Introduction
Amazon is an American organization, one of the world’s most powerful online sellers of all kinds of goods and services. It is also a leader in the sales of mass-market products through online services (Blanchard, 2021). Amazon’s supply chain is a remarkable advancement in retail logistics. Amazon’s supply chain model is one of the largest, most efficient, and modern supply chains in the world. However, its foundations are similar to its creation more than 25 years ago, although on a significantly larger scale (Blanchard, 2021, p.54). Over the years, technological innovations have been introduced to streamline operations and improve efficiency, and millions of dollars have been invested in Amazon’s development. Although the market is constantly evolving and new competitors are emerging, transportation issues need to be addressed (Hugos, 2018). Thus, a transportation improvement plan (TIP) for Amazon’s supply chain needs to be developed.
Demographic Information about the Company
Amazon is a well-known online marketplace created for retail sales. Entrepreneurs from different countries successfully build their online businesses and make good money online. It is significant to mention that the industry classification of Amazon has code 454, which is retail outside of stores, and code 4541 for retail electronic and postal trade (Blanchard, 2021, p.61). In addition, Amazon is an American online retailer that brings together the largest markets in more than two dozen countries. It has four regions, the Americas, Europe, Asia, and the Middle East. European Amazon unites 9 marketplaces located in the UK, France, Germany, Italy, Spain, the Netherlands, Poland, Sweden, and Turkey. Total sales for the 2021 market in the U.S. was $ 146 billion; the U.K. is $ 19.8 billion (Blanchard, 2021, p.78). Moreover, in Germany, sales are $ 20.5 billion, and in Japan, $ 13.3 billion. The U.S. firm Amazon now has more than a million staff. Amazon has 1.6 million employees as of December 31, 2021. In September 2021, the organization temporarily hired 125,000 workers (Blanchard, 2021, p.89). Thus, the number of employees increases depending on the corporation’s needs.
Currently, Amazon is the leading provider of cloud services and smart home systems. The company also represents a clothing designer, advertising platform, and book publisher. The online store offers MP3s, audiobooks, software, video games, electronics, clothing, furniture, food, toys, and jewelry. The business also owns Amazon Publishing, a publishing division, and Amazon Studios, a movie studio. It also manufactures consumer electronics lines, including Kindle e-readers, Amazon Fire tablets, Fire TV, and the Echo smart speaker. It is the world’s largest service provider in IaaS and PaaS (Amazon Web Services) models (Blanchard, 2021). The company operates separate retail sites for certain countries and also offers international delivery of some of its products to other countries.
Amazon is a demanding business for those who use the platform to sell commodities. The company does not experience frequent errors related to out-of-stock products or long delays in delivery. For instance, Amazon’s primary suppliers in the cosmetics industry include Tresal Cosmetics, TeDoySalud, and Zafire Labs (Vendrell-Herrero et al., 2017). There are about three million active merchants worldwide on Amazon, generating about 60 percent of all purchases on the platform (Vendrell-Herrero et al., 2017, p.70). Hence, the business cooperates only with reliable and verified vendors.
The Supply Chain Supports the Company’s Strategic Goals
Amazon’s supply chain is an astounding achievement in retail logistics. The company is constantly optimizing every part of the chain to deliver on the promise of customer satisfaction and its goal of becoming America’s preferred retailer and beyond. This goal is also a key driver of Amazon’s continuous supply chain evolution. As the retail giant has replied to evolution, the company has never been reluctant to invest in expanding services to support that growth.
Amazon’s supply chain refers to the fundamental operation of product warehousing, inventory management, pricing, and delivery (Vendrell-Herrero et al., 2017). Each element is implemented to ensure a continuous supply chain. There are various fulfillment options for sellers on Amazon. They can handle their execution or allow Amazon to sort, package, and ship products through their fulfillment center. In this way, it enables fast, high-quality delivery to customers. The variety of sophisticated information technology, an expansive network of warehouses, multi-level inventory administration, and excellent transportation make Amazon’s supply chain the most efficient of any significant corporate in the world (Vendrell-Herrero et al., 2017). Thus, the company’s speed and efficiency in responding to customer requests depend on a well-established supply chain.
The Weaknesses and Strengths of the Amazon Supply Chain
It is worth considering the company’s weaknesses and their impact on buyers. Amazon is among the most critical assets of ESG funds. The company reports that its emissions from shipments are only one-seventh of those created by retailer Walmart. However, researchers from two advocacy groups analyzed publicly available import data and found that only about 15% of Amazon’s shipments could be tracked (Carter et al., 2017, 114). Moreover, Amazon’s characteristics do not reflect the emissions produced by the countless third-party merchants and their suppliers who operate outside the United States. This is an essential difference: while Walmart’s supply chain is based on a centralized purchasing strategy, Amazon’s supply chain is highly decentralized. Thus, a large percentage of its revenue comes from outside suppliers, about 40 percent of whom sell directly from China (Carter et al., 2017, 117). In this way, this complicates emissions tracking and reporting even further.
Another significant ESG indicator has to deal with the protection of consumer rights. Amazon proudly calls itself the most customer-centric company on Earth. However, when its customers were harmed by products sold by third-party sellers on its platform, Amazon asserted that it should not be held responsible for damages. That is because it functions as a marketplace where buyers and sellers meet. Frequently, Amazon vendors do not fall under U.S. jurisdiction and thus cannot be held accountable. However, the major ESG rating agencies do not appear to reflect the impact of the supply chain on customer protection when evaluating Amazon’s supply chain performance. For example, in 2020, MSCI, the largest ESG rating agency, upgraded Amazon’s ESG rating from BB to BBB (Carter et al., 2017, 116). This reflects its corporate governance and data security strengths, despite the risk of liability to consumers.
Nevertheless, Amazon is also an example of a successful supply chain. The organization is an e-commerce store and has removed the element of a retail store from its supply chain, delivering products directly from a distribution center to users. The unique feature of Amazon is that it is not an online store but an online platform where almost anyone can trade their products. In addition, a strength is that Amazon has begun to produce its own products and, through high volumes, obtain the lowest price, outbidding competitors. The next step in supply chain optimization is the widespread adoption of automation in warehouses (Carter et al., 2017). Amazon spends considerable money on developing software and robots for warehouse operations. This strength enables the business to assemble orders quickly and accurately and reduce delivery times.
The Company’s Metrics for the Supply Chain
It is significant to note that multi-channel supply chains enable Amazon to leverage e-commerce processes and deliver products through flexible sales channels. Accordingly, the key factors that are essential for Amazon are inventory accuracy and delivery predictability, as not sufficiently developing these metrics leads to non-negative customer responses. Therefore, Amazon considers critical supply chain performance metrics to avoid supply chain failures. These indicators assist in measuring and tracking the effectiveness of supply chain operations to anticipate potential disruptions (Hahn et al., 2018). As a result, managers and management can obtain the proper information about future operations and anticipate possible challenges. This resulted in better decision-making and improved Amazon’s supply chain operations performance. Moreover, core supply chain performance KPIs compare the company’s performance across time against its competitors (Hahn et al., 2018). Consequently, the organization can assess business performance and implement changes if necessary.
There are 5 supply chain metrics that Amazon follows in order to optimize the supply chain. The first indicator is on-time delivery, which is highly critical. This is because it demonstrates the company’s ability to iconize customer satisfaction within a specific deadline (Lai et al., 2022). There are delays in delivery due to adverse weather or excessive demand for certain goods. Despite this, the real-time order tracking indicator allows the company to monitor delivery to ensure customer satisfaction (Hahn et al., 2018). In case of challenges, Amazon conducts on-time delivery KPI analysis and investigates the issues encountered; accordingly, employees begin to optimize processes to eliminate the crisis. The second indicator is the order cycle time. Longer cycle times can be attributed to the slow order processing system, vendor turnaround time, and payment processing (Hahn et al., 2018). When a company identifies a specific problem after analyzing the KPI, it can reduce order fulfillment time. Although, the fastest shipping has made Amazon a leader in customer service.
The next metric is shipping costs, which enables tracking shipping costs and notifies Amazon when the score does not correspond to a set value. Amazon solves problems with this indicator by changing the shipping method for a specific region. The fourth indicator is order picking accuracy, which is designed to ensure that orders are completed without mistakes (Hahn et al., 2018). If Amazon detects many inaccurate orders, it develops better control procedures and trains staff. The last indicator is inventory turnover, which means timely sales and replenishment of goods in stock. (Hugos, 2018). This KPI enables the calculation of which inventory items sell slower compared to other products. Amazon detaches this indicator to ensure replenishment of goods in case of demand and in case of decreasing inventory, which has a low turnover rate (Hahn et al., 2018). Hence, monitoring Amazon’s supply chain metrics assesses the success of supply chain operations and identifies opportunities for optimization.
Implemented Initiatives and Innovations
Amazon plans to expand its expertise in warehousing and transportation to develop its delivery capabilities. The company has already made significant strides in developing Prime Air, a drone service (Lai et al., 2022). Amazon is extending its capabilities to create all-electric drones that can fly 15 miles and provide parcels weighing less than five pounds to clients in under 30 minutes (Polacco & Backes, 2018). The company is also reportedly importing new Amazon-branded intermodal containers from China. Amazon also announced the Amazon Flex platform, which uses on-demand contract drivers to accelerate the expansion of its Prime One Day delivery program.
Instead, the company has announced the implementation of its new robotic products, destined for hundreds of service centers worldwide. One such product is the Pegasus sorting system, which has now traveled two million miles. The innovation has already reduced the number of improperly sorted products by 50 percent while maintaining the safety characteristics of the existing drive strategy (Polacco & Backes, 2018, p. 90). In addition, the e-commerce giant is testing Amazon Scout, designed to safely deliver packages to customers who use small autonomous delivery vehicles. Amazon CEO Jeff Bezos announced that the company had invested $700 million in Rivian, an electric vehicle company that will produce 100,000 electric delivery vans for Amazon (Polacco & Backes, 2018, p.90). In addition, Amazon has launched a $1 billion venture capital investment program called the Amazon Industrial Innovation Fund (AIIF). The program will “drive innovation in supply chain, fulfillment and logistics,” with a particular focus on automation and robotics in the workplace (Polacco & Backes, 2018, p.91). The initiative responds to a changing market landscape in which clients are increasingly shopping online.
New Innovations and Initiatives to Improve the Amazon Supply Chain
The COVID-19 explosion, which severely damaged the world’s supply chains, highlighted the need for their digital transformation. Industry 4.0, an approach based on introducing a network of intelligent processes and equipment into the industry, can help the business community achieve this (Lai et al., 2022). This assists in creating an effective ecosystem and integrating manufacturing and supply chain management. The Supply Chain 4.0 concept simplifies supply chain management and opens up new opportunities for businesses (Lai et al., 2022). Implementing the idea into business has already assisted enterprises in producing positive outcomes. For example, by using drones to package and deliver goods, Amazon has reduced shipping costs by 20 percent (Lai et al., 2022, p. 2). Thus, the drone network needs to be expanded, and privacy concerns should be addressed. That is, drones need to use cameras to record delivery processes, which will enable them to receive KPI data connections quickly.
It is also significant to emphasize that the technology needs to be developed for drones delivering heavy parcels. Right now, a drone can lift a load of 2.2 kg and transport it from the warehouse to the customer in half an hour over a distance of about 12 km. Parcels weighing 2.5 kg account for 75-90% of all Amazon orders (Lai et al., 2022, p. 2). Thus, to ensure a competitive advantage, it is essential that drones can deliver 100% of orders. In addition, the business needs to improve the rules by which drones can make deliveries to towns and cities (Lai et al., 2022). For instance, this applies to the flight of drones overpopulated areas and the liability of drone operators.
The corporate responsibility is to consider the dimensions of product packaging and the materials of their manufacture to optimize services. Thus, it is conceivable to offer innovative technology for recycling packages for subsequent use or delivery of some goods without packaging (Lai et al., 2022). Accordingly, this will reduce the level of environmental pollution. Furthermore, it will decrease costs by optimizing packaging by eliminating many components normally included in standard retail packaging. This is explained by the fact that it is quite common to use packages of immense size (Lai et al., 2022). In addition, the packaging is filled with expensive aesthetic add-ons, such as liners or printing. Changing the packaging concept will reduce Amazon’s shipping charges, lowering the purchase price. Thus, it will make the company more attractive to potential clients and expand its customer base.
Moreover, Amazon, the largest U.S. online retailer, is under pressure from inflation and rising transportation and supply chain costs. An additional negative factor for Amazon is excessive warehouse space. The e-commerce giant has invested tens of billions of dollars in building warehouses and distribution centers to meet strong demand from online shoppers in the early stages of the pandemic (Hugos, 2018). However, because of the slowdown in e-commerce sales as people return, Amazon now has too much warehouse space. The corporate acknowledges the problem and is currently working to optimize warehouse use. Further, Amazon may sublet some of its empty warehouse space (Hugos, 2018). Thus, this solution will remove the additional financial obligations of Amazon. At the same time, it is necessary to decide which Amazon warehouses will be capable of storing goods in the regions (Hugos, 2018). For this purpose, it is essential to review and determine the efficiency of warehouse use and based on this data, sublease those warehouses that are not critically needed for the company.
Amazon has attempted to implement several solutions to the last mile delivery challenge. The most recent is the company’s plan to establish its delivery fleet. The goal is to eliminate their difficulties every year with inadequate fulfillment from partners. This is a significant challenge because these delivery agents are the only individuals customers see, and delivery problems damage Amazon’s reputation (Hugos, 2018). Thus, Amazon needs to consider hiring its own regional delivery agents. At the same time, the company should create an independent fleet of its own private delivery trucks. The next step Amazon should take is to address the issue of reducing costs at customs. For example, the company needs to get into the business of handling and clearing shipments from Chinese retailers through customs (Hugos, 2018). This will provide them with more control of incoming inventory and reduce outsourcing expenses.
Conclusion
Hence, Amazon’s supply chain simply refers to the entire process of outcome warehousing, inventory control, pricing, and delivery periods. In Amazon’s case, each component is optimized for a continuous supply chain. Punctual and fast delivery is an increasingly important factor in Amazon’s supply chain and one of the most significant differences between Amazon and other online retailers. Therefore, basic technology and innovations are being introduced to ensure that the corporation is competitive according to the delivery rate. At the same time, the organization has issues with consumer protection and environmental issues. In contrast, Amazon has advantages in supply chain optimization and quick delivery.
References
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Hugos, M. H. (2018). Essentials of supply chain management. John Wiley & Sons.
Lai, G., Liu, H., Xiao, W., & Zhao, X. (2022). “Fulfilled by Amazon”: A strategic perspective of competition at the e-commerce platform. Manufacturing & Service Operations Management, 24(3), 1-10. Web.
Polacco, A., & Backes, K. (2018). The amazon go concept: Implications, applications, and sustainability. Journal of Business and Management, 24(1), 79-92.
Vendrell-Herrero, F., Bustinza, O. F., Parry, G., & Georgantzis, N. (2017). Servitization, digitization and supply chain interdependency. Industrial Marketing Management, 60, 69-81. Web.
