Amazon.com Europe Case

One Response to Amazon.com Europe Case

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  Chau M. Tran on April 8, 2014 at 12:54 pm

  Chau Tran, Reham Raja, Stacy Williams, Jon Brodzik, Luz Mayhuire
  MIS3537- Amazon Case

  1. Explain how Amazon.com’s distribution strategy evolved in the early years (1995-1998)?
  In 1995, Amazon offered 2.5 million titles but only keep 2,000 in inventory at its warehouse. The rest was purchased from a wholesaler as customer placed orders. Amazon would receive the order within 2 to 3 days than they would ship it out to customers. As Amazon grew, they open up direct accounts with publishers to get a higher discount (48% vs 41% from wholesalers).
  From 1996-1997, Amazon grew at a very quick pace. To accommodate the increase in sales, Amazon expands its Seattle distribution center from 50,000 sq ft to 285,000 sq ft as well as opening a new distribution center in Delaware. Amazon would increase the number of titles they carry at a center to 200,000. With centers on both east and west coast, order to mail time was reduced for customers everywhere.
  Amazon would expand its product line to include music, video and dvds. They would use the same procurement model as they do with books, establishing relationships with music, video and dvd wholesalers
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  2. After the dot com crash, Amazon.com took steps to improve its operational excellence with a view to reduce costs and hence improve profitability. Descibe the main steps that Amazon took at this stage.
  Amazon’s massive growth due to its “delivery at any cost” strategy pushed it to make stronger decisions in order to improve their profitability by reducing costs. The newly hired Vice President of Operations, Jeff Wilke, sought to reduce cost during the implementation of the DN by reducing cost associate with stocking and shipping activities, while quality and service were improved.
  As part of the improvements of distribution centers’ processes, Wilke upgraded Amazon’s inventory- record accuracy using Six Sigma DMAIC. DMAIC helped identify and improve temporary employee’s mistakes, which helped reduce inventory-record accuracy errors by 50 percent. In addition, Wilke encouraged Amazon’s staff to be well prepared for “high-pressure holiday conditions” by conducting simulations. The simulation experiences led to remodeling DC layouts and adding storage capacity during the holiday season. For example, “items frequently ordered together were placed close to one another and a specific area dedicated to bestsellers was created.”
  Two other goals of “ Wilke’s team was to inventory optimization in the fulfillment network” and reduce shipping costs. The key to improving inventory management and cost reduction was the ability to forecast regional and seasonal demand. Amazon would have the products in the right amount , and right time, and at the right place. These would reduce amazon’s inventory carrying costs and avoid multiple shipments. In addition, in order to avoid holding inventory drop shipping was implemented, as well as a technique called “postal injection”, both resulting in faster delivery to end customers and shipping cost reduction. Parallel to these improvements, supplier relations were revamped and new partner alliances with other companies (e.g ToysR`Us) were created, which led to further cost savings and an extended product range.

  3. Describe the key challenges that Amazon Europe faced with respect to globalization and localization.
  • Europe was made up of many counties, each having their own language and culture, so the each of the three customer based hade to have its own dictated site with unique language, editorial content and items displayed that were unique to each country. They also had 24 hour customer service center with naive language speaking representatives.
  • laws in Germany and France meant that retailer were not allow to discount price on book. Therefore amazon instead offered free shipping instead to keep its competitive advantage.
  • Customer preferred payment options where different between counties. So amazon chose to expand its option of payment to include checks for French customers and postal orders for German customers
  • Amazon was not able to use the same procurement strategy in the Germany and France as it does in the US. In the US, Amazon was able to rely on a small number of wholesalers to fulfill its orders but in France and Germany, they had to buy from hundreds of publishers and distribution.
  • Postal services Royal mail, Deutsche Post, and La Poste did not offer relieable cross border logistic service which led to delays and lost shipment which negatively affected the customer experience.
  4. What were the main decisions that Tom Taylor faced while accessing the EDN opportunity?
  The main decisions that Taylor faced were whether to link different sites to a single European distribution center or whether to have 2 or 3 distribution center along with decisions regarding center locations. He also had to consider the transportation processes and select the carriers that would meet its delivery time and price standards.
  Taylor also had to consider the impact of implementation of the EDN on the internal departments
  5. Should Amazon implement the EDN in Europe? What recommendation would you give Tom Taylor?