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Group 8 Amazon Ins3021 2
Group 8 Amazon Ins3021 2
Group 8 Amazon Ins3021 2
Subject name:
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MEMBERS OF GROUP 8
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TABLE OF CONTENT
I. Introduction ................................................................................................................... 5
II. Amazon supply chain overview ................................................................................ 5
1. Business model ............................................................................................................ 6
2. Manufacturer and Suppliers ........................................................................................ 7
3. Inventory...................................................................................................................... 8
4. Logistics and Distribution center ................................................................................. 9
III. Why is global supply chain management important for reducing the delivery
time of Amazon? ................................................................................................................... 9
IV. How does Amazon manage delivery speed to contribute supply chain
efficiency? ............................................................................................................................ 10
1. Logistics management ............................................................................................... 10
1.1. Warehouses organization ................................................................................... 10
1.2. Transportation system ........................................................................................ 12
2. Lean system ............................................................................................................... 15
2.1. Lean production.................................................................................................. 15
2.2. Total quality management .................................................................................. 16
2.3. Respect for people .............................................................................................. 17
3. Supplier relationship management ............................................................................ 17
3.1. Types .................................................................................................................. 17
3.2. Supplier selection ............................................................................................... 18
3.3. Supplier development ......................................................................................... 19
V. Recommendations ....................................................................................................... 20
1. Logistics .................................................................................................................... 20
2. Lean ........................................................................................................................... 20
References............................................................................................................................ 22
Appendices .......................................................................................................................... 26
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I. Introduction
Amazon.com is often referred to as the world’s largest online retailer and they have a global
coverage supply chain management strategy that is worth studying and researching as well.
The content of the report is divided into 5 main parts. The first one is an introduction that
gives brief information about the topic. The second part illustrates an overview of Amazon
supply chain operations. The next one is the answer to the question ‘why global supply chain
management is important for reducing the delivery time of Amazon’. In the fourth part, the
report concentrates on answering the question ‘how Amazon contributes efficiency in
delivery speed’ by analyzing 3 factors: logistics management, lean system and supplier
relationship management. In the last part, we will discuss some outstanding issues and
provide recommendations for each to improve the Amazon supply chain.
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The Amazon supply chain simply refers to the whole process of product warehousing,
inventory management, pricing, and delivery times. In Amazon’s case, each of these
elements is optimized to ensure a smooth supply chain.
By offering two options: FBA (Fulfilment by Amazon) and FBM (Fulfilment by Merchant),
those who wish to store, pack, and ship products themselves can do so using FBM. Those
who prefer the hands-off approach can use Amazon’s fulfillment service (FBA) for the
storage, packing, and shipping of orders.
In addition, Amazon uses high-tech equipment, including robots (and soon the much-
anticipated introduction of drones), to increase supply efficiency even further.
1. Business model
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The Business Model of Amazon.com is complicated. First and foremost, the company sells
goods directly. A small number of items are sold with a small discount via Amazon’s online
storefront. Amazon does not charge its store partners a fee to offer things for sale, however,
it does keep a percent of the sale price as commission.
Amazon provides a variety of services and products, most notably Amazon Prime and Kindle.
Amazon Prime service allows customers to pay an annual fee for a Prime account to get free
quick delivery on qualifying products as well as access to streaming media such as digital
music and movies. Amazon also sells its e-reader - the Kindle, such as the e-book and mobile
app purchases that are related to Kindle. [3]
The target for Amazon should be to find a supplier with whom it can form a profitable long-
term relationship. When they are looking for suppliers to make their stuff, there are some
characteristics such as good communication, helpful, reputable, experienced, flexible and
affordable. [4]
Amazon marketplace has 6.2 million total sellers over the world. For example, if a seller sells
on Amazon in the United Kingdom, Germany, Italy, and France, they are counted as one
seller. There are still 1.6 million active sellers on this platform, with the majority having
removed their listed products for sales. Until now, Amazon has attracted 337,000 new sellers.
[5]
Ownership
According to MSN Money, there are approximately 425 million shares of Amazon common
stock in circulation, with statistics and information on who owns them.
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Jeff Bezos (CEO of Amazon.com) owns 16.3 percent of the company. Vanguard and
BlackRock, two investment firms, each have roughly 5% of the market. The other directors
and top executives have smaller sums that do not add up to a lot. Furthermore, investment
institutions that sell mutual funds and ETFs and manage investment portfolios for a variety
of organizations (pension funds, university endowments, college savings programs, etc.) and
affluent individuals own over 60% of the company’s shares. The top 15 institutions (in terms
of Amazon holdings) own 29% of the common stock. The fractions of Amazon stock are
quite small beyond the top 15, thus there is a ‘long tail’ of institutions with minor holdings.
[6]
3. Inventory
For inventory management, through QuickBooks Commerce software, Amazon can
automate inventory management. With this software, their inventory will be constantly
updated. Amazon order management software, allowing you to easily complete orders
through FBA. Price list is always updated mainly in US dollars. The software also
automatically converts the order to your base currency before synchronizing it with your
accounting system. [7]
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According to MWPVL International, Amazon has 386 warehouse and distribution centers in
the United States, including 159 fulfillment centers, 47 inbound and outbound sortation hubs,
52 Prime Now hubs, and 115 local delivery stations. Taking this number internationally,
Amazon has 850 facilities in 22 countries measuring 220 million square feet, while UPS has
about 1,000 package handling facilities totaling 68 million square feet. [9]
III. Why is global supply chain management important for reducing the delivery time
of Amazon?
This report mentions 4 reasons why reducing delivery times is important for Amazon to
manage the global supply chain: increasing customer experience, effective digital
experimentation, limiting influence from third parties and increasing net profit.
Firstly, customer reviews about delivery influence the buying experience of past and potential
customers. On the official Amazon.com website, it can be seen that customers rate Amazon's
shipping service at 4.1 out of 5 stars. However, 15% of customers have rated it at 1 star,
accompanied by disappointment and there are comments that will not buy the product again.
The reasons most pointed out come from the long shipping time and the difficulty of using
the app. These feedbacks will have a negative impact on the buying psychology of later
buyers. Receiving a lot of bad feedback shows that problems still exist in Amazon's supply
chain, especially in the delivery part.
Amazon is very aware of the importance of shipping, especially when it comes to optimizing
delivery times. That’s why they constantly invest, research and develop many types of
transportation. In which the application of advanced technology is given the top priority. A
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series of tests from methods such as: shipping by air, using drones or creating specialized
Vans (cars).
Example of using drones to see the effect that reducing delivery time brings. In 2013,
Amazon announced an initiative to use unmanned aerial vehicles (UAVs) to automate last-
mile deliveries. Experimentally, Amazon takes about 30 minutes to complete the delivery of
an order within 16km. If using the traditional delivery method, the time to receive the goods
will be 2-3 days. This shows that although the initial investment is high, the efficiency is
outstanding.
Two more important reasons for the necessity of reducing delivery times are to limit reliance
on the third parties and increase line margins. Amazon’s delivery process is dependent on
partners for both the long haul and the last mile. Optimizing shipping times can be a stepping
stone for amazon to reduce that dependency, operating the delivery process itself. According
to 2016 statistics, the company’s net transportation costs increased by 43% thanks to the
digitization of logistics. [10]
IV. How does Amazon manage delivery speed to contribute supply chain efficiency?
1. Logistics Management
1.1.Warehouses organization
Amazon Warehouse resells millions of like-new, open-box, and pre-owned items at a
significant discount that have been returned by customers.
Amazon’s warehouse operations are also important for delivery time. The faster an item can
go from order to warehouse picking, packing, and distribution, the faster the customer can
receive it. Amazon has been steadily improving delivery times, starting with Amazon Prime
2-day shipping and progressing to next-day delivery and now to only a few hours with
Amazon Prime Now. [11]
Amazon Warehouse is a terrific place for smart consumers to get great prices on millions of
high-quality secondhand products. All items are tested and rated using Amazon’s 20-point
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quality check procedure before being offered at a reduced price. Amazon’s 30-day return
policy and award-winning customer support apply to all purchases, which are eligible for
Prime.
• Deals on Quality Selection: Get great deals on millions of quality products.
• Trust: Shop used with confidence from a brand you trust.
• Sustainability: Buying used is eco-friendly.
Location management
Amazon’s success has been largely due to their location management. The warehouses are
not only massive and well-designed, but they are also strategically positioned near major
metropolitan centers. There are also smaller warehouses for less densely populated locations,
which contain more of the things most desired by clients and fewer products that are bought
less frequently.
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1.2.Transportation system
Nevertheless, in recent years, the 2020s, Amazon.com made an innovative decision that
could save on shipping costs by building shipping centers located across the US named
‘injection points’ [13]. These hubs exist where there are statistically large numbers of
customers and act as means of cross-consolidation. Packages will be shipped by low-cost
long-distance carriers to the last-mile delivery partner. The third parties in the last–mile are:
FedEx, United State Postal Service and Ups. Therefore, the overall shipping cost will be
significantly reduced. [14]
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The process begins when the order is placed and it will be packed and sorted. After being
divided into 3 categories: small sortable facilities, large sortable facilities and large non-
sortable facilities, the generals will be sent to distribution centers where orders with similar
regional locations will be sorted close to each other for transport. That makes it possible for
Amazon.com to contract with LTL (Less Than Truckload) or FTL (Full Truck Load) carriers
to provide long distance shipping. They also provide 3PL service (Third-party logistics
services). Goods will go from the distribution center to the shipping center via many different
modes: airplanes, trucks, vans, drones. The packages will then be forwarded to the
appropriate parcel carrier for final delivery.
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For instance, deliver 1000 orders to the San Francisco Bay Area. In the past Amazon may
have had 1000 long-haul trips, now they only organize 1 long-distance delivery and 1000
last-mile deliveries. That reduces shipping costs greatly.
‘Slow free delivery’ is the second one. As the name suggests, this form of delivery is
completely free, but the time it takes for customers to receive the product is often very long.
For domestic, near rejections, the delivery time will be 3-5 days. If it is an international
delivery, it will take longer depending on the location. For example, if you buy goods in the
US, the shipping time to Vietnam can be up to 10-15 days. Although it takes a long time to
wait, this is the most popular method and is chosen by many countries outside the US to buy
goods on Amazon.
The third type is the ‘Prime’ method: This method will get you the goods within 48 hours
and the customer will have to pay a fee equivalent to €40 French.
The last method, also the fastest one, is ‘Prime Now’. Customers should be able to receive
their order within 2 hours. Although this method is fast, it has the disadvantage that it can
only be applied to a few suitable geographical areas. Prime Now has built-in about 30,000
products, most of which are in the ‘emergency’ category such as health-related. To support
‘Prime Now’, Amazon has further developed a strategy to develop Prime Now Hubs
throughout the metropolitan area, especially in France. [16]
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2. Lean system
2.1.Lean production
Pulling the andon cord
The Kaizen theory of continuous improvement is an important element of Lean, and is also
popular, especially in terms of people and processes. The frontline has a high level of
commitment to quality improvement. If a customer reports a problem to a customer-service
representative, the agent is empowered to ‘stop the line’, i.e., pull the andon cord and remove
the product from the website before the defect is fixed.
The andon cord has had a huge effect, preventing tens of thousands of defects per year. The
measurements of their frontline workers are almost always correct: the andon cord is pulled
for a real defect 98 percent of the time. The agents could warn consumers that the product
has been sent to the lab for quality control before the defect can be fixed using the chain.
Customers are offered a new product or are repaid at the same time. Customers can view
items that have been pulled for quality problems in real time on the website. [17]
The problem was that their carts’ efficiency was unpredictably variable: stowing a small book
takes longer than stowing a computer screen. Amazon spent time on the front lines measuring
the time it took to stow various goods and came up with three different types of carts. They
specified products for each form as well as the time when those products should be stowed.
They then put the theory to the test and changed the procedure. They used kaizen to boost
standard work by reducing stowing times, allowing them to achieve top-down efficiency
targets by solving problems on the front lines. [17]
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To support TQM, Amazon uses Kiva robots, which were purchased in 2012, use sensors to
navigate the warehouse and transport shelves to employees to pick and send for packing
based on computer sysetems. Amazon has saved time and money by reducing the cycle time
for grabbing and replacing products from 90 minutes to 15 minutes every order. [18]
Amazon used its data technology system creating the best consumer-centric experience by
studying consumer behavior, analyzing and expanding on low-cost products with great
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convenience and personalized product recommendations, as well as the type of purchase and
product demand cycle. Data churning made it simple to find vendors with convenient
delivery locations, low prices, and high-quality products. As part of its process improvement
strategy, Amazon only employs the finest and brightest individuals and teaches them in Six
Sigma technique. This Amazon’s program is a martial-arts-inspired Black belt certificate
program. [19]
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3.2.Supplier selection
3.2.1. Selection by quality
Invoice
Amazon uses extremely strict processes and resources to ensure authenticity, quality.
In Amazon invoices, all business names, addresses must fit, update their supplier invoices
in case companies change locations or payment details. Amazon will call suppliers to confirm
invoice details are correct.
If suppliers do not have invoices that meet Amazon's criteria (where and how suppliers source
items), they are in danger of reporting and easy to infringe policies of Amazon as beblow.
[22]
Policies
On Amazon’s Intellectual Property Policy:
• Intellectual property violation
Amazon respects the intellectual property rights of others and does not infringe on them. As
suppliers, they must ensure that the goods they sell on Amazon are compliant with all relevant
laws and regulations, are allowed for sale or resale, and do not infringe on intellectual
property rights such as copyrights, patents, trademarks, or rights of publicity.
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Examples of Qualification Requirements are below, but this is not an exhaustive list:
• All workers are appropriate age: Workers must be at least 15 years old or have reached
the mandatory minimum age for jobs, whichever is higher.
• All workers treated equally with respect and dignity: Discrimination, physical, verbal, or
psychological bullying, including threats of violence or sexual harassment, should not be
tolerated in the workplace.
• Protect the environment: Wastewater must be disposed of according to local regulations.
Hazardous materials must be disposed of properly. [24]
3.3.Supplier development
• Prime Badge: Using Fulfillment by Amazon to make the deals more appealing to the 100
million Amazon Prime members around the world (FBA). Compare alternatives to
determine which type of implementation is best for their company.
• Free Shipping, Storage, Cancellation, and Returns: Suppliers that are new to FBA will
take advantage of the new selection program. For a limited time, suppliers will receive
free storage, removals, and return processing for eligible new-to-FBA products.
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• Advertise on Amazon and promote products: Using Sponsored ads and Promotions
to increase sales. [26]
V. Recommendations
1. Logistics
• Issues: Although Amazon’s transportation has up to 4 solutions in shipping goods to
buyers, the efficiency is still not appreciated, many customers have feedback that the
delivery time is long. Besides, there is the risk of not being able to check the quality of
the goods when the customer chooses the ‘drop shipping’ delivery method. In conclusion,
Amazon’s problems are optimizing delivery times and managing product quality.
• Suggested ideas:
To improve the transportation system, first, Amazon needs to take control of its entire
packaging and shipping process. The method ‘drop shipping’ is being depended mainly
on the seller. Amazon needs to tighten control or completely eliminate this form of
delivery.
Next, Amazon can improve the ‘slow free delivery’ method by based on purchasing area
statistics to set up more rejection points. The purpose of this is to have more storage
points for shipping goods, making the last mile delivery process shorter, thereby reducing
delivery time.
Finally, Amazon can consider decreasing the number of ‘slow free method’ users and
increasing the number of ‘Prime’ and ‘Prime now’ ones by reducing the cost of
subscribing to the service. This indirectly reduces delivery times because ‘Prime’
methods have much faster shipping times than traditional methods.
2. Lean
• Issues: Amazon has used Kaizen to reduce stowing times as well as time delivery. The
Kaizen team is the front-line workers, each member of the Kaizen system is related to
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others and as long as one member in the process has a problem, the whole chain will be
stopped. This leads to a serious impact on the following stages and delivery time.
• Suggested ideas: Amazon should have a backup plan, beside the main Kaizen team, the
company should have a certain number of workers that can be ready to replace when one
of the workers of the main group has a problem. One of the main solutions is that Amazon
must have a training program about the Kaizen system to ensure there will be no trouble
when a member of the group is having a problem.
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REFERENCES
[1] Abrasiverrock. (2021). Supply chain flows Amazon. [Image] Available at:
https://suzevusopejaze.abrasiverock.com/supply-chain-flows-amazon-32010an.html
[Accessed 30th May 2021]
[2] Gary Fox. (2020). Amazon business model. [Image] Available at:
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[3] Investopedia. (2020). Amazon's vs. Alibaba's Business Models: What's the Difference?
Available at: https://www.investopedia.com/articles/investing/061215/difference-between-
amazon-and-alibabas-business-models.asp [Accessed 30th May 2021]
[4] Williams, L. (2020). How to fine manufactures for Amazon products: A crucial step in
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amazon/how-to-find-manufacturers-amazon/ [Accessed 30th May 2021]
[5] Marketplace Pulse. (2021). Number of sellers on Amazon marketplace. Available at:
https://www.marketplacepulse.com/amazon/number-of-sellers [Accessed 30th May 2021]
[6] Seattle city council insight. (2018). Who owns Amazon? [Image] Available at:
https://sccinsight.com/2018/05/04/who-owns-amazon/ [Accessed 30th May 2021]
[8] Toughdecisions. (2018). Amazon package delivery application process – How-to from
start to finish? Available at: https://toughdecisions.net/amazon-package-delivery-
application-process-how-to-from-start-to-finish/ [Accessed 30th May 2021]
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[9] Galea, S., & Pace. (2019). Can Amazon be considered a logistics company? Supply chain.
Available at: https://supplychaindigital.com/supply-chain-2/can-amazon-be-considered-
logistics-company [Accessed 30th May 2021]
[10] Conforti, V. (2017). Amazon’s last-mile delivery is reaching new heights. Harvard
business school. Available at: https://digital.hbs.edu/platform-rctom/submission/amazons-
last-mile-delivery-is-reaching-new-heights/# [Accessed 30th May 2021]
[11] Lee, A. (2017). Automated warehousing systems at Amazon. Harvard business school.
Available at: https://digital.hbs.edu/platform-rctom/submission/automated-warehousing-
systems-at-amazon/?fbclid=IwAR3c55CRFbKm2GOeTC8-
3aBrTfgRvxTjmsBLefGw7RNc1GSeT9trJOQUDk0 [Accessed 30th May 2021]
[13] Chiles, Ronald.C., & Marguarette Thi. D. (2005). An analysis of current supply chain
best practices in the retail industry with case studies of Walmart and Amazon.com.
Massachusetts institute of technology. [Accessed 30th May 2021]
[14] Wendover Productions. (2021). How Amazon’s super-complex shipping system works?
[Image] Available at: https://www.youtube.com/watch?v=2qanMpnYsjk [Accessed 30th
May 2021]
[15] Amazon News. (2020). Inventing Amazon’s electric delivery vehicle. Available at:
https://www.youtube.com/watch?v=lKpOE8eulXM [Accessed 30th May 2021]
[16] Supply chain companies. (2021). Amazon supply chain and logistics secrets. Available
at: https://abcsupplychain.com/en/amazon-supply-chain-
logistics/?fbclid=IwAR1ZLYVUIcqtcFWCO_Xmyrv-
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[17] Onetto, M. (2014). When Toyota met e-commerce: Lean at Amazon. McKinsey and
company. Available at: https://www.mckinsey.com/business-functions/operations/our-
insights/when-toyota-met-e-commerce-lean-at-amazon# [Accessed 30th May 2021]
[18] Stewart, D. (2015). The Lean, Mean, Amazon Machine. Harvard business school.
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[19] Denis. (2021). Six sigma model of total quality management. A case study of Amazon.
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[20] Punam. (2020). Amazon Lean management: The six sigma case study in 2021
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[21] Jeffery, P. (2020). A guide to the different seller types on Amazon. Codisto. Available
at: https://codisto.com/supersellers/2020/02/14/a-guide-to-the-different-seller-types-on-
amazon/?fbclid=IwAR39EygtYwNQptanWBtzFrPJprCPTXu_M9HIgujiLI8oxig4tAlYmFs
pkWo [Accessed 30th May 2021]
[22] McCabe., C. (2020). Do your invoices meet Amazon’s requirements? Ecommerce Chris.
Available at: https://www.ecommercechris.com/amazon-invoice-
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-uBp1ljCY [Accessed 30th May 2021]
[23] Amazon Seller Central. (2021). Amazon product authenticity and quality. Available at:
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[24] Amazon Seller Central. (2021). Amazon renewed US quality policy. Available at:
https://sellercentral.amazon.com/gp/help/external/G202190320?language=en-
US&ref=efph_G202190320_cont_521#:~:text=To%20help%20ensure%20compliance%20
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[25] Amazon. (2021). Amazon supply chain standard manual. Available at:
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APPENDICES
SLIDE PRESENTATION
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ASSIGNMENT EVALUATION
GROUP 8
1. What proportion of the group work did you contribute, in % terms?
No. Task Task distribution % of
contribution
• Cite references
• Edit report
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• Cite references
• Supplier development
5 • Respect for people Tôn Nữ Phương Khanh 15%
• Lean issues and recommendations (Team member)
2. What was your key learning from this activity, both in relation to the topic covered
as well as the group activity itself?
Basing on the activity of the subject, we have gained more knowledge and experience in
research and group work.
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The benefits we received from this work: applying the knowledge we have learned in
practice, how Amazon manages the supply chain to achieve its goals, detecting problems and
making recommendations. Although our solutions are not the most optimal, it still helps the
company more or less in improving the system.
3. Do you have comments on the task, process or group dynamics (e.g. that would help
us to improve and develop the task for next year)?
Our tasks are to apply the knowledge we have learned into practice and improve our research
and teamwork skills on a voluntary, non-compulsory basis. My group hopes to have more
such activities. Most of the motivation comes from the requirements of the subject and the
efforts to progress together among the members. We suggest that going to some companies
or directly operating a small supply chain will definitely make students more interested and
motivated.
4. Please state how you used the group feedback to develop your group report
Our team received pretty bad feedback after the presentation because of the lack of problem
depth, the unclear objectives and unlinked sections. We sincerely receive recommend from
teacher and classmates to improve our group report. In the process of working, we have
created groups to facilitate communication with each other, make an outline and redefine
almost everything to do together. Tasks are selected by members based on their knowledge
and ability. All are on a voluntary basis. If there is a problem we are ready to help each other.
To come up with a unified report on the content and ideas, it is a long process of teamwork
for months.
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