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Amazoncoms European Distribution Strategy PDF
Amazoncoms European Distribution Strategy PDF
Q8 a. What expansion options should Amazon Europe select? Expand into other countries? Launch
Marketplace activities?
Ans: As discussed in detail in Q 8 b., Amazon Europe should adopt having DCs in each of the three
current countries in conjunction with an integrated inventory management system and a common
integrated IT interface. This will allow for an ease of expansion into other European countries. In order to
maintain global leadership expansion into other European countries like Italy, Austria, Switzerland,
Belgium and Luxembourg is eminent.
• Initiate extensive market research in each of the targeted countries. This will help Amazon to
generate a fair idea about demand, market size, competitors, etc.
• They should certainly contemplate expansion into countries like Italy, Netherlands, Sweden, etc
where a great potential for sales exist.
• They should collaborate with national players for entering the foreign markets.
• In order to cater to smaller countries (Central Europe) they can maintain common DC and also
implement trans-shipment options.
• To cater to smaller customer bases they can setup marketing / sales offices for different countries.
Here they can create websites and archives catering to local (national) demand. Requested titles
can then be sourced from the nearest DC.
While Amazon is currently live in the EU markets of France, Germany and Great Britain, they should
contemplate expanding to a wider audience by introducing the concept of a ‘marketplace’.
“‘Marketplace’ is defined as a cluster of countries with a single catalog and served by a single DC.” The
current DC in France could expand into a cluster containing France, Belgium and Luxembourg. In turn,
Germany could become a cluster that contains Germany, Austria, and Switzerland. The British
installation could encompass all of Great Britain and Ireland. In addition to the above mentioned clusters,
Amazon can further introduce DCs for additional clusters with Italy catering to Southeast European
countries like Hungary, Greece, and Bulgaria; Poland catering to the Czech Republic, Ukraine & Belarus
and Sweden managing the Scandinavian countries like Norway, Finland, etc. thus enveloping the entire
European Union.
Setting up Amazon.com as a centre for third-party marketplace activities involving various private dealers
would also be a proposal worth considering. It will enable third-party sellers to offer their goods
alongside Amazon’s offerings. This will result in increased viewership of the site as well increased
customer base.
2. Keeping current DCs and adopting transshipment under a centralized management system.
3. Separate DCs and decentralized management for North and South Europe respectively.
Discussed below are the Advantages and Disadvantages of each of these strategies in order to arrive at the
best possible solution.
1. Single EDN-Centralized Distribution network with a central DC:
Advantages:
Reduction in total inventory costs.
Reduction in demand variation across the supply chain on the account of a single central DC.
Reduction in cost of multi-item orders on account of order pooling.
Mitigation of demand-supply mismatch.
Mitigation of the Bullwhip effect because of an increase in information sharing.
Easier integration of the supply chain.
Ease of implementation.
Disadvantages:
Increase in lead times to customers and thus reduction in Service Levels.
Increased distance of suppliers and customers to the central DC resulting in an increase in
outbound and inbound transportation cost.
Loose flexibility by not being able to meet varying needs of a diversified customer base
across Europe.
Requires new investment altogether for setting up new infrastructure.
2. Keeping current DCs and adopting transshipment under a centralized management
system:
Advantages:
Reduction in demand variability across the supply chain due to virtual pooling.
Reduction in total inventory and associated costs.
Mitigation of demand-supply mismatch.
Mitigation of the Bullwhip effect.
No need for new infrastructure.
Flexibility due to load balancing across separate DCs.
Reduces risk of relying on a single DC.
Ease of expansion to other countries.
Disadvantages:
Combined inventory greater than that of a single DC.
Higher complexity in coordination and need for sophisticated IT tools.
Increase in lead times to customers in some cases.
3. Two Separate DCs and decentralized management for North and South Europe
respectively:
Combines the disadvantages of both the aforementioned strategies and fails to capture
many significant advantages.
Summary:
Based on all the pros and cons of the above strategies, one can conclude that keeping the DCs in
each of the three target countries in conjunction with an integrated inventory management system
and virtually having just a single supply chain allows us to collate the advantages of location and
lead time pooling without considerable increase in distances between customer and supplier
combined with a negligible decrease in service levels (lead times to customers). Thus Amazon will
be able to simultaneously exploit the commercial advantages mentioned above to the fullest,
decrease inventory to a large extent and reduce transportation costs drastically. Thus it would be
advisable that Amazon implement a Centralized management system along with the three existing
DCs and a common integrated IT interface.