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Course Title:
Principles of Logistics & Supply Chain Management
Course Code:
SCM-4801

Submitted to:
Dr. Mohammad Rahim Uddin
Associate Professor
DBA, IIUC

Submitted by:
Mohammad Nurul Alam Chowdhury
B201127
Sec: SCM-Major, 8th semester
A complete guide on how AMAZON`S
supply chain strategy works
Let me first explain how the traditional supply chain works. The standard supply chain for
retailers such as Walmart, Target, and Tesco was driven by the retailer's orders placed with
suppliers. Deciding what to place on shelves was a significant task for a store that has more
than one hundred thousand different items. A buyer normally sets the assortment plan from
quarter to quarter based on the changes in customer demand due to seasonal events. In order to
clear out inventory and to make room for new products for the next season, retailers used a
variety of approaches including price discounts or markdowns. It was estimated that end of
season markdowns and discounting costs U.S fashion retailers an average of 30 percent of
revenues.

Since the 1990s, retailers had partially offloaded the responsibility for category management
to category captains who are key supplier partners with the capabilities to analyze, review, and
plan the assortment recommendations for major product categories. For example, at Walmart,
there were forty 000 suppliers; this included just 200 strategic suppliers such as Procter and
Gamble. Retailers provided suppliers with access to sales inventory and other data in real-time
using online information portals such as Walmart's Retail Link network. Analysts working for
suppliers downloaded and reviewed this data and then brought their recommendations to
category buyers who had the final say over approving these assortment recommendations
called planograms.

It was often challenging for small and medium-sized businesses to sell products to large
retailers as it generally took six to eight months for new products to be added to shelves.
Retailers and large suppliers tended to outsource a large portion of their logistics needs starting
at the supplier's factory gates and ending at retailers' distribution centers. They relied on third-
party logistics providers and freight forwarders to ensure timely shipping and delivery of
goods.

In 1994, Amazon's distribution network started with two warehouses in Seattle and Delaware,
which Amazon called as fulfillment centers. In 1999, the company opened five more fulfillment
centers as well as its first European fulfillment centers. In 2006, Amazon created FBA, a service
that managed the fulfillment process for its third-party sellers. In 2013, Amazon had launched
an umbrella project named Dragon Boat to expand its fulfillment capabilities. This initiative
aimed to create a global delivery network to facilitate the movement of goods from China and
India to Amazon DC's in the United States and the United Kingdom. Late deliveries of
customer orders reportedly cost Amazon millions of dollars in refunds and motivated
management to embark on plans to build its own last-mile delivery network.
So, in 2016, Amazon created a venture named Global Supply Chain by Amazon that featured
Amazon as a global logistics provider targeting all services including trucking, freight
forwarding, and customer delivery. According to Amazon, it would be a revolutionary system
that will automate the entire international supply chain and eliminate much of the legacy waste
associated with document handling and freight booking.

The typical flow for goods through Amazon's distribution system was as follows: product from
overseas arrived at one of Amazon's inbound sortation centers before being sent to a fulfillment
center. Amazon's fulfillment centers were warehouses where product was stored, picked, and
shipped. In an effort to control logistics costs, Amazon invested heavily in warehouse
automation. It acquired Kiva Systems in 2012 and later renamed it Amazon Robotics. This
division designed and installed warehouse automation systems exclusively for Amazon.
Amazon started building its truck fleet in 2015 to take increased control over shipments to and
between its fulfillment centers and sortation centers. In July 2017, Amazon was also leasing
40 cargo planes as part of its logistics network.

Amazon's supply chain management has a strategic fit with its competitive strategy of being
the retailer of choice for its customers. The combination of multi-tier inventory management,
superlative transportation, and highly efficient use of information technology and its wide
network of warehouses are all geared towards aligning its supply chain with its competitive
strategy.

Traditional retailers purchased goods from manufacturers in bulk and took receipt in full
container loads at their DCs. In contrast, Amazon's strategy was to control the shipment of
goods across the entire supply chain, including procurement, shipment to DCs, and final
customer delivery. Amazon had first-party, second-party, and third-party sellers. A first-party
seller was a manufacturer that sold products directly to Amazon. Second-party sellers were
resellers that bought from brands or manufacturers and then sold the product to Amazon.
Lastly, third-party sellers relied on Amazon's marketplace to sell directly to customers. In 2017,
more than half of the units sold on Amazon's site were from third-party sellers.

Amazon divides its customer segments and follows a price differentiation strategy. The various
forms of delivery are one-day delivery, free super saver delivery, first-class delivery, and Prime
customers delivery. For all these segments, Amazon offers the customers an option of paying
more for faster delivery or retains the traditional lead time. Coupled with the inventory
outsourcing, the customer segmentation into price-differentiated customers offers the company
nimbleness and agility in the market that changes with dynamic fluctuations in demand.

A key aspect of Amazon's supply chain is that it has evolved over the years in response to its
growth in the market. For instance, Amazon started off as a bookstore which acts as an
intermediary between the buyers and the sellers and does not stock any product of its own.
Gradually, this gave way to holding some items in its own warehouses and at present, Amazon
follows a push-pull strategy wherein the inventory is held in a push strategy and the shipment
of the orders is done in a pull strategy. Of course, even now, Amazon follows pure pull
strategies for items that it does not stock.

Any discussion on Amazon's supply chain is incomplete without an analysis of its multi-tier
inventory system. The first tier is the aggregation in the distribution centers which ensures that
Amazon holds fewer inventories and responds to demand in a dynamic manner. The next tier
consists of the partner distribution centers and the wholesalers wherein whenever an ordered
product is not available in its own distribution centers, Amazon can rely on its partners and
wholesalers to supply the customer with the required product. Further, through the use of
sophisticated and real-time IT, Amazon is able to leverage efficiencies in its distribution.

The third tier consists of the networks of third-party sellers, publishers, vendors, and
manufacturers who ensure that Amazon acts as an intermediary that fulfills orders from
customers by linking them to this tier. In 2018, Amazon was both a retailer of merchandise and
digital content and an operator of a chain of grocery stores and a chain of bookstores, and it
had more than 300 million customers around the world. It contributed about four percent of
total U.S retail sales and its market share of the e-commerce segment was estimated to be
approximately 43 percent. By comparison, its two closest competitors, eBay and Walmart, had
7.4 percent and 4.3 of the U.S e-commerce market respectively.

In addition, Amazon had video streaming and music streaming services and offered cloud
computing platform services. Amazon was continually exploring new products, services, and
markets. Meanwhile, it was using new technologies and logistics models to exploit
opportunities to reduce supply chain costs and improve customer service.
The significant timeline on the way to
success of Amazon in chronological year
stated below :
1990s:
In the 1990s, retailers like Walmart, Target, and Tesco operated traditional supply chains where
retailers placed orders with suppliers. Deciding what products to place on shelves was a
significant task, often driven by buyer's assortment plans based on changing customer demands
and seasonal events. This era saw retailers using various approaches, including price discounts
or markdowns, to clear out inventory for new products each season.

1994:
Amazon's distribution network began with two warehouses in Seattle and Delaware, termed as
fulfillment centers. These centers marked the initial steps in Amazon's efforts to streamline its
supply chain and cater to customer demand effectively.

1999:
The expansion of Amazon's fulfillment network continued with the opening of five more
fulfillment centers, showcasing the company's commitment to enhancing its logistical
capabilities to meet growing customer expectations.

2006:
Amazon's global expansion efforts saw the establishment of its first European fulfillment
centers, indicating the company's strategic focus on reaching customers worldwide and
improving delivery efficiency.

2013:
The launch of FBA (Fulfillment by Amazon) in 2013 marked a significant milestone in
Amazon's supply chain strategy, offering third-party sellers a comprehensive fulfillment
solution managed by Amazon. This move aimed to streamline the fulfillment process and
enhance the overall customer experience.

2016:
In 2016, Amazon introduced the Global Supply Chain by Amazon venture, signaling a strategic
shift towards becoming a global logistics provider. This initiative aimed to revolutionize the
international supply chain by automating processes and reducing inefficiencies associated with
traditional logistics operations.

2017:
Amazon's efforts to bolster its logistics network continued in 2017 with investments in cargo
planes and the leasing of 40 cargo planes. These initiatives aimed to enhance control over
shipments and improve delivery speed, addressing challenges such as late deliveries and
optimizing last-mile logistics.

2018:
By 2018, Amazon had evolved into a multifaceted retail giant, serving as both a retailer of
merchandise and digital content, and operating grocery and bookstore chains. With a vast
customer base and a significant market share in e-commerce, Amazon continued to explore
new products, services, and markets while leveraging innovative technologies to refine its
supply chain and enhance customer service.