inventorymanagementamazon-100329200919-phpapp01

8/11/2019 inventorymanagementamazon-100329200919-phpapp01

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Presented by :

Ashutosh Kumar Jha(91011)Deepinder Singh(91016)

Divanshu Kapoor (91017)

Harsh Agrawal (91022)

Nishant Singh(91039)

Sweta Agarwal (91059)


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"In the physical world it's the old saw: location,

location, location. The three most important things for

us are technology, technology, technology."- Jeff Bezos, CEO, Amazon.com


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One of the first online shopping sites launched in 1995.

Consistently ranked as one of the best retail sites on the

Internet.

According to an analyst, "When you think of web shopping,

you think of Amazon first."

It is an American electronic commerce company based inSeattle, Washington with an additional office in Coffeyville,

Kansas. It has six global websites to serve domestic customers in

the US, the UK, Germany, France, Japan and Canada


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Features include: one-click shopping, customer review and e-

mail order verification.

The company is in coalition with other retailers and offer

various new, and used items in categories.

It has expanded from its existing business of selling books toselling a wide variety of products such as DVDs, music CDs,

computer software, video games, electronics, apparel,

furniture, food and more


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Jeff Bezos, in 1995, started AMAZON.com as a virtualretailerno inventory, no warehouses, no overhead; justcomputers

Amazon owed its popularity to its excellent customer service,

which was due to its effective inventory management.


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Raw materials (items to be used for manufacturing)

Work in process(semi finished items that are stored temporarily)

Finished goods(waiting in stores for delivery)

Transit inventory (need to transport items)

Buffer inventory(uncertainties of supply and demand)

Anticipation Inventory(anticipation of a possible future event)


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Carrying costsbasically opportunity costsE.g - rent, lighting, staffing etc

Ordering costsbasically acquistion costs

E.gpurchase order, recording , accounting etc

Shortage costsE.gurgent purchases, loss of reputation etc


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Initially Bezos aimed at hassle-free operations

Time and money not to be spent in dealing with theinventory.

Satisfy customers ; forced to build warehouses.

Each warehouse cost him around $ 50 million and in order toget the money, Amazon issued $ 2 billion as bonds


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In 1999:

Added 6 new warehouses to total to 10

Computerized warehouses

Increased warehousing capacity from 300,000 sq. feet to

over 5 million sq. feet

Automation of events after placement of order to makeinventory management easier


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In 1999, when Amazon's sales grew 170% from the previous

year, its inventories ballooned by 650%, Suria pointed out.

''When a company manages inventory properly, it should growalong with its sales-growth rate,'' he noted. When inventory

grows faster than sales, ''it means simply that they're not

selling as much as they're buying.''

Decided to stock all possible items that customer could

demand during holiday season

Appreciated; but faced a lot of problems in inventorymanagement

Thus looked for alternatives


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Decided to buy directly from publishers rather than

distributors

Upgraded software which helped to accommodate inventory

as per demand

Placed products which were generally bought together at one

point. Eg. CDs and CD player

Initial Changes


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Inventory goals: right product in the right quantity to the rightplace at the right time.

Reduce redundant inventory

Blockage of working capital.

Low inventory turnover.

Cost of holding > cost of outsourcing

Thus they OUTSOURCED

Deciding the Strategy


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Stocked only popular items and rest were outsourced fromdistributors.

Outside distributors at Amazon for three kinds of products:

cell phones, computers and books, excluding those on best-

seller lists

CellStar handled the cell phone sales

Wholesale distributor Ingram Micro handled the computers

and books.

Inventory Outsourcing


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Concentrate on main activities

To reduce the inventory holding costs.

To earn more profits To free the working capital and increase liquidity.

Adoption of Drop-shipment model which increased the

overall efficiency and streamline supply chain logistics.

Warehouses could handle thrice the volumes Reduced the shipping charges.

Advantages of Outsourcing


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Drop-Shipment Model


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The variable cost incurred by multiple delivery attempts and

reverse logistics.

Multiple delivery attempts cost the company about 20-30% of

the total cost for home deliveries. 35% of orders placed at Amazon belonged to different

product categories.

Disadvantages of Drop-Shipment Model


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Amazon.comsCustomer Fulfillment Network


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Made improvements in its distribution centre which reduced

12% of the wrong inventory to 4% by 2002.

Tightened its operation to ensure that it did not miss any

customer orders.

Steps taken for improvement


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Till 2001 Amazon was in deficit of US$2.86 billion.

Earned its first ever profit of $5 million in the 4thquarter of

2001.

Year 2002 recorded sales of $3.93 billion which was 26%

higher than sales of 2001.

Cost of operating warehouses reduced from 20% to 10%

where as the capacity increased 3 times.

Inventory turnover was 20 times as compared to other

retailers having 15 times.

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