{"id":7344,"date":"2015-12-09T23:23:57","date_gmt":"2015-12-10T04:23:57","guid":{"rendered":"https:\/\/digital.hbs.edu\/platform-rctom\/submission\/amazon-the-everything-store\/"},"modified":"2015-12-10T21:18:14","modified_gmt":"2015-12-11T02:18:14","slug":"amazon-the-everything-store-driving-long-tale-strategy-with-superior-supply-chain-management","status":"publish","type":"hck-submission","link":"https:\/\/d3.harvard.edu\/platform-rctom\/submission\/amazon-the-everything-store-driving-long-tale-strategy-with-superior-supply-chain-management\/","title":{"rendered":"Amazon: \u2018The Everything Store\u2019 \u2013 Driving Long-Tale Strategy with Superior Supply-Chain Management"},"content":{"rendered":"

Amazon is an example of exceptional effectiveness at driving alignment between the business and operating models (please note that this post refers solely to Amazon\u2019s e-commerce business). By developing superior supply-chain management, building strong relationships with vendors and distributors, and providing a seamless online experience for shoppers, Amazon has created (and captured) significant value for all players involved, on its way to become the world\u2019s biggest online retailer.<\/p>\n

Business Model: Creating value with \u2018Long-Tail\u2019, Low Price, and Fast Delivery Service<\/u><\/strong><\/p>\n

Founded in 1995 as an online bookstore, Amazon.com has expended over the years to offer the “Earth’s Biggest Selection” of products available, including (among others) music, movies, electronics and household goods[1]<\/a>. From its inception, the company adopted a \u2018long-tail\u2019 strategy<\/strong>[2]<\/a> under which \u2018hit items\u2019 were offered alongside a wide selection of \u2018non-hit items\u2019<\/strong>, i.e. items that are non-frequently searched for and sold in small quantities. While other online bookstores limited their offerings to their own inventory items, Amazon\u2019s seller marketplace allowed it to offer books \u2013 new or<\/em> used – from any partner bookstore without having to hold inventory, and for only a small markup. As a result, Amazon has been able to offer highly competitive prices for consumers and attract vast online traffic, which translated into increased sales volume for vendors. Furthermore, the company\u2019s explicit \u2018zero profits\u2019 strategy[3]<\/strong><\/a><\/strong> has allowed it to re-invest its revenue in improving its supply chain infrastructure, which in turn reduced costs, price to end-consumer, and delivery time<\/strong>, resulting in increased customer satisfaction[4]<\/a>.<\/p>\n

\"typical-retail-graph\"<\/a><\/p>\n

Operating Model: Inventory and Superior Supply Chain Management<\/strong> <\/u><\/p>\n

To support its long-tail, low price, fast delivery business, Amazon ships orders to consumers in two ways:<\/p>\n

    \n
  1. \u2018Non-hit \/long-tail items\u2019 are usually shipped directly from the vendor\u2019s warehouse, releasing Amazon from the need to stock slower-selling products, thus assuring that it only maintain fast inventory turnover. Under this method, advertising and shipping costs are incurred solely by the vendor. This allows Amazon to expand its available product selection online without a corresponding increase in overhead costs[5]<\/a>.<\/li>\n
  2. \u2018Hit items\u2018 (i.e. more frequently sold products) are usually shipped to consumers from one of Amazon\u2019s 168 distribution centers around the world[6]<\/a>. Amazon\u2019s extensive investment in warehouse management technology and automation[7]<\/a>, along with its ability to leverage economies of scale, allow it to ship \u201cthe right products in the right quantity to the right place at the right time\u201d while reducing costs for both the company and its customers. Under this supply chain method, vendors have complete control over which products to store at Amazon\u2019s distribution centers. To optimize their decisions, Amazons provides vendors with advanced online inventory management tools and analytics, which take into account factors such the speed of inventory turnover, market prices and seasonality[8]<\/a>. Products stored at Amazon are eligible for Amazon Prime (a two-day delivery shipping), and consequently rank higher on Amazon\u2019s website search-results, further increasing the chance of a purchase. Distribution center locations are chosen based on proximity to customers, to reduce delivery time to minimum. Products shipped by Amazon are delivered by UPS, the U.S. Postal Service or other delivery services. Recently, however, the company indicated its desire to increase its control over the \u2018last mile delivery\u2019 to the customer, which would allow it to further reduce costs and delivery time (with the aim to reach same-day-delivery as an operation standard). As part of these efforts, Amazon plans to launch its own shipping network “sometime in 2016”[9]<\/a>, and has already launched Amazon Flex – a new, on-demand service that pays part-time drivers in exchange for delivering packages[10]<\/a> (similar to Uber, which reduced the cost of traveling by taxi).<\/li>\n<\/ol>\n