with
partners which aim to achieve similar values (Amazon. Com, 2016). As directly
retrieved from Amazons' Supply Chain Standards, the five key areas of the document
are:
• Health and safety in production areas and any living quarters
• The right to legal wages and benefits
• Appropriate working hours and overtime pay
• Prevention of child labor or forced labor
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• Fair and ethical treatment, including non-‐discrimination.
A complete version of the Supplier Code of Conduct from Amazon can be found
attached in Appendix 3.
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4 Amazon's Competition When Ali positioned himself towards Amazon and its competitors, he firstly
mentioned that trying to catch up with Amazon will most likely result in financial
ruin and disaster for companies (Ali, 2015). Reasons for this assumption as well as an
overview over most prominent competitors of Amazon will be therefore given in the
following chapter.
As generally analyzed by Laudon et al., Amazon's competitors are typically offline
retailers, E-‐businesses or companies which have an online and offline presence
(Laudon et al., 2014). Competing with Amazon is a challenge for various companies
who serve different sectors and focus on numerous target markets. One explanation
for the pressure which Amazon has on companies in general can be briefly explained
by “The Amazon effect”.
This phenomenon can be best described by referring to Jim Tompkins, who is the
president of Tompkins International and an industry expert in the retail sector. In his
opinion, Amazon has a specific impact on the industry, which many observers and
organizations are not clearly aware of. He addresses these companies by evaluating
that Amazon is presently setting standards for customers.
This means that Amazon is able to rule what customer satisfaction requirements for
the retail industry – especially E-‐Commerce – are now (Tompkins, n.d.). The Two
main requirement standards which Tompkins specifically considers, are firstly free
shipping and free return, implying that now customers expect no additional delivery
costs charged by any company. Furthermore Tompkins mentions the speed of
delivery which Amazon has, meaning that customers today are most probably not
going to order anything from an online store if the order fulfillment takes longer
than one or two days (Tompkins, n.d.). Another challenge for Amazon's competitors
which Tompkins refers to when evaluating Amazons leading market position, is their
distribution network. Having started with scattered fulfillment centers and
warehouses and therefore a great distance to customers, Tompkins evaluates that
today the majority of Amazon's distribution centers are located within 200 miles of
major metropolitan areas (Tompkins, n.d.). Overall, the retail expert concludes that
competing with Amazon is only possible if one of their four strengths can be beaten,
56
namely price, selection, experience and convenience. Moreover Tompkins assumes,
that physical retailers might eventually have a competitive advantage over Amazon
if they are able to combine their physical strengths with an E-‐Commerce presence.
As pointed out by Simpson, retail analyst Schachter states that Amazon has a
competitive advantage over most of its competitors. In financial terms he adds that:
“26 cents out of every $1 spent online in the US in 2015 ended up in Amazon’s
coffers” (Simpson, 2016). Furthermore, Schater adds that when looking closely at
every additional dollar US citizens spent online in comparison to 2014, 51 cents were
spent on Amazon.
As pointed out by the Forbes magazine, Amazon's main competitors operate three
general segments, more precisely media, electronics and other merchandise (Forbes,
2014). Nevertheless, a more detailed overview over Amazons' most prominent
competitor types is given in Table 5 below.
Table 5: Amazon's Competitors As mentioned by Cellan-‐Jones, Google's former CEO Eric Schmidt analyzed that
Amazon is currently the biggest and most important threat as a search engine for
Google (Cellan-‐Jones, 2014). Furthermore he states that Amazon is clearly
positioned in the commerce sector but has the ability to answer consumer's
questions and fulfill requests similar to Google. Moreover, Google and Amazon have
various features and services, which have equal functions. One example is the
comparison between Google Checkout and Amazon Payment services. Both are
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furthermore direct competitors to PayPal, which belongs to eBay. Despite the fact
that Amazon and Google target different consumers and enhance different
processes, both of them aim to be „the gatekeepers of e-‐commerce“(Shmults,
2013). Google is not Amazon's current most prominent competitor but is estimated
to become the company's biggest future enemy as Google is able to sell anything it
wishes to.
Google, Amazon and eBay add up to the trio of E-‐commerce which unites the three
most successful E-‐retailers nowadays in spite of the fact that they differ significantly
in their business structure and approach. However, analyzed by the University of
San Francisco, The Business Insider analyzed that Amazon has had the strongest
financial performance out of the three mentioned as it has generated more revenue
alone than its 10 closest online competitors in 2015 (University of San Francisco,
2016).
Moreover, when directly comparing the companies' revenues in the first five years
of operations, it can be seen, that Amazon has had the fastest growth out of these
three companies.
According to their historical financial results, eBay generated 0,4 billion US $ from
1995 to 2000, Google's revenues from 1998 to 2003 added up to 1,5 billion US $ and
Amazon generated 2,8 billion US $ starting in 1995 until 2000 (Statista -‐ the
statistical portal, n.d.).
Walmart is Amazon's biggest rival in the retail sector as both companies are equally
classified as retail giants. The direct competition between both is mainly based on
their pricing strategies, accessibility and responsiveness. Furthermore, this
competition primarily exists in the United States. According to Peter Fader, a
marketing professor from The Wharton Business School of the University of
Pennsylvania, it is positive that today Amazon and Walmart are often used in the
same context. As further evaluated by Kelleher, this comparison is surprising to
many industry experts as until few years ago, Walmart was often referred to as “the
undisputed ruler of retail”(Kelleher, 2015). The author adds that only four years ago
the revenue of Walmart was 16 times the revenue of Amazon. However shortly after
Amazon managed to grow and thereby surpass Walmart's retail strategy (Kelleher,
58
2015). Consequently, in 2015, Amazon was worth 244 billion US $ whereas
Walmart's value totaled 206 billion US $. Nevertheless, one big advantage Walmart
has over Amazon is the ability of the retailer to let consumers fully examine products
before the actual purchase, meaning that customers may physically feel and touch
products before the buying decision. Amazon reacted to this by introducing “Look
inside” which allows potential buyers to browse through a limited number of pages
of books which they might purchase.
Having taken Walmart as a representative for physical offline retailers, consumers
generally tend to buy commodities, which are of instant need, in physical retail
outlets. Nevertheless Amazon has gained increased market power over the past
years which makes it generally more difficult for offline retailers. Amazon's strategy
around a big selection at low prices makes it very tough for traditional retailers to
catch up without having to implement radical changes.
As previously mentioned in Chapter 3.5.7 “Amazon's Logistics”, Amazon has been
working on a company-‐owned logistics network in order to overcome constraints,
which are faced when working together with third parties. This makes Amazon a
potential threat for transportation providers as DHL, UPS and FedEx. Nevertheless,
as formerly analyzed, Amazon distances itself from the statement to see
transportation and delivery providers as competitors as they do not intend to fully
replace them.
Amazon's main competitive advantage in comparison to iTunes, Netflix, IBM and
Apple is the fact that Amazon is able to unite every service that the mentioned
companies provide. Amazon handles corporate data service requests with AWS
which is similar to IBM's business approach. Furthermore, Amazon produces
products such as its Kindle and gives Prime subscribers the possibility to access audio
and video streaming on the website.
This means that features which are in the main focus of iTunes, Netflix, Apple and
IBM are covered extremely well by Amazon whilst remaining a B2C selling platform.
Amazon represents a package of various features which are valued by its customers
as they may receive all services at once whilst only accessing one single website.
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4.1 Gartner List Gartner, Inc. introduces itself as “the world's leading information technology
research and advisory company” (Gartner, Inc.,n.d.). The company regularly
publishes research papers discussing present IT innovations and issues. According to
Cearley, Gartner's most popular research papers are its Top 10 Technology Trend
Reports (Cearley, 2016). Among the other most popular and relevant research
papers published by the company, is The Gartner Supply Chain Top 25 which
contains a ranking of the 25 world-‐wide supply chain leaders and identifies success
factors of those (Aronow et al., 2015). The purpose of this ranking is the
identification of world leaders, to show the importance of the supply chain industry
in general and the visualization of factors which could be improved by mentioned
companies in the future. Furthermore, as analyzed by Aronow et al., this report is
“intended to be a lightning rod and foundation for vigorous debate about what
constitutes leadership and supply chain excellence” (Aronow et al., 2015).
This list is based on an overall financial performance assessment as well as peer and
analyst votes of specifically chosen industry experts. In order to achieve a high
ranking, a company has to outperform its competitors in additional performance
measures such as Inventory turnover, Revenue growth and ROA. The reason for
their 50/50-‐assessment approach is, according to Gartner that an evaluation of
success and performance has to be based on past as well as potential future
performance. Public financial data may therefore give information about past
performance whereas industry experts may predict future outcomes by critically
evaluating the current overall company performance (Gartner, Inc, n.d.). In 2015,
the 11th Supply Chain Top 25 report has been published by Gartner's, placing
Amazon first this year and furthermore in the Top 5 for the fifth time. The only
companies which outperformed Amazon are Supply Chain Masters Apple and P&G,
which were both ranked among the Top 5 of the list for the past 9 years and
therefore became the Masters of the industry. Figure 9 below gives an insight into
Gartner's Top 5 companies listed the Supply Chain ranking.
60
Figure 9: The Gartner Supply Chain Top 5 for 2015 (Aronow et al., The Gartner Supply Chain Top 25 for 2015, 2015)
For Gartner, Amazon is characterized by its „out-‐of-‐the-‐box moves“ (Gartner, Inc.,
n.d.). The company's revenue growth in comparison to its direct competitors totaled
21,7 % whereas its average return on assets amounted to 0%.
This figure however occurred, as Amazon, again, heavily invested into their future
capabilities and products.
4.2 Top 50 E-‐retailers As previously mentioned in Chapter 2.1.2 “Top 250 retailers worldwide” , Deloitte
has published its Top 50 E-‐retailers 2016 analysis whilst clarifying that often E-‐
Commerce and physical retailers are viewed as threats to each other nowadays.
Nevertheless the company further analyzed that an integration between online and
offline business would typically enhance companies' performances whilst
additionally improving customer satisfaction (Deloitte, 2015). The overall ranking
by Deloitte was based on financial figures of the fiscal year 2014. The Top 20
performers are shown in Figure 10 below. According to Deloitte, Amazon is the
greatest and most successful E-‐retailer with a E-‐Commerce growth rate of 15%
compared to the previous period and E-‐Commerce retail sales totaling 70 billion US
$. Furthermore, there are only five pure-‐play E-‐businesses among the Top 20,
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implying that slowly, increased emphasis is put on combining online and offline
business into an omnichannel approach.
Figure 10: Top 20 e-‐retailers (Deloitte, Global Powers of Retailing 2015, Navigating the new digital divide, 2015) 4.3 The Q Ratio As analyzed in the previous Chapter, Amazon is part of various industries, where
competition is really intense which is mostly characterized by price pressure, excess
store capacity, and a continuously increasing shift towards online retailing (Deloitte,
2015). According to Deloitte retailers that desire to grow need to stand out against
their direct competitors by developing a strong brand and offering high-‐quality
shopping experiences (Deloitte, 2015). In order to better understand differentiating
factors and competitive advantages, the Q ratio was developed. This ratio is a part
of Deloitte's “Global Powers of Retailing 2016” -‐ report and shows the proportion of
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“a publicly traded company's market capitalization to the value of its tangible assets”
(Deloitte,2015).
If this calculated figure is greater than 1, the value which the company reached, was
partially generated by using its non-‐tangible assets (Deloitte, 2015). Non-‐tangible
assets in this case may include brand equity, innovation, customer experience and
market dominance. Therefore, the greater the Q ratio is, the more value of a
company has been created through these assets.
A Q ratio lower than 1 is not worthwhile for companies as this implies that certain
businesses are not able to generate their value by efficiently using non-‐tangible
assets. As it can bee seen in Figure 11 below, Amazon is currently on Rank 5 of the Q
ratio ranking. It is especially interesting to see that Amazons' main competitors
which have been analyzed in Chapter 4 “Amazon's Competition” are not within the
Top 10, showing, that Amazon is using its non-‐tangible assets much more efficiently
than Wal-‐Mart, eBay and Apple. As Deloitte concludes its analysis, the differentiating
factor of the Top 10 retailers by Q ratio, is the ability of their brand to perform high
and generate revenue regardless of the distribution and advertising channels which
they use in order to reach customers (Deloitte, 2016).
Figure 11: Top 10 retailers by Q ratio (Deloitte, Global Powers of Retailing 2016, Navigating the new digital divide, 2015)
63
5 Discussion and Analysis The following part of this study focuses on the overall analysis and discussion of
previously identified particularities of the retail industry and Amazon's position in it.
Along with a supply chain-‐centered SWOT analysis, Amazon is furthermore analyzed
by applying Porter's five forces. Lastly, Amazon’s global value chain will be discussed.
5.1 SWOT Analysis There are various methods based on different factors which may be used in order to
analyze and assess the strategic position as well as performance of a company. One
of the most popular evaluation and planning models is the SWOT Analysis which
critically assesses a company based on internal aspects, namely strengths and
weaknesses as well as external factors, more precisely opportunities and threats.
In this part, strengths, weaknesses, opportunities and threats of Amazon and its
supply chain will therefore be identified and further visualized in Figure 12 below.
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Figure 12: SWOT Analysis Amazon's Supply Chain 5.2 Porter's Five Forces One model which critically analyzes a company as well as its position in the industry
based on its competitive environment, is Porter's five forces model. This model
determines how well a specific company is able to continuously compete in an
established marketplace. The model critically assesses a company based on threat
of substitute products, threat of new entrants, bargaining power of suppliers,
bargaining power of customers and rivalry within the industry (Porter, 1979).
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In this part of this research, Amazon is therefore analyzed based on previously
named factors in order to further point out the company's position in the E-‐
Commerce as well as retail industry.
5.2.1 Threat of Substitute Products or Services
Generally, the threat of substitutes is very high for Amazon as numerous alternative
online and offline companies offer the same products and services as the company
itself. One way for Amazon to limit this specific threat, is the development of own
products, services and procedures which are unique on the market or in the
industry. Another strategic approach, which is highly beneficial for Amazon, is the
fact that the company does not solely focus on one specific product category.
Therefore the probability of finding a product on Amazon is very high. Lastly,
Amazon may eliminate potential competitors by offering high customer service and
by relying heavily on customer loyalty.
5.2.2 Threat of New Entrants
Entry barriers into the E-‐Commerce industry are relatively low for start-‐ups as well
as physical retailers that wish to expand and therefore develop an online presence.
However, considering Amazon's size and product variety as well as supply chain
advancements, the threat of new entrants is relatively low as it is close to impossible
for other companies to reach the same level of performance. This means that
companies might easily enter E-‐Commerce, but may hardly reach a significant level
which might be of significance to Amazon. Differentiating factors in this context are
especially product variety, inventory levels, customer loyalty and customer
experience. A new entrant would only become dangerous for Amazon if this
company would be able to develop technologies which Amazon and other
competitors do not possess.
5.2.3 Bargaining Power of Customers
For Amazon marketplace, bargaining power of customers and buyers is very high.
This is directly related to Amazon's competition as consumers have a very broad
choice on where to buy desired products.
This implies that consumers may easily use a different website or visit another
physical retailer if Amazon does not sell a specific item or offers it at a high price.
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5.2.4 Bargaining Power of Suppliers
As much as Amazon is dependent on its suppliers, suppliers are equally dependent
on Amazon, making bargaining power for them relatively low. Amazon works
together with suppliers in order to deliver or to drop-‐ship items to consumers. The
other way around, suppliers often require the help of Amazon to achieve relevant
sales figures and to increase company awareness. Nevertheless, Amazon does not
solely rely on one supplier per product category but has the choice over numerous
product and service providers.
5.2.5 Competitive Rivalry within the industry
As previously discussed in Chapter 4 “Amazon's Competition”, Amazon has spread
into numerous different industries. As Amazon does not specialize in one specific
product or service category, the number of competitors is especially high as well as
rivalry amongst them. This rivalry and competitive threat results in high pressure on
companies to constantly develop new products and offer new services.
5.3 Global Value Chain Analysis According to the Global Value Chains Initiative by Duke University, a value chain
comprises the sum of activities, which are performed by a company and its
employees from product conception to product usage. The analysis of value chains is
especially significant as numerous companies operate in an international context,
implying that involved parties are directly influencing each other whilst being
located at different places. The analysis of Global Value Chains is an approach that
critically assesses the overall structure of global industries (Duke University, n.d.).
In order to provide an analysis example from the industry, the following two
chapters shortly classify, discuss and analyze the global value chain of Amazon.
5.3.1 Global Value Chain Classifications
According to Gereffi et al., the overall functionalities as well as capabilities of a
supply and value chain may be assessed by classifying the underlying chain concept
into one of the following five types which are shortly explained and contrasted
below (Gereffi et al., 2005).
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Table 6: Global Value Chain Classification (Gereffi et al., The governance of global value chains, 2005) Primarily Amazon's value chain is highly captive in its nature as Amazon represents
the lead firm which works together with numerous external suppliers that
participate in the business without being owned by Amazon itself. However, due to
various platforms which also belong to Amazon, as Zappos and Audible Inc., Amazon
is highly hierarchical as the company itself keeps control over its subsidiaries whilst
constantly expanding. Another hierarchical relationship is the one between Amazon
and its facilities. Nevertheless, it is significant to underly that whilst Amazon's unique
supply chain is mainly captive as well as hierarchical; it also has features of a market
as well as relational chain. One example would be Amazon's relationship to its third-‐
party sellers that use Amazon as a marketplace. As a seller-‐registration on Amazon is
easy and linkages between these sellers and Amazon are relatively weak, this
represents a chain fragment, which may be classified as a market value chain. This
may be further explained by the limited control, which Amazon has over these
sellers. Furthermore, the relationship with its logistics partners is highly relational.
Typically these partnerships are of enduring nature and moreover based on long-‐
lasting contracts.
5.3.2 Porter's Global Value Chain
The Global Value Chain model was developed by Porter in 1985. It mainly describes
and analyzes how value is created in a company through its value chain. More
precisely, this framework analyzes activities, which are performed by a company and
identifies how much value may be added to the firm by those activities. This analysis
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typically leads to the detection of possible fields of improvement as well as potential
competitive advantage in comparison to rivaling companies. In order to analyze a
value chain, primary activities as well as supporting activities play a major role.
Primary activities are activities and processes which have direct and immediate
effects on the value creation of a firm whereas support activities have an impact on
primary activities and therefore an indirect effect on value creation (Porter, 1985). A
visualization of Porter's Global Value Chain framework is given in Figure 13 below
whereas Table 7 critically assesses Amazon based on the significant variables.
Figure 13: Porter's Global Value Chain (Porter, M. (1985). Competitive advantage. New York: Free Press)
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Activity Amazon's Performance
Inbound Logistics
-‐ receives large quantities of items from international suppliers -‐ products bought at lowest possible price -‐ to control inbound logistics: regular quality and inventory controls, customer feedback -‐ no long term arrangements with suppliers -‐ no dependency on suppliers -‐ allowance for direct competition between suppliers
Operations
-‐ two main operation segments: North America and International -‐ Marketplace, Prime, AWS -‐ convenient 24 hours – operations as well as 30 days-‐return policy
Outbound Logistics
-‐ dependency on third parties -‐ future outlook: Amazon's Logistics Network Plan with own trucks, planes and a possible airport acquisition -‐ highly committed investments -‐ currently weakest part in supply chain -‐ continuous increase of number of warehouses to decrease outbound transportation costs
Marketing and Sales -‐ commitment to price leadership -‐ discounts on price and shipping prior seasonal peaks -‐ immense use of SEO as well as collaborative filtering
Service
-‐ 24 hours accessibility -‐ 30 day-‐return policy -‐ customer-‐centric approach -‐ dedicated service pre, during and post purchase
Firm Infrastructure -‐ highly advanced technological infrastructure -‐ use of a single platform -‐ customer data available to all business units along the chain
Human Resources -‐ dedicated company culture -‐ provision of employee benefits -‐ desire to acquire highly skilled employees
Technology Development
-‐ high investments into technological as well as research development -‐ in possession of largest online retailing technology
Procurement -‐ facilities placed in different areas to ensure closeness to customers -‐ fast order processing due to highly advanced infrastructure
Table 7: Amazon's Global Value Chain
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6 Conclusion After having critically reviewed and analyzed the E-‐Commerce sector as well as
Amazon as a representative company, the following part of this paper answers the
central research question concerning Amazon's ability to differentiate itself from its
competitors and the significance of its supply chain strategy.
Furthermore, potential expansion and development opportunities of Amazon are
discussed and a stand will be taken on the title “To E or not to Be” in order to clarify
if a modern business supply chain in the 21st century might be stable and successful
without having to develop an E-‐Commerce stream.
One of the particularities of the retail industry is almost perfect information among
most dimensions and stakeholders. Based on this nearly flawless information flow
and availability, consumers typically put high emphasis on selection, price, service,
availability and convenience when purchasing goods online or electronically. When
looking at Amazon, it becomes apparent that the company is able to unite all of the
attributes mentioned above, more specifically, this highly diverse and unique
organization is market leader in most of those areas. Furthermore, Amazon has
identified the significance of an integrated supply chain and logistics department
and has successfully built on these factors in order to create a competitive
advantage. The company is able to satisfy its four main customers, namely
consumers, sellers, enterprises and content creators by successfully identifying their
requirements and needs and by following various trends. Amazon's steadily
changing and growing product range as well as its enormous music and audio data
base are two of the main competitive advantages over rivaling companies Amazon
currently has. Furthermore, Amazon is targeting and serving a world-‐wide market,
including almost all continents and emerging markets such as the BRIC countries.
Amazon is an unpredictable participant of the retail industry as it might generally
spread into any sector in the future. Many companies which are dealing with
Amazon as a competitor today, firstly did not identify the company as a threat as it
initially started as a bookstore. Today, Amazon's product and service range exceeds
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the portfolio of most organizations that position themselves in an industry which
Amazon also serves.
The company's warehouses are filled with items which are able to satisfy any
customer need and requirement as convenient and cheap as capitalism allows.
Low prices which are possible due to the flywheel strategy, attract an immense
number of potential consumers who value Amazon's product variety and
availability. Thereby Amazon also profits highly from competitors that charger higher
prices for products in order to reach a high margin.
Moreover, Anticipatory Shopping and the Dash Button both aim at satisfying
consumers before the need for a product is even given. These strategic
developments of Amazon make it an exceptional player of the retail industry. With
its numerous features, innovations and developments, Amazon is therefore able to
differentiate itself from its competitors, ensuring a high level of customer service.
Amazon is furthermore beating competition as the company is able to successfully
detect inefficiencies in its supply chain as well as product range. In cases where
inefficiencies or product gaps are detected, Amazon invests highly into research as
well as product development. As a result fast, sustainable and ongoing innovative,
mostly technological solution for the underlying issue are found and executed.
Often Amazon thereby establishes new complementary online platforms which
furthermore solve present issues and secondly always bring new ideas and products
to the market. This circle is an ongoing process. In contrast to most competitors,
Amazon is not solely finance-‐driven but mostly profits from constant re-‐investing
into new developments, products and services. Amazon is actively changing the
retail and E-‐Commerce sector as well as industry standards and is thereby able to
put pressure on competitors which are forced to constantly optimize internal and
external operations in order to remain relevant for consumers.
Previously discussed factors and mechanisms may result in the assumption that
Amazon has reached a monopoly position in the retail, especially E-‐Commerce,
industry. However, monopolists are typically companies which are not endangered
72
by competitors and furthermore able to increase prices any time independent of the
level of demand elasticity.
Amazon does not fit into the traditional view of a monopoly as consumers have
various alternatives but tend to turn to Amazon because of low prices and fast
delivery. Therefore Amazon has not only revolutionized the retail industry and
supply chain management, but furthermore has developed a new definition of
monopolist which is not only beneficial to the company but mainly to consumers.
Amazon's efficient and structured supply chain unites most main success drivers of
the company. Furthermore Amazon stocks core products at company-‐owned
warehouses and manages core competencies itself whilst successfully outsourcing
non-‐core services as well as overcoming the need to store less popular products.
Amazon has one of the widest product ranges on the Internet which makes it “The
Everything Store” and it is furthermore characterized by its unique Chaotic Storage
approach. However, a Chaotic Storage model is not purely disorganized in its nature
and can therefore only exist if the dimensions it is based on are arranged, planned
and in line. Potential consumers who want to purchase a specific item typically look
for large product variety, low prices, instant availability, reliable sellers and fast
delivery. Amazon is able to satisfy all of the named requirements with its supply
chain. As previously detected, Amazon's supply chain is characterized by agility,
adaptability and alignment whereas the biggest advantage occurs from the chain's
agility. Due to this significant characteristic as well as an IT system which is highly
sensitive to changes, Amazon is able to quickly react to industry changes as well as
potential opportunities and threats.
This furthermore allows Amazon to follow industry trends. Moreover, once
potential points of improvement are identified, Amazon reacts quickly and
implements instant modifications and changes of existing systems and procedures.
The retail industry in its original offline nature has been existing for decades without
the Internet or related technologies. Nevertheless, the current research project as
well as numerous previously published papers mainly demonstrate that companies
who have an Internet presence and platform today have various competitive
advantages in comparison to physical retailers who solely operate offline. In a
73
generation where the Internet is the first destination for many kinds of requests or
questions by consumers, Amazon increasingly benefits from this ongoing trend and
continues to successfully surf on this wave.
Overall, “To E or not to Be” is a statement which is difficult to conclude upon by only
considering Amazon's economic strategy.
The title of this research generally assumes that in the near as well as far future,
organizations which do not spread into the online world, might have difficulties in
keeping their business at a stable level as the retail as well as supply chain industry is
highly mobile in its nature. Competing with Amazon on a supply chain level which is
characterized by a constant flow of new products, suppliers, customers and
promotions, is therefore not only a challenge for other E-‐Businesses, but mainly for
the offline world. The omnichannel approach which is practiced by numerous
companies today, is therefore not necessarily chosen voluntarily but partially the
result of the desire and need to remain relevant for consumers and to adhere to the
increasing demands due to the constantly rising level of globalization. With its
various innovations and the large amount of capital invested into R&D, Amazon puts
substantial pressure on offline sellers. As previously mentioned in this study,
Amazon will most likely be able to integrate 85% of all products available world-‐wide
into their product range soon, making it close to impossible for physical retailers and
their supply chains to catch up. The future of the retail industry in general and
Amazon in particular is difficult to forecast and therefore unpredictable, exciting,
dangerous and interesting. One might predict that Amazon may become the
Walmart of the Internet one day, having an excessive amount of products in its
range and suffering from its size. In order to develop in a positive way, Amazon
should therefore furthermore focus on high customer service and distance itself
from foreign product sourcing, unethical treatment of supplies as well as unlawful
environmental practices. Special emphasis should furthermore be put on Corporate
Social Responsibility, financial stability and lastly onto ongoing expansion without
risking uncontrollable growth by continuously introducing new product lines to the
company.
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6.1 Implications and Recommendations As Amazon is known for large investments into Research & Development, the
company has numerous possibilities to expand and to serve a larger number of
markets and thereby become more unique and relevant. These opportunities, which
were identified in Chapter 5.1 “SWOT Analysis” of this paper, will be discussed in the
following part of this research. Firstly, further collaborations with the public sector
could be an advantage for Amazon. A current collaboration with the British Library
involves the digitization of antic books which were hardly available to public. In
order to make these easier to access to a larger quantity of people, Amazon
collaborated with the library in order to publish the books on their Kindle devise. By
this manner, Amazon does not only facilitate access to desirable documents and
therefore satisfies customers, but is also able to sustainably bind specific customers
to their company's product development, the Kindle.
As currently Amazon's supply chain is not especially sustainable nor
environmentally-‐friendly, Amazon may furthermore focus on Green Retailing in the
future. This may be achieved by implementing recyclable packaging as well as
energy-‐saving standards in company-‐owned facilities. Another possible expansion of
Amazon might take place in the B2B sector. Amazon Business, the B2B version of
Amazon is mainly focused on selling products and services to businesses and thereby
promises price discounts, faster delivery as well as business analytic services. By
establishing more contracts with businesses, Amazon could therefore successfully
build more long-‐lasting relationships which would increase publicity for Amazon and
ease operations for partner businesses. One possible product development which
might be imaginable, would be Amazon Cable. Currently, Internet access is not
ensured in all countries nor continents around the globe. Nevertheless, in order to
reach Amazon, an Internet connection is required. Therefore it would be helpful for
Amazon to work together with telecommunication providers in order to further
spread and enter the cable development sector. This could allow more consumers to
access the platform. One of Amazon's most successful and effective supply chain
decisions was the strategic acquisition of KIVA.
75
This investments has optimized Amazon's inventory handling as well as warehouse
management and fulfills one of the company's main goals, namely the reduction of
human intervention needed in its supply chain. As the robot is currently only
programmed for the collection of items out of the Chaotic Storage, Amazon is
currently working on the advancement of a robot which might be able to undertake
the company's picking and packing process.
Future plans for reorder points which instantly react in real time, are another proof
for Amazon's constant strive towards the optimization of its supply chain.
Its own logistics network is one of the greatest achievements of Amazon which is
aiming at the reduction of dependence on third parties. Acquiring airport Frankfurt
Hahn would furthermore allow Amazon to increase efficient operations across
Europe. Additionally, it would give the company an enormous competitive
advantage in comparison to rivaling companies.
6.2 Limitations The retailing sector is a highly mobile industry which constantly changes and
develops as new innovations and business models are introduced. The same
advancement may be noted for SCM Applications and Amazon as a representative
company.
Due to the complexity and variety of previous research, only a limited number of
existing papers were able to be reviewed and taken into account for this research
paper. The mentioned reports by MasterCard, Gartner Inc. and Deloitte were
chosen out of the pool of existing literature for the purpose of evaluation to gain
current significant industry insights, which were highly relevant for this paper.
Two additional obstacles which were faced while composing this research paper,
were restrictions in time frame and budget. Another main limitation may be
explained by restricted contact to relevant people and limited access to significant
organizations and documents as they are held confidential. For example, internal
company reports by Amazon were not made available for investigation and requests
for further information and company insights were turned down by the organization.
76
Therefore, qualitative research in the form of interviews was not possible as
communication with desirable discussion partners was restricted. Furthermore, a
survey was not conducted as the accessible sample of potential participants was not
suitable to result in an informative outcome. More specifically, the reachable
respondents are generally no industry experts that would be able to provide unique
industry insights. As primary data was not acquired for this research paper, it is
mainly based on various secondary data sources. Therefore, possible limitations
that arise from reliability concerns of existing literature are circumvented and
minimized to the best knowledge of the researcher. Special emphasis was put on the
consideration of reliable sources.
6.3 Directions for Future Research The topic which was discussed in the underlying study is very broad and therefore
has the potential to be further researched in a more extensive way. By this manner
relationships, connections and linkages among previously discussed factors and
dimensions might be clarified. Especially as this study solely relies on data which
was generated through previous research projects, it may be argued that further
research is needed as the underlying study in its nature is not extensive in every
aspect as indicated by the limitations. The recommended research approach should
therefore be characterized by a larger number of sources as well as the generation
of primary data. By this manner, a more detailed insight into the industry could be
given and more accurate conclusions could be reached.
Furthermore, all topics which were discussed in this study, more precisely the retail
industry, E-‐Commerce, supply chains and Amazon as a representative company, are
not stable in their nature and thereby constantly developing and expanding. Due to
this ever-‐evolving and ever-‐changing nature of the industry, this paper is focused on,
one must assume that research on similar topics will never cease, as everyday new
questions both arise and are answered by researchers around the world. Another
aspect which is especially significant in this research context, is the emergence and
development of the Internet. It is therefore recommended to further study the
online behavior and presence of consumers as well as companies as the Internet
trend will further develop in the future.
77
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Appendices Appendix 1 Amazon Q4 2015 Financial Results
AMAZON.COM ANNOUNCES FOURTH QUARTER SALES UP 22% TO $35.7 BILLION
SEATTLE—(BUSINESS WIRE)—January 28, 2016—Amazon.com, Inc. (NASDAQ:
AMZN) today announced financial results for its fourth quarter ended December 31,
2015.
Operating cash flow increased 74% to $11.9 billion for the trailing twelve months,
compared with $6.8 billion for the trailing twelve months ended December 31, 2014.
Free cash flow increased to $7.3 billion for the trailing twelve months, compared
with $1.9 billion for the trailing twelve months ended December 31, 2014. Free cash
flow less lease principal repayments increased to $4.7 billion for the trailing twelve
months, compared with $529 million for the trailing twelve months ended
December 31, 2014. Free cash flow less finance lease principal repayments and
assets acquired under capital leases increased to $2.5 billion for the trailing twelve
months, compared with an outflow of $2.2 billion for the trailing twelve months
ended December 31, 2014.
Common shares outstanding plus shares underlying stock-‐based awards totaled 490
million on December 31, 2015, compared with 483 million one year ago.
Fourth Quarter 2015
Net sales increased 22% to $35.7 billion in the fourth quarter, compared with $29.3
billion in fourth quarter 2014. Excluding the $1.2 billion unfavorable impact from
year-‐over-‐year changes in foreign exchange rates throughout the quarter, net sales
increased 26% compared with fourth quarter 2014.
Operating income increased 88% to $1.1 billion in the fourth quarter, compared with
operating income of $591 million in fourth quarter 2014.
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Net income was $482 million in the fourth quarter, or $1.00 per diluted share,
compared with net income of $214 million, or $0.45 per diluted share, in fourth
quarter 2014.
Full Year 2015
Net sales increased 20% to $107.0 billion, compared with $89.0 billion in 2014.
Excluding the $5.2 billion unfavorable impact from year-‐over-‐year changes in foreign
exchange rates throughout the year, net sales increased 26% compared with 2014.
Operating income was $2.2 billion, compared with operating income of $178 million
in 2014.
Net income was $596 million, or $1.25 per diluted share, compared with net loss of
$241 million, or $0.52 per diluted share, in 2014.
“Twenty years ago, I was driving the packages to the post office myself and hoping
we might one day afford a forklift. This year, we pass $100 billion in annual sales and
serve 300 million customers,” said Jeff Bezos, founder and CEO of Amazon.com.
“And still, measured by the dynamism we see everywhere in the marketplace and by
the ever-‐expanding opportunities we see to invent on behalf of customers, it feels
every bit like Day 1.”
Highlights
• Fire TV remains the #1 best-‐selling streaming media player in the U.S., having
added over 1,000 new apps, channels, and games since September,
including NBC, NBC Sports, Watch HGTV, Watch Food Network, and Watch
Travel Channel.
• The $50 Fire tablet has been the #1 best-‐selling, most gifted, and most wished-‐for
product across all items available on Amazon.com since its introduction 19
weeks ago.
• The Alexa Skills Kit and Alexa Voice Service continue to attract innovative
companies, with Ford, Invoxia, Vivint, Alarm.com, and Ooma announcing
plans to integrate their products and services with Alexa. In addition, Alexa
continues to get smarter with new features, including local search from Yelp,
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news sources from CNN and Bloomberg, enhanced IFTTT support, new alarm
tones, and customized sports updates.
• Last quarter, developers added over 100 new capabilities to Alexa-‐enabled
devices. Amazon Echo and Fire TV customers can now play Jeopardy!, get
stock quotes with Fidelity, hear headlines from The Huffington Post, exercise
with a seven-‐minute workout, and test their Star Wars knowledge with a
trivia quiz from Disney.
• Amazon announced the first devices available with Amazon Dash Replenishment
Service, including products from Brother, GE, and Gmate. Additionally, new
brands and devices have joined the Dash Replenishment program, including
Purell and Whirlpool.
• In 2015, worldwide paid Prime memberships increased 51% — 47% in the U.S. and
even faster outside the U.S.
• Prime Video continues to grow internationally with nearly double the streaming
customers compared with fourth quarter 2014.
• The Prime-‐exclusive Original Series Mozart in the Jungle received two Golden
Globes for Best Television Series -‐ Musical or Comedy and Best Performance
by an Actor in a Television Series -‐ Musical or Comedy (Gael García Bernal).
• Over the holidays Prime members made The Man in The High Castle the most
watched series on Prime Video by 4.5x. The Amazon Original Series received
outstanding critical acclaim, including USA Today calling it the “best new
drama of the season.”
• The second season of hit show Transparent was named as one of the top
television series of 2015 by The New York Times, Variety, IndieWire, and The
New Yorker.
• Amazon Studios released its first Original Movie Chi-‐Raq, directed by Spike Lee, to
rave reviews. The film has been included in 2015 “Best Films” lists from LA
Weekly, The New Yorker, The Washington Post, Los Angeles Times, Slant,
and Vulture.
• Amazon launched the Streaming Partners Program, an over-‐the-‐top streaming
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subscription program that gives Prime members the option to add
SHOWTIME, STARZ, and dozens more video subscriptions to their Prime
membership.
• In the fourth quarter, Prime Music streaming hours more than tripled in the U.S.
compared with fourth quarter 2014.
• Prime Music launched in Germany and Japan, offering Prime members more than
one million songs and hundreds of playlists at no additional cost to their
membership.
• Since launching in December 2014 with one location, Prime Now has grown to
more than 25 metropolitan areas across the U.S., U.K., Italy, and Japan.
• Prime Same Day launched in the U.K. and Germany, offering Prime members
unlimited free same-‐day delivery on a million items.
• Amazon Pantry launched in the U.K., allowing Prime members to purchase daily
essentials in everyday sizes and have items delivered for a low, flat-‐rate fee.
• In 2015, Fulfillment by Amazon (FBA) shipped over one billion units on behalf of
sellers. The number of active sellers using FBA grew more than 50%.
• In the fourth quarter, FBA units represented nearly 50% of total third-‐party units.
• Payment volume from Pay with Amazon grew more than 150% year-‐over-‐year in
2015, giving Amazon shoppers a secure way to pay on thousands of websites
using information already stored in their Amazon accounts.
• Amazon China launched the Amazon Global Store (AGS) 2.0 customer experience,
which provides customers an easier and more convenient shopping
experience through single login, unified shopping cart, and local payment.
Additionally, AGS selection has grown to over nine million items.
• Amazon.in was the top e-‐commerce site in India throughout the fourth quarter,
including the busy Diwali shopping season, according to global analytics firm
comScore.
• Downloads of the Amazon.in mobile shopping app grew faster in the fourth
quarter than any other e-‐commerce app in India, according to app analytics
firm App Annie.
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• Sellers on Amazon.in sold more in the fourth quarter than in all four quarters
combined in 2014.
• Amazon Fashion, East Dane, and MyHabit return as the lead sponsor for the
second season of New York Fashion Week: Men’s, hosted by The Council of
Fashion Designers of America.
• Amazon Launchpad, a program that helps startups launch, market, and distribute
their products, has worked with leading venture capital firms, startup
accelerators, and crowd-‐funding platforms to help more than 500 startups
launch over 750 products in the U.S., U.K., and China.
• Amazon entered into an agreement to support the construction and operation of
Amazon Wind Farm U.S. Central, which is expected to generate
approximately 320,000 megawatt hours (MWh) of wind energy on an
annualbasis. Amazon Wind Farm U.S. Central, combined with Amazon’s
previously announced projects, Amazon Wind Farm Fowler Ridge, Amazon
Solar Farm U.S. East in Virginia, and Amazon Wind Farm U.S. East in North
Carolina, will be responsible for delivering more than 1.6 million MWh of
additional renewable energy annually, roughly equivalent to the amount of
energy required to power 150,000 U.S. homes for a year.
• Only eight months after launch, Amazon Business, a marketplace with features
and benefits tailored to businesses, serves more than 200,000 businesses
ranging from small businesses to Fortune 500 companies.
• Amazon Web Services (AWS) announced the launch of its Asia Pacific (Seoul)
Region in Korea and its plans to open a new region in Canada. The AWS
Cloud is now available from 32 Availability Zones across 12 geographic
regions worldwide, with another five AWS Regions (and 11 Availability
Zones) in Canada, China, India, Ohio, and the U.K. expected to be available in
the coming year.
• AWS announced the general availability of Amazon WorkMail, a secure, managed
business email and calendaring service with support for existing desktop and
mobile email clients.
• AWS announced the general availability of AWS IoT, a managed cloud platform
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that lets billions of connected devices — such as mobile phones, cars,
factory floors, aircraft engines, sensor grids, and more — easily and securely
interact with cloud applications and other devices. AWS IoT can support
trillions of messages, and can process, route, and keep track of those
messages to AWS endpoints and other devices reliably and securely, even
when the devices aren’t connected.
• AWS announced AWS Certificate Manager (ACM), a new service that enables
customers to easily provision, manage, and deploy Secure Sockets
Layer/Transport Layer Security (SSL/TLS) certificates for use with AWS
services. SSL/TLS certificates are used to secure network communications
and establish the identity of websites over the Internet. Certificates, which
typically cost between $45 and $499, are provided to AWS customers free of
charge through ACM and are verified by Amazon’s certificate authority,
Amazon Trust Services.
• AWS launched EC2 Scheduled Reserved Instances, allowing customers to reserve
capacity for their applications that run on a part-‐time, recurring basis with a
daily, weekly, or monthly schedule over the course of a one-‐year term.
• AWS announced 722 significant new services and features in 2015, a 40% increase
over 2014.
• Financial Guidance
• The following forward-‐looking statements reflect Amazon.com’s expectations as
of January 28, 2016, and are subject to substantial uncertainty. Our results
are inherently unpredictable and may be materially affected by many
factors, such as fluctuations in foreign exchange rates, changes in global
economic conditions and customer spending, world events, the rate of
growth of the Internet and online commerce, and the various factors
detailed below.
• First Quarter 2016 Guidance
• Net sales are expected to be between $26.5 billion and $29.0 billion, or to grow
between 17% and 28% compared with
• first quarter 2015.
92
• Operating income is expected to be between $100 million and $700 million,
compared with $255 million in first
• quarter 2015.
• This guidance includes approximately $600 million for stock-‐based compensation
and other operating expense
• (income), net. It assumes, among other things, that no additional business
acquisitions, investments, restructurings, or legal settlements are concluded
and that there are no further revisions to stock-‐based compensation
estimates.
A conference call will be webcast live today at 2:00 p.m. PT/5:00 p.m. ET, and will be
available for at least three months at www.amazon.com/ir. This call will contain
forward-‐looking statements and other material information regarding the
Company’s financial and operating results. These forward-‐looking statements are
inherently difficult to predict. Actual results could differ materially for a variety of
reasons, including, in addition to the factors discussed above, the amount that
Amazon.com invests in new business opportunities and the timing of those
investments, the mix of products sold to customers, the mix of net sales derived from
products as compared with services, the extent to which we owe income taxes,
competition, management of growth, potential fluctuations in operating results,
international growth and expansion, the outcomes of legal proceedings and claims,
fulfillment, sortation, delivery, and data center optimization, risks of inventory
management, seasonality, the degree to which the Company enters into, maintains,
and develops commercial agreements, acquisitions and strategic transactions,
payments risks, and risks of fulfillment throughput and productivity. Other risks and
uncertainties include, among others, risks related to new products, services, and
technologies, system interruptions, government regulation and taxation, and fraud.
In addition, the current global economic climate amplifies many of these risks. More
information about factors that potentially could affect Amazon.com’s financial
results is included in Amazon.com’s filings with the Securities and Exchange
Commission (“SEC”), including its most recent Annual Report on Form 10-‐K and
subsequent filings.
Our investor relations website is www.amazon.com/ir and we encourage investors
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to use it as a way of easily finding information about us. We promptly make available
on this website, free of charge, the reports that we file or furnish with the SEC,
corporate governance information (including our Code of Business Conduct and
Ethics), and select press releases and social media postings, which may contain
material information about us, and you may subscribe to be notified of new
information posted to this site.
About Amazon
Amazon.com opened on the World Wide Web in July 1995. The company is guided
by four principles: customer obsession rather than competitor focus, passion for
invention, commitment to operational excellence, and long-‐term thinking. Customer
reviews, 1-‐Click shopping, personalized recommendations, Prime, Fulfillment by
Amazon, AWS, Kindle Direct Publishing, Kindle, Fire tablets, Fire TV, Amazon Echo,
and Alexa are some of the products and services pioneered by Amazon. For more
information, visit www.amazon.com/about.
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Amazon.com, Inc.
Certain Definitions
Customer Accounts
• References to customers mean customer accounts, which are unique e-‐mail
addresses, established either when a customer places an order or when a customer
orders from other sellers on our websites. Customer accounts exclude certain
customers, including customers associated with certain of our acquisitions, Amazon
Payments customers, AWS customers, and the customers of select companies with
whom we have a technology alliance or marketing and promotional relationship.
Customers are considered active when they have placed an order during the
preceding twelve-‐month period.
Seller Accounts
• References to sellers means seller accounts, which are established when a seller
receives an order from a customer account. Sellers are considered active when they
have received an order from a customer during the preceding twelve-‐ month period.
AWS Customers
References to AWS customers mean unique AWS customer accounts, which are
unique e-‐mail addresses that are eligible to use AWS services. This includes AWS
accounts in the AWS free tier. Multiple users accessing AWS services via one account
are counted as a single account. Customers are considered active when they have
had AWS usage activity during the preceding one-‐month period.
Units
References to units mean physical and digital units sold (net of returns and
cancellations) by us and sellers at Amazon domains worldwide — for example
www.amazon.com, www.amazon.co.uk, www.amazon.de, www.amazon.co.jp,
www.amazon.fr, www.amazon.ca, www.amazon.cn, www.amazon.it,
www.amazon.es, www.amazon.com.br, www.amazon.in, www.amazon.com.mx,
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www.amazon.com.au, www.amazon.nl, www.diapers.com, www.shopbop.com and
www.zappos.com — as well as Amazon-‐owned items sold through non-‐Amazon
domains. Units sold are paid units and do not include units associated with AWS,
certain acquisitions, rental businesses, or advertising businesses, or Amazon gift
cards.
Contacts:
Amazon.com Investor Relations Phil Hardin, 206/266-‐2171 www.amazon.com/ir
Amazon.com Public Relations Ty Rogers, 206/266-‐7180 www.amazon.com/pr
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Appendix 2 MWVL Overview Amazon facilities
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Appendix 3 Amazon Supplier Code of Conduct Guiding Principle. Our suppliers’ business and labor practices must comply with all
applicable laws, as well as the requirements and principles of this Supplier Code.
Suppliers must comply with the standards of this Supplier Code even when this
Supplier Code exceeds the requirements of applicable law.
Child Labor. Amazon will not tolerate the use of child labor. Our suppliers
must engage workers whose age is the greater of: (i) 15, (ii) the age of
completion of compulsory education, or (iii) the minimum age to work in the
country where work is performed. Furthermore, workers under the age of 18
must not perform hazardous work. Amazon supports the development of
legitimate workplace apprenticeship programs that comply with applicable
laws and this Supplier Code.
Involuntary Labor, Human Trafficking, and Slavery. Our suppliers must not
use forced labor -‐ slave, prison, indentured, bonded, or otherwise. Our
suppliers must not traffic workers or in any other way exploit workers by
means of threat, force, coercion, abduction, or fraud. Working must be
voluntary, and workers must be free to leave work and terminate their
employment or other work status with reasonable notice. Our suppliers must
bear or reimburse to their workers the cost of all excessive recruiting, hiring,
or other similar fees charged to workers, and all fees and expenses charged
to workers must be disclosed to Amazon and the workers in advance. Our
suppliers must not require workers to surrender government issued
identification, passports, or work permits as a condition of working, and our
suppliers may only temporarily hold onto such documents to the extent
reasonably necessary to complete legitimate administrative and immigration
processing. Workers must be given clear, understandable contracts regarding
the terms and conditions of their engagement in a language understood by
the worker. Suppliers must ensure that each of its staffing or recruiting
agencies comply with this Supplier Code and with the more stringent of the
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applicable laws of the country where work is performed and the worker’s
home country.
Safety and Health. Our suppliers must provide workers with a safe and
healthy work environment, and suppliers must, at a minimum, comply with
applicable laws regarding working conditions and with the standards below.
Occupational Safety. Suppliers must educate workers on safety procedures
and also control worker exposure to potential physical safety hazards by
implementing physical guards, barriers, and/or engineering and
administrative controls. Workers must be informed and receive appropriate
education in advance if they will be working with (or otherwise exposed to)
hazardous or dangerous conditions or materials. In addition, workers must be
given appropriate personal protective equipment and educated and trained
on the proper use of such equipment. Suppliers must manage, track, and
report occupational injuries and illnesses.
Physically Demanding Work. Suppliers must continually identify, evaluate,
and control physically demanding tasks to ensure that worker health and
safety is not jeopardized.
Emergency Preparedness and Response. Suppliers must identify and plan for
emergency situations and implement and train their workers on response
systems, including emergency reporting, alarm systems, worker notification
and evacuation procedures, worker training and drills, first-‐aid supplies, fire
detection and suppression equipment, and unblocked exit facilities.
Machine Safeguarding. Suppliers must implement a regular machinery
maintenance program. Production and other machinery must be routinely
evaluated for safety hazards.
Sanitation and Housing. Workers must be provided with reasonable access to
clean toilet facilities and potable drinking water. If suppliers provide a
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canteen or other food accommodations, they must include sanitary food
preparation, storage, and eating accommodations. If suppliers provide
residential facilities for their workers, they must provide clean and safe
accommodations. In such residential facilities, workers must be provided with
emergency egresses, reasonable and secure personal space, entry and exit
privileges, reasonable access to hot water for bathing, adequate heat and
ventilation, and reasonable transportation to and from work facilities (if not
reasonably accessible by walking).
Wages and Benefits. Our suppliers must pay their workers in a timely manner
and provide compensation (including overtime pay and benefits) that, at a
minimum, satisfy applicable laws. Suppliers must provide to their workers the
basis on which workers are being paid in a timely manner via pay stub or
similar documentation. Deductions from wages as a disciplinary measure are
not permitted.
Working Hours. Except in unusual or emergency situations, (i) suppliers must
not require a worker to work more than 60 hours per week, including
overtime, and (ii) each worker must be entitled to at least one day off for
every seven-‐day work period. In all circumstances, working hours must not
exceed the maximum amount permitted by law.
Anti-‐discrimination. Conditions of working must be based on an individual’s
ability to do the job, not on personal characteristics or beliefs. Our suppliers
must not discriminate on the basis of race, color, national origin, gender,
sexual orientation, religion, disability, age, political opinion, pregnancy,
marital or family status, or similar factors in hiring and working practices such
as job applications, promotions, job assignments, training, wages, benefits,
and termination. Suppliers must not subject workers or applicants to medical
tests that could be used in a discriminatory manner.
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Fair Treatment. All workers must be treated with respect and dignity. Our
suppliers must not engage in or permit physical, verbal, or psychological
abuse or coercion, including threats of violence, sexual harassment, or
unreasonable restrictions on entering or exiting work and residential
facilities. Workers must be free to voice their concerns to Amazon or its
auditors, and allowed to participate in the Amazon audit process, without
fear of retaliation by supplier management.
Immigration Compliance. Our suppliers may only engage workers who have a
legal right to work. If suppliers engage foreign or migrant workers, such
workers must be engaged in full compliance with the immigration and labor
laws of the host country.
Freedom of Association. Our suppliers must respect the rights of workers to
establish and join a legal organization of their own selection. Workers must
not be penalized or subjected to harassment or intimidation for the non-‐
violent exercise of their right to join or refrain from joining such legal
organizations.
Ethical Behavior
No Bribery. Our suppliers must not offer nor accept bribes or other means of
obtaining undue or improper advantages to anyone for any reason, whether
in dealings with governments or the private sector. Our suppliers must not
induce Amazon employees to violate our Code of Business Conduct and
Ethics.
Anti-‐Corruption. Suppliers must comply with applicable anti-‐corruption laws,
including the United States Foreign Corrupt Practices Act and the United
Kingdom Bribery Act, and not offer anything of value, either directly or
indirectly, to government officials in order to obtain or retain business.
Suppliers must not make illegal payments to government officials themselves
or through a third party. Suppliers who are conducting business with the
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government officials of any country must follow Amazon's guidance on the
law governing payments and gifts to governmental officials.
Whistleblower Protections. Suppliers must protect worker whistleblower
confidentiality and prohibit retaliation against workers who report workplace
grievances. Suppliers must create a mechanism for workers to submit their
grievances anonymously.
Management Systems. Suppliers must adopt a management system to
ensure compliance with applicable laws and this Supplier Code and to
facilitate continual improvement.
Management Accountability and Responsibility. Suppliers must have
designated representatives responsible for implementing management
systems and programs that oversee compliance with applicable laws as well
as this Supplier Code. Senior management must routinely review and assess
the quality and efficiency of the management systems and programs. Amazon
also expects our suppliers to hold their suppliers and subcontractors to the
standards and practices covered by this Supplier Code.
Risk Management. Suppliers must establish a process to identify the
environmental, health, safety, and ethical risks associated with their
operational and labor practices. In addition, management must develop
appropriate processes to control identified risks and ensure regulatory
compliance.
Training. Management must maintain appropriate training programs for
managers and workers to implement the standards in this Supplier Code and
to comply with applicable legal requirements.
Communication and Worker Feedback. Suppliers must clearly and accurately
communicate and educate workers about Amazon policies, practices, and
expectations. Amazon may require suppliers to post this Supplier Code in a
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location accessible to their workers (translated into the appropriate local
language(s)). In addition, Amazon encourages suppliers to partner with us to
implement a process to assess workers' understanding of the standards and
practices covered by this Supplier Code.
Documentation and Records. Suppliers must create, retain, and dispose of
business records in full compliance with applicable legal requirements along
with appropriate confidentiality to protect privacy.
Environment. Our suppliers must comply with applicable environmental laws.
Amazon encourages our suppliers to implement systems that are designed to
minimize the impact on the environment by the supply chain system, the
production process, and the products themselves.
Environmental Permits and Recordkeeping. Suppliers must obtain and keep
current all required environmental permits, approvals, and registrations and
follow applicable operational and reporting requirements.
Effective Management and Disposal of Hazardous Substances. Suppliers must
effectively identify and manage the safe handling, movement, storage, and
disposal of chemicals and other substances that pose a threat to the
environment, including providing workers with appropriate training on the
safe-‐handling and disposal of hazardous substances. Suppliers must also
monitor and control wastewater or solid waste generated from operations
before disposing in accordance with applicable laws. In addition, suppliers
must characterize, monitor, control, and treat regulated air emissions before
discharging in accordance with applicable laws.
Continuous Improvement. Amazon encourages our suppliers to continuously
improve and reduce waste. Amazon welcomes suggestions and feedback
from its suppliers to improve Amazon's own operations and processes.
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Conflict Minerals. Amazon is committed to avoiding the use of minerals that
have fueled conflict in the Democratic Republic of the Congo or an adjoining
country. We expect suppliers to support our effort to identify the origin of
designated minerals used in our products.
Corrective Action. Suppliers’ compliance with this Supplier Code is subject to
Amazon’s review, including third-‐party auditing of work and residential
facilities and conducting confidential worker interviews. Suppliers must
provide prompt access to their facilities and workers during any audit. We
require suppliers to promptly provide a detailed remediation plan and take
corrective actions for deviations from this Supplier Code, and Amazon will
track suppliers’ remediation efforts. Amazon may (without liability) terminate
its relationships with any supplier found to be in violation of this Supplier
Code, including for denying prompt access to our auditors.
Supplier Code Last Updated: November 24, 2014. Amazon employees who
manage our manufacturing supply chain receive training on our Supplier
Code and audit requirements. Amazon also has a training program for our
manufacturers on our Supplier Code and supply chain standards. Our
independent third-‐party auditors periodically conduct both unannounced and
announced on-‐site audits of our manufacturers. Amazon aspires to audit our
manufacturers before Amazon begins ordering products, and we require all
of our suppliers to meet the standards in our Supplier Code as a condition of
doing business with us. Amazon's manufacturing purchasing agreements
require our suppliers to comply with supply chain standards, which, among
other things, include laws regarding slavery and human trafficking. Amazon
employees are subject to internal accountability standards, which include
disciplinary measures up to and including termination, for failing to follow
Amazon requirements regarding our audits.
*Formerly referred to as Supplier Code of Standards and Responsibilities.