Amazon’s Operations Management: All You Need to Know

Published October 6, 2020 | Author: PenMyPaper

Key Points

• Amazon earned USD 469.82 billion in revenue and reached USD 1.15 trillion in market cap.
• Amazon’s operations follow standardization and localization.
• Long-tail strategy allows for sale of a variety of products, where the competition in low.
• Drone delivery is the future of Amazon.

Amazon is a well-established online retailer, headquartered in the US. The company operates in multiple international locations and has become one of the most popular e-commerce platforms in the world. At present, Amazon holds the leading position in the global e-commerce sector, with the majority of its cash flow coming from its domestic market of the US. The company has expanded its business over the years, through diversification and now caters in multiple product and service categories apart from online retail, such as cloud computing, media streaming, etc.

The success of the company is clearly reflected in its high revenue generation and market value. As of 2021, Amazon has earned a revenue of USD 469.82 billion and holds a market capitalization of USD 1.150 trillion. For a business management student, Amazon is one of the most vital organizations to study about for professional essay writing, According to our paper writer, Amazon is one of the most vital organizations to study about, especially its operations management.

In this article, we have discussed about the operations management at Amazon, which highlights the key set of activities involving its business venture. For the sake of simplicity, we have focused on the online retail business of Amazon, which is the primary source of its revenue. This article can be referred as a case study on Amazon’s operations management.

Amazon Operations Management

Amazon was first established in the year 1994, as an online bookstore. Over the years, the company has expanded its e-commerce business to sell almost any commodity to its customers, across the world. At the heart of its e-commerce business, Amazon organisational structure follows a perfect combination of standardization and localization. Since, Amazon caters to multiple international locations, therefore it is important for the company to meet needs of the customers in the host market.

The localization approach allows the company to reshape its marketing strategies according to the needs and preferences of the target customers, through appropriate market segmentation. Simultaneously, Amazon has also irrespective of the market region, the core business practices and the brand image of the company remains the same. The standardization of Amazon’s operational activities has allowed the company to offer its services in a consistent manner across all markets. This has also enabled the company to leverage its global brand image, while creating a strong foothold into various international markets.

Amazon is an online retail platform, which is used by the company to sell different products to its customers and also allows third party sellers to sell their own products as well. Thus, Amazon acts as an e-commerce retailer as well as an online marketplace which brings third party sellers close to a massive customer base .

It is important to understand that Amazon emphasizes on creating a strong brand equity by offering the best possible service in the online retail sector. The company realizes the fact that its business model is not unique and can be imitated by a lot of other companies, which is why the company seeks to create its differentiation by creating strong brand image , which cannot be imitated in any way.

In order to offer the best possible service quality to its customers and patterned sellers, Amazon has created a robust supply chain, which is highly efficient and is capable of delivering its services to a staggeringly high number of customers. In order to write an essay outline on the operations management of Amazon, we need to dig deeper into the supply chain of the company.

Faster Delivery, Higher Customer Satisfaction

As mentioned earlier, Amazon seeks to create a strong brand image by offering the best possible service quality to its customers. In its pursuit, the company has introduced a game changing product delivery service back in 2005 and named it Amazon Prime Service . This paid service allowed customers to have their product delivered at their door-steps at an extremely short time of just two days. At the time, it was something which was quite unheard of for any e-commerce brand. Typically, customers had to wait much longer to receive their products. The faster delivery of Amazon attracted a lot of new customers and has eventually helped in creating a positive brand image.

The faster product delivery has been made possible through developing an advanced supply chain which is focused on efficiency. Amazon has created a supply chain with end-to-end visibility which is equipped with advanced technologies, which allows the company to have full control on its every aspect.

Moreover, the superior logistics services of Amazon have been made possible by reducing its dependence on third party logistics companies. Amazon has its own logistics division, which has made it easier for the company to have better control on its operational activities. Moreover, it also provides better transparency, thus allowing the firm to keep its customers updated about the shipment, at all times.

Looking into the Supply Chain of Amazon

Now that we have a clear idea on what Amazon wants to achieve though its supply chain, let us now look into how it achieves them. In this section we have thoroughly discussed about how Amazon delivers value through its supply chain to its stakeholders so that you don’t have to buy a term paper.

As mentioned earlier, apart from being an online retailer, Amazon also acts as an online market place, which allows third party sellers to sell their own products to a massive customer base using Amazon’s platform. This business model has allowed the company to achieve higher revenue by catering to a large number of customers and also by leveraging the Long Tail approach.

The graph shown above, shows two distinct sections, the short tail and the long tail. The sales volume in the short tail section is extremely high and consists of fewer number of highly popular products. However, in case of the long tail section of the graph the company sells a much wider range of products, each in lesser volume. Thus, the long tail strategy allows the company to sell a variety of products, where the competition in low. Looking into the SWOT analysis Amazon states that this strategy has worked successfully, as it has enabled the firm to operate in product categories, where the competition is not so severe.

In order to take full advantage of the long tail strategy, Amazon has introduced the Fulfillment by Amazon (FBA) program. The FBA allows third party sellers, or SMEs to sell their products on the Amazon platform, where they can instantly reach out to a massive customer base. Let us now look at how FBA works to help you write essay on Amazon operations management.

• A registered third-party seller sends their product to an Amazon fulfillment center or schedules for a pick up.
• Amazon stores the product, from a single unit to the entire inventory, in their warehouse.
• A customer buys the product from its listing on the Amazon platform.
• Amazon packs and ships the product to the customer.
• The seller makes revenue from the sale.

This model of business allows Amazon to store the products of the sellers in their own warehouse space, ready to be shipped as soon as the customer places an order. Thus, the FBA allows Amazon to deliver the ordered products at the shortest possible time. In this context, it should be highlighted that the supply chain of Amazon is dependent on the high scalability of the inventory capacity. As the company is storing the sellers’ products till the time they are ordered, so it requires gargantuan warehouse spaces. As of FY 2018, Amazon owned 288 million square feet of warehouse space. Needless to say, that the company spends significant amount of money to own and maintain these properties.

The fast and efficient delivery of products from the warehouses to the door steps of the customers, is achieved through thoughtful warehousing and logistics management system. Amazon has created a highly intricate distribution network in its target market locations, comprising of different types of facilities, that play a crucial role in its supply chain. Let us look at each one of them now.

Crossdock Centers : Shipment from foreign vendors are stored here until more inventories are required by the fulfillment center.

Fulfilment Centers : The packages are stored here before being picked up for delivery.

Sortation Centers : In this facility the products are sorted by robots by respective delivery addresses (zip codes) before they are sent out for delivery.

Delivery Stations : The delivery stations are meant to improve last mile delivery , which is usually outsourced to third party logistics companies like UPS or FedEx.

Prime Now Hubs : These facilities enable time sensitive deliveries such as groceries, which need to be delivered in a matter of hours.

The fast delivery of Amazon also depends on how the company manages it warehouses. Amazon has adopted a highly sophisticated warehouse management system which is highly automated and AI driven. Given the massive scale of the warehouse spaces of Amazon, it is counterproductive for the employees to sort, store and pickup items from designated sections. Instead the automated system, allocates storage space in real time, based on the space availability and automatically retrieves the product as needed. Amazon cuts the transportation time, by establishing multiple delivery stations all across its target market region, and also through reducing the time in moving the packages though the warehouse.

Amazon is constantly working on mechanizing its supply chain, by deploying intelligent robots in its warehouses, in order speed up the movement of packages even further.

Amazon Delivery: Simplified

(Source: Amazon)

Future of Amazon’s Operations Management

Amazon sees itself working with a fully automated and mechanized system , where short ranged deliveries are being made by drones. We have already found that Amazon is quite committed to delivering superior service quality, especially in terms of shortening the delivery time as much as possible. Currently, Amazon is working to test its drone delivery system , which can deliver small and medium sized packages in a matter of minutes, not hours.

Amazon plans to set up hive like facilities in multiple locations. Packages will arrive in these facilities via traditional road transportation, and will then be flown to respective destinations by drones. These facilities will also act as fulfillment centers which are optimized in such a manner that they can be used to for drone deliveries as well. Amazon has branded it drone delivery service as Prime Air, which is like to be available in the near future. The company has already received clearance from the FAA and is rigorously testing its delivery system to bring it to market as fast as possible.

Current State of Drone Delivery

The done delivery service, under the brand of Prime Air, was promised almost 10 years ago. But even today, Amazon is still struggling to make it work on a large scale. One of the biggest hassles faced by the e-commerce giant is on the ground of public safety. During the testing phase, the company experienced a series of drone crashes, one of which even caused a bush fire stretching across 25 acres. This has caused a massive delay in fully launching Prime Air.

Summing it All Up

Considering the scale of Amazon’s e-commerce business, the company handles a sea of deliveries across the world. Despite of the massive scale, Amazon has managed to maintain its quality of service and is able to offer the shortest possible delivery to its customers. In order to achieve such remarkable feat, the firm has developed its own supply chain management system which relies on a highly sophisticated and automated system, which reduces human error and improve the movement speed of the packages through the supply chain. Amazon is deeply committed to maintain its brand image as the best e-commerce service provider and in order to achieve that it has adopted technologically advanced systems and infrastructures. In the future, the company seeks to achieve even faster deliveries through drones.

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