Amazon.

com’s Inventory
Management
Abhishek Mittal 61
Deeksha Grover 70
Kritika Sehgal 78
 OVERVIEW OF THE CASE
 Amazon.com's inventory management.

Takes a look at the different products and features offered

on the site.

Amazon's value propositions and its criteria for choosing

strategic partners.

It elaborates on the strategies adopted for managing its

inventory.

 It explains the decision to outsource inventory

management to distributors. Looks at the decision to sell
the products of competing retailers on its site.

It concludes with a brief note on the future challenges in

Amazon's warehouse management.
 AMAZON.COM - THE ULTIMATE ONLINE
SHOPPING DESTINATION
Amazon.com (Amazon) was one of the first online
shopping sites launched in 1995.

Jeffrey Preston Bezos the founder of Amazon.com ,

launched the company when he realized that Internet
provided immense scope for online trading.

 Originally launched as an online bookstore it eventually

offered several other products to keep abreast of the
competition.

 Amazon owed a large part of its popularity to its

excellent customer service, which was due to its exemplary
inventory management.
Since, inception, it has been consistently ranked as one of
the best retail sites on the Internet and is regarded as the
universal model for successful Internet retailing.

To increase its revenue, it added several new products to

its site. In 1999, on an average, it added a new product on
its site once in every six weeks.

It entered into strategic alliances with several companies to

increase the range of products available on its site.

 Later, it strengthened its Customer Fulfillment Network by

obtaining products directly from the distributors rather than
stocking all the goods in its warehouse.

Popular among its customers for shipping the goods within

the estimated time, leading to satisfied customers, improved
market share and repeat business.
 In September 1999, launched a feature called Z-shops.
By the end of 2002, Amazon had 22.3 million registered
users on its site. By 2003, Amazon became the biggest
book, music and video retailer on the Internet and offered
more than 4.7 million books, videos, music CDs, DVDs,
computer games and other products
Within a few years ,range of products also included
services like banking and travel.
Range of products included industrial and medical
supplies , kids items, gifts, cameras , apparels magazines
etc.
 BACKGROUND NOTE

Around 1993, Jeffery Bezos found out that the Internet

was growing at the rate of 2300 percent per month and
realized that within a few years many people would be
making money by selling over the web.

 He wanted to start a new venture on the web as early as

possible.

 As a first step, Bezos conducted a study of the different

items that could be sold on the web. He wanted to offer
low-priced products that customers would not hesitate to
buy online, third criteria was the range of choice .
 He named his company Amazon.com after
the river Amazon . His vision was to make
his company the Amazon of book selling.

 Began operations in July 1995.

 Tiedup with various search engines and

portals such as Yahoo,Excitr , Netscape and
Alta vista.
 VALUE PROPOSITION
Amazon built a four-fold value proposition that indicated
its priorities in the establishment of the online venture.

The four dimensions it focussed on were

Convenience
Selection
Price
Customer Service
 STRATEGIC ALLIANCES
In order to expand in a rapid and a cost-effective manner,
Amazon decided to partner with other companies.

The main criterion used by Amazon for selecting a partner

was the customer service provided by the company.

During 1998-2000, Amazon acquired ownership stakes

ranging from 17 to 49 percent in various online retailers-
Greenlight.com, Living.com, Drugstore.com,
HomeGrocer.com, Pets.com, Ashford.com, Gear.com, and
Della.com
 ADVANTAGES
 It could provide an increased range of

products and services

 Increased Revenue in the form of marketing

Fees from its partners

 Amazon’s stake in these companies

increased its market valuation.

Q.1 Managing Inventory is one of
the most important tasks of a
retailing company. If there are not
enough books in stock some of
the customers might get
disappointed. Stocking too many
will reduce the profit margins. Do
you think Amazon.com adopted
the right strategy while trying to
manage its inventory? Was it
successful in its task?
 Amazon reduced the size of its inventories even though it
increased the number of products offered by:

◦ Managing the warehouses more efficiently.

◦ Careful decisions regarding product purchases.

◦ Selection of distribution centers in a product specific manner.

High demand products were kept in areas where maximum
orders for the same came from.

◦ Decision to purchase directly from publishers instead of

distributors.
 Maintaining excellent vendor relationships so
as to extract best deals.
 Refined software allowed for better product

tracking and storage in the warehouses.

 Re-arrangement of shelved products to
reduce time.
 Use of software to estimate demand ensuring

proper stocks at all times.

 Outsourcing of shipping of inventory to focus

better on core-competences.

These tasks helped Amazon record its first

ever profit in the fourth quarter of 2001.
Q.2 When it managed its own
inventory, Amazon earned the
reputation of providing superior
customer service. Despite this it
decided to outsource inventory
management. Do you think Amazon
had taken the right decision in
outsourcing this key area of its
business?
 Amazon decided upon outsourcing its inventory
management activities, in early 2001, to focus on
its core competences i.e. its e-commerce
expertise.
 Amazon did not stock every item on its site and
stocked only the bestsellers.
 Amazon started acting as a Trans-Shipment
center and sourced some of its products directly
from the distributors.
 Amazon struck deals with Ingram Micro, a
wholesale distributor for computers and books,
and Cell Star, a distributor for Cell Phones.
 According to Amazon, Ingram Micro shared the
same customer obsession as Amazon and ensured
timely deliveries and adequate service levels as
associated with Amazon.
 Drop Shipment model was adopted in the initial
phases.
 Deals with other major companies such as
Borders, Target, Circuit City and Toys “R” Us on
commission based selling enabled huge margins
for Amazon while minimizing the Inventory
handling processes.
Q.3 In 2001, while Amazon was
still struggling to make profits, it
decided to sell the products of
competing retailers on its site,
along with its own products. Do
you think Amazon took the right
decision in selling others’
products or should it have
concentrated on promoting its
own products?
 In early 2001, Bezos came up with the idea of
selling competitors’ products on his own website.
 Amazon earned almost the same profit selling on
commission as it earned selling on Retail.
 Advantage: Customers could now verify Amazon’s
prices with those of its competitors.
 Company thus did not need to advertise its low
prices.
 According to Bezos:

“Giving people the choice is a good thing. They

are only going to find it useful. This lets them
experiment .”
 Thus giving competitors’ prices on its own

website provided not only as a means for

Amazon to promote its own low prices, but also
offered a choice to its customers.
 According to a study, customers who purchased

used products once from Amazon were most

likely to make new purchases further.