Page 374 - Introduction to Electronic Commerce and Social Commerce

Case 11.2. EC Application: Amazon the “King of Supply Chains” 361

involved and some of the issues that are encountered. These reinterpreting their laws and treated Amazon like any other
issues are discussed in detail in Section 11.9 and the solu- retailer. In 2013, Amazon shifted their supply chain strategy
tions to many of these issues are found in Section 11.10. to optimize their delivery speed so they could support new
programs aimed at 1 day delivery and home delivery of food
items.
CASE 11.2: EC APPLICATION
AMAZON THE “KING OF SUPPLY CHAINS” Picking and Packing

The Problem How is Amazon.com able to efficiently fulfill many millions
of orders every month? Part of the answer lies in the way
With traditional retailing, customers go to a physical store they operate their centers. For the larger facilities, fulfillment
and purchase items that they then take home. Large quanti- of an order goes sort of like this:
ties are delivered to each store or supermarket; there are not
too many delivery destinations. With e-tailing, customers • Step 1. When you place an order at Amazon.com and des-
want the goods quickly and to have them shipped to their ignate a destination, the computer program knows from
homes. Deliveries of small quantities need to go to a large where it is going to be shipped. It is usually shipped from
number of destinations. Also, items must be available for Amazon’s fulfillment center, or from the sellers’ loca-
immediate delivery. Therefore, maintaining an inventory of tions. Sellers have an option to ship their merchandise to
items becomes critical. Maintaining inventory and shipping Amazon.com for storage and processing. Amazon lists
products costs money and takes time, which may negate the products in its online catalog and may advertise the
some of the advantages of e-tailing. Let us see how Amazon. product(s). When an order arrives, a computer program
com, the “king” of e-tailing, handles the situation. will route the order to where it will be fulfilled. Amazon.
In 1994, Amazon started with “virtual retailing” as a busi- com has dozens of distribution centers. In general, a typi-
ness model—no warehouses, no inventory, and no ship- cal Amazon.com distribution center operates in the follow
ments. The idea was to take orders and receive payments way:
electronically and then let others fill the orders. It soon • Step 2. All orders received are routed electronically by
became clear that this model, although appropriate for a the dispatcher to specific parts pickers for fulfillment.
small company, would not work for the world’s largest • Step 3. The items (such as books, games, and CDs) are
e-tailer. stocked in the warehouse in bins. Each bin is equipped
with a red light. When an item in the bin needs to be
picked up, the red light turns on. Pickers then pick up the
The Solution items from the bins with red lights and then turn off the
lights.
In 1997, Amazon.com decided to change its business model • Step 4. Each picked item is placed in a basket with a bar-
and handle its own inventory and logistics. Furthermore, for code designating the order number. The baskets are placed
a fee the company provides logistics services to any seller on a 10-mile long winding conveyor belt in the ware-
even its competitors. The company spent billions of dollars house. Each basket is directed automatically to a specific
to construct their own distribution network around the USA destination point guided by barcode readers.
and the world and in the process became a world-class leader • Step 5. Each full basket is checked to assure that the bar-
in warehouse management, warehouse automation, packag- codes are matched with a specific order. Then the items
ing, and inventory management. are moved to appropriate chutes, where they slide into
In 1994, they began by opening their own fulfillment cen- delivery boxes. The system arranges for multiple items to
ters (warehouses) in Seattle and Delaware, both occupying a reach this same box if there are several items in one order.
few 100 thousand square feet. This rapidly expanded to eight • Step 6. The boxes are then sealed for delivery. If gift
more in 1999 including three centers in Europe. Because of wrapping was selected, this is done by hand.
economic issues, they slowed their growth until 2005 when • Step 7. The full boxes are then taped, weighed, labeled,
they began a period of incredible facility expansion. and routed to one of the truck bays in the warehouse for
The expansion started with a series of larger distribution shipment; some are owned by UPS, the U.S. Postal
centers that were located in states with favorable tax breaks Service (USPS), and other shippers.
and incentives, especially states where they did not have to
pay sales tax because technically they were not a retail store. Del Rey (2013) provides a photo slideshow of the opera-
This provided them with a substantial economic advantage tion of one of Amazon.com’s largest centers located in
over the “brick and mortar” retailers until the states started Phoenix, AZ.