Distribution Strategies

Case: Amazon.com`s European

Distribution Strategies

Dibya R.Otta
Keshav Kumar
Kriti Pareek
1 Minakshi Roy 12/08/2021
Flow of discussion:
 History
 Evolution of Amazon supply chain and distribution
system in the US
 Establishing Amazon.com

 Building Additional fulfillment Infrastructure

 Optimizing the Customer Fulfillment Network

 Streamlining US Distribution Centre`s

Processes
 Inventory Costs

 Delivery processes

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Flow of discussion:
 Amazon.com in Europe
 Launching Amazone in the UK & Germany
 Launching Amazon in France
 Amazon`s challenges in Europe – Globalization &
localization

 Assessing the EDN Opportunity

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History:
 Multinational electronic commerce company
 Largest online retailer in U.S.

 Headquarter-Seattle, Washington

 Company Perspectives: 
We seek to offer the Earth's Biggest Selection and
to be the Earth's most customer-centric company,
where customers can find and discover anything
they may want to buy online. 
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 History
 Jeff Bezos, founder of Amazon.com.  in 1994 and the site
went online in 1995.
 Originally named Cadabra Inc.
  Amazon.com started as an online bookstore, but soon
diversified in CDs, videos, DVDs, electronics, toys, tools,
home furnishings and house wares, apparel, and kitchen
gadgets.
  Amazon has established separate websites in Canada, the
United Kingdom, Germany, France, Italy, Japan, and China.

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Contd…
1995: Amazon.com debuts on the Web. 
1997: The company goes public; Amazon.com
becomes the first Internet retailer to secure one
million customers. 
1998: Amazon.com enters the online music and video
business; companies are acquired in the United
Kingdom and Germany. 
1999: The firm expands into selling toys, electronics,
tools, and hardware; Bezos is named Time
Magazine's "Person of the Year." 
2001: Amazon.com reports its first net profit during
6 the fourth quarter.  12/08/2021
4500
4000 3932.9

3500
3122.4
3000 2762
2500
2000
1636.8
1500
1000
609.8
500
147.8
0
1997 1998 1999 2000 2001 2002

7 Total revenues(m$) 12/08/2021

35000
Number of world's active customers 31180
30000

24700
25000

19800
20000

15000
12000
10000
6200
5000

0
1998 1999 2000 2001 2002
8
year 12/08/2021
Evolution of Amazon`s supply chain &
Distribution system in US:
 Established with a mission to “use the Internet
to transform book buying into the fastest,
easiest and most enjoyable shopping
experience possible.”
 Procurement strategy:
 Hold modest inventory
 Rely on wholesaler

 Offered 2.5 million titles, yet stocked only 2,000

titles(5% of its orders)

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10 12/08/2021
11 12/08/2021
When they have own stock:

Customer

Customer

Customer

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 When they don`t have own stock:

Ingram Book
 Custome
company ORDER
r

OR
DER
 Custom
er
Baker & Taylor ORD
E R

2-  Custom
3d
ay er
s

13 12/08/2021
Steps taken to improve market
share:-
 Increase in the distribution centre capacity.
 Launch of new distribution centre (decrease lead
time and dependency on supplier) .
 Increase in the number of titles (reduce delivery
time).
 Software development to support back-office
operations.
 Expanded its product line- Music store (June
1998), Video & DVD stores (Nov 1998)
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Building additional Fulfillment Infrastructure:

 Pursued “Get Big Fast” strategy.

 Adding new product lines and features at fast
rate.
 Ask experts

 Used i2 technologies` Supply Chain Strategist

Software.
 Establishment of DC as per experts advice and
software usage.
 Selection of product type each of new DC`s
15
should carry. 12/08/2021
Get Big Fast:-

It requires to raise a lot of

capital & work as quickly as
possible to get big fast
without concern for
profitability.

Later competitors will have a

serious barriers to entry.
It`s also called as Amazon
model.

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 Contd…
o Each DC is equipped with a
 “Pick-to-Light” system.
 Radio-frequency technique

 Voice technology

 Pick-profile for fast selling items

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  Sequentially illuminated to
show which item to pick
next and how many.
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Radio-frequency Technique:

 Directs worker to
warehouse locations via
Radio-signals.

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 Allowed
computers to
verbally
communicate
instructions to
workers.

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Pick- profile

For fast selling

items based on
Item-size
Velocity &
location
Pick rate
Pick-zone
Picking
pattern
Storage
pattern

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Optimizing the Customer fulfillment
Network:
 Hired Jeff Wilke to the position
of Vice President of Operation.

 Reduce costs associated with

stocking and shipping goods.

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Streamlining US Distribution
Centers' Processes:
 Used Six Sigma DMAIC (Define, Measure,
Analyze, Improve & Control) to reduce defects.
 Reduced inventory-record accuracy errors by
50% in a year.
 Encouraged DC staff to simulate holiday season
conditions.
 Enabled Amazon to identify process bottleneck
and reconfigure DC layout to make it easier to
locate, sort & ship customer orders.
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Inventory costs management:

 Refined the software used to forecast customer

demand.
 Established buying rules to better allocate
volumes among wholesalers & vendors.
 Integrated its suppliers` management systems
with its own inventory, warehouse &
transportation system.
 Having wholesaler “Drop-ship” orders
 Partnering with other companies
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 Amazon.com in Europe:-
9000 8280
Books sales in Europe in 1999
8000

7000
6070
6000

5000

4000

2590
3000

2000
857
616
1000 262 288 295
65
0
Ireland Norway Finland Denmark Sweden Austria France UK Germany

Euro(millions)
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 Launching AMAZON in the UK & Germany
:-
 Books played significant role in Germany culture.
 German customers were accustomed to buying books by
mail-order companies.
 In UK-Development of new distribution channels.
 Acquired leading online book retailer in each country-
1. Bookpages.co.uk in UK
2. Telebuch.de in Germany
 Applied “Get Big Fast” strategy.
 Incorporating wider variety of products like Music.

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Launching Amazon in France:-
 Enter in September-2000.
 Did not follow “Get Big Fast” strategy, rather
went for building of database of all products.
 Launched the Books, Music, Video, & DVD.

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Challenge in Europe

Globalization Localization

12/08/2021
2
8
Steps to improve market share in Europe:
- Maintain Web sites functionalities unique to each country.
- Build 24-hours-a-day customer centers with native-speaking
customer service representatives.

- Address selling regulations in each country.

- Free shipping.

- Payment options (e.g. Credit Card, Check, Postal Order).

-Used EDI(Electronic Data Interchange) with suppliers.

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Problems identified
1.Did Amazon need three independent
distribution centers in UK , Germany ,and
France or build a European Distribution
Network(EDN)?
If Amazon goes for EDN ………..
 Impact on transportation may lead to
reduction in service level
 How to address the issue of customer
satisfaction
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Solution:
 EDN should be implemented and the location of the
inventory should be strategically ,rather than
geographically, determined
Benefits of an EDN to Amazon Europe

 To set up an independent operating unit in a new country

would proved to be very expensive for Amazon Europe.
 There are a no. of products not offered in France, offered in
Germany and UK. So implementation of EDN would
ensure that all the three countries have similar product
range.
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 contd…..
 Under EDN the procurement department of Amazon
would be able to centralize its purchase and extract
higher volume of discount from suppliers
 Customer satisfaction would improve by enabling
Amazon to select the appropriate DC to fulfill
customer’s satisfaction & Backlog problem can be
solved
 It would reduce the risk of relying on a single DC to
serve a large base of customer
 Can use current DC for supplying to other European
countries instead of depending upon local distribution
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channel 12/08/2021
 Approach to transportation problem

1. Transportation team should work collaboratoly with

customer service to educate customer to associate
different shipping price to the delivery service level
chooser.
2. Amazon Europe can seek better terms times with
pan European carrier to improve the service level.
3. from a centralize procurement the volume discount
that Amazon would get from suppliers can be used to
improve service time.
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 2. Alternatives to design the EDN

Option1: link different sites to a single European

distribution center.(Determination of DC location,
Formulation of transportation plan)

Option2: keep the three DCs to fulfill orders from other

country side.(By Drop shipment approach)

Option3: keep two DCs, one serving north and other

serving south(Determination of DC location,
Formulation of transportation plan)
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3.What should be the function of DC in the EDN?
Option1: should all the three DC’s hold the inventory
as they are doing presently , with the function of the
EDN primarily as a Back-up in case of emergency
Option2: Amazon should selectively share inventory
among European sites to reduce inventory holding
cost
Option3: How to address the issue of inventory
ownership

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Solution:
 Amazon Europe’s operation should be
integrated fully with the three sites inventories
physically mixed, based on demand patterns
and inventory and transport cost.
 It requires analysis of demand pattern ,cost ,
transportation options, IT requirements and
DC capabilities, but once implemented, this
would proved to be very cost effective.

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3.HR policy……
 For successful implementation of EDN a better
coordination among departments and a clear
HR plan.
 Short Term-People working in the functions
affected by the implementation of the EDN
would have to learn to work collaboratively to
leverage the opportunity & savings
 Long Term-Network optimization could lead to
reduction of staff in the operation team
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Thank you

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