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Amazon

Amazon adopted several successful strategies for managing its large and growing inventory. It reduced warehouse inventory by carefully purchasing products based on demand in specific regions and outsourcing shipping. Amazon also outsourced some inventory management to focus on its core e-commerce business. It began selling other retailers' products in addition to its own, which increased customer choice while still earning Amazon profits from commissions. These strategies helped Amazon record its first profit and establish its reputation for low prices and a wide selection.

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290 views7 pages

Amazon

Amazon adopted several successful strategies for managing its large and growing inventory. It reduced warehouse inventory by carefully purchasing products based on demand in specific regions and outsourcing shipping. Amazon also outsourced some inventory management to focus on its core e-commerce business. It began selling other retailers' products in addition to its own, which increased customer choice while still earning Amazon profits from commissions. These strategies helped Amazon record its first profit and establish its reputation for low prices and a wide selection.

Uploaded by

abhi15mittal
Copyright
© Attribution Non-Commercial (BY-NC)
We take content rights seriously. If you suspect this is your content, claim it here.
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Download as PPTX, PDF, TXT or read online on Scribd
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Amazon.

com’s Inventory
Management
Q.1 Managing Inventory is one of the most important tasks of a retailing
company. If there are not enough books in stock some of the customers might
get disappointed. Stocking too many will reduce the profit margins. Do you
think Amazon.com adopted the right strategy while trying to manage its
inventory? Was it successful in its task?
 Amazon reduced the size of its inventories even though it
increased the number of products offered by:

◦ Managing the warehouses more efficiently.

◦ Careful decisions regarding product purchases.

◦ Selection of distribution centers in a product specific manner.


High demand products were kept in areas where maximum
orders for the same came from.

◦ Decision to purchase directly from publishers instead of


distributors.
 Maintaining excellent vendor relationships so
as to extract best deals.
 Refined software allowed for better product

tracking and storage in the warehouses.


 Re-arrangement of shelved products to
reduce time.
 Use of software to estimate demand ensuring

proper stocks at all times.


 Outsourcing of shipping of inventory to focus

better on core-competences.

These tasks helped Amazon record its first


ever profit in the fourth quarter of 2001.
Q.2 When it managed its own inventory, Amazon earned the
reputation of providing superior customer service. Despite this it
decided to outsource inventory management. Do you think
Amazon had taken the right decision in outsourcing this key area
of its business?

 Amazon decided upon outsourcing its inventory


management activities, in early 2001, to focus on
its core competences i.e. its e-commerce
expertise.
 Amazon did not stock every item on its site and
stocked only the bestsellers.
 Amazon started acting as a Trans-Shipment
center and sourced some of its products directly
from the distributors.
 Amazon struck deals with Ingram Micro, a
wholesale distributor for computers and books,
and Cell Star, a distributor for Cell Phones.
 According to Amazon, Ingram Micro shared the
same customer obsession as Amazon and
ensured timely deliveries and adequate service
levels as associated with Amazon.
 Drop Shipment model was adopted in the initial
phases.
 Deals with other major companies such as
Borders, Target, Circuit City and Toys “R” Us on
commission based selling enabled huge margins
for Amazon while minimizing the Inventory
handling processes.
Q.3 In 2001, while Amazon was still struggling to make profits,
it decided to sell the products of competing retailers on its site,
along with its own products. Do you think Amazon took the right
decision in selling others’ products or should it have
concentrated on promoting its own products?

 In early 2001, Bezos came up with the idea of


selling competitors’ products on his own website.
 Amazon earned almost the same profit selling on
commission as it earned selling on Retail.
 Advantage: Customers could now verify Amazon’s
prices with those of its competitors.
 Company thus did not need to advertise its low
prices.
 According to Bezos:

“Giving people the choice is a good thing. They


are only going to find it useful. This lets them
experiment .”
 Thus giving competitors’ prices on its own

website provided not only as a means for


Amazon to promote its own low prices, but also
offered a choice to its customers.
 According to a study, customers who purchased

used products once from Amazon were most


likely to make new purchases further.

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