More than 20 years after completing its first sale, Amazon has become
an online retailing powerhouse that is competing with bricks-andmortar global retailers such as Walmart and Target. In addition, it is
competing in the digital marketplace (e.g., ebooks, music, movies, and
TV shows) with Apple’s iTunes store and Google’s Google Play.
Amazon’s goal is to provide customers with the best selection,
price, and availability. Sometimes the best price is not the lowest,
but the one that provides the best shipping option. Amazon’s Web
site and apps offer a simple, consistent, and reliable user experience.
Product information, prices, customer reviews, related products, recommended products, shipping information, and more appear in the
same location on the page. Amazon’s analytics systems use a customer’s order and search history to create customized experiences for that
customer, and Amazon’s order fulfillment process delivers products
swiftly and accurately.
Supply chain management is critical to Amazon’s success. In
1995, Amazon began with two fulfillment centers. The company has
now expanded to more than 165 distribution and fulfillment centers
located around the world. Amazon supports this operation with a
proprietary, in-house information system that is completely integrated. When the company receives an order, the order-management,
inventory-management, and warehouse-management systems locate
products around the world and determine the optimal fulfillment
plan. Fulfillment is the business term that refers to the steps involved
in receiving, processing, and delivering orders to the end customer.
For Amazon, a global company with many products in many distribution centers, and many orders that require cooperation across centers
(meaning the entire order cannot be fulfilled through one distribution
center), fulfillment requires a very high level of coordination.
To achieve this coordination, Amazon has to know where MIS
every product is located in every distribution center worldwide. For example, when suppliers send products to be “Fulfilled by
Amazon” (FBA), their products are immediately scanned into Amazon’s
inventory-management system. A “stower” then places the goods in
any available bin. Items are not organized in any logical manner. However, the product and bin location are recorded by the proprietary
information system. When an order is received, a “picker” will walk
through the warehouse, guided along an optimal route by a scanner
(powered by the proprietary information system) to the proper bins
in order to select the items. The pickers then bring the items to an
“organizer,” who begins preparing them for delivery. Prepared boxes
are sent down the “slam line,” where the packages are weighed and
“slammed” with a shipping label. Finally, labeled packages are sorted
to appropriate loading docks based on the shipping company that will
handle the delivery.
Despite the effectiveness of Amazon’s proprietary information
system, several key factors, such as the weather, partner delivery companies, and the competition, remain beyond the company’s control.
For example, during the 2013 holiday season, several companies, including Amazon, Kohl’s, and 1-800-flowers.com, promised last-minute
delivery without taking into account the capacity of the parcel-delivery
companies, FedEx (www.fedex.com) and UPS (www.ups.com), which
were unable to meet the demand. In addition to the demand overload,
inclement weather also strained the delivery system. Under normal
conditions, parcel-delivery companies can adjust delivery to account
for weather. During the 2013 holiday season, however, these companies were already operating at capacity. As a result they could not
make the necessary adjustments to account for inclement weather.
After the 2013 holiday season, Amazon tried to smooth things
over with its customers by off ering gift cards or credit. More importantly, the retailer determined that it needed to implement certain
structural changes to expand its control over its entire supply chain
and distribution system.
The IT Solution
Amazon needed to develop a method to increase its control over the
delivery of its products. One common strategy to increase eff iciencies
and control is to reduce the number of steps in a system. Significantly,
Amazon adopted the opposite approach, adding more sorting centers
to its distribution channel. Sorting centers sort pre-packaged orders
by zip code. This process enables Amazon to control delivery along the
entire route to the local post office for Sunday delivery (in select markets). In certain markets where Amazon owns a delivery system, the
company can now maintain control all the way to the customer’s door.
Adding a step in the distribution system required Amazon to
update its proprietary information system. Previously, once the system had “slammed” a delivery sticker onto a package, Amazon was
basically out of the delivery loop. The retailer might maintain tracking
(if offered by the delivery company), but it was not in control of the
delivery. After adding the new step, the fulfillment center would maintain the package, and the system would direct the pre-packaged order
to the appropriate sorting center. When packages arrived at the center,
the information system would sort them by zip code. They were then
delivered to the local post office or to another carrier for the “last mile”
of delivery. In select cities, Amazon maintains its own delivery service.
In other cities, the company has contracted with the U.S. Postal Service
(USPS) to deliver on Sundays.
Sunday delivery spreads the delivery service over another day
of the week, thereby reducing the workload on the other six days.
This shift, coupled with the use of sorting centers, enabled Amazon
to expand its operations, increase control, and offload some delivery
work to another day of the week.
The Results
The additional step and the enhanced coordination enabled by Amazon’s proprietary information system increased the company’s control
over its supply chain and reduced its dependence on parcel-delivery
companies. Having learned from the 2013 holiday delivery debacle,
Amazon expanded its operations and achieved a strategic advantage
by gaining more control over its supply chain.
Amazon’s sorting centers, updated supply chain management
system, and agreement with the USPS helped the company achieve a
record year in 2015. The retailer shipped to more than 185 countries,
added more than 54 million Prime Members. In addition, Amazon
reported no major problems with the new delivery system. Finally, the
company reported sales revenue of $107 billion.
Amazon’s updated system has generated some unintended consequences. For example, the increased demand on Sunday delivery

368 C H A PT E R 1 3 Supply Chain Management
through the USPS has increased the agency’s workload and caused
some postal workers to complain about 60-hour weeks and working 21
consecutive days. Although this problem is beyond Amazon’s control,
it does impact the firm’s operations because it could lead to delivery
delays. Additionally, other retailers have contracted with the USPS to
offer Sunday delivery, putting more strain on Amazon’s ability to rely
on the agency as a delivery option.
Sources: Compiled from S. Soper, “Amazon Snags Sorting From FedEx
to Avert Package Pileups,” Bloomberg.com, December 9, 2014; M.
Schlangenstein, L. Patton, and A. Barinka, “UPS Shipping Delays Show
Perils of Stores Overpromising,” Bloomberg.com, December 27, 2013; B.
Bacheldor, “From Scratch: Amazon Keeps Supply Chain Close To Home,”
Information Week, March 5, 2004; J. Del Ray, “This Is What It Looks Like
Inside an Amazon Warehouse,” All Things Digital, December 23, 2013; B.
Thau, “A Post-Mortem On the Holiday ’13 Retail Shipping Debacle and
Remedies for ’14,” Forbes, January 28, 2014; J. Greene, “Amazon’s New
Sorting Centers Aim to Help with Controlling Deliveries,” The Seattle
Times, July 28, 2014; B. Stone, “Amazon’s Grand Plan to Avoid Holiday
Delivery Snafus Again,” Bloomberg.com, September 26, 2014; T. Duryee,
“Postal Workers Overwhelmed by Flood of Amazon Sunday Deliveries,”
Geek Wire, December 16, 2014; J. D’Onfro, “Amazon: Here’s the Final Tally
For All the Insane Shopping Everyone Did This Holiday Season,” Business
Insider, December 26, 2014; “Amazon Global Fulfillment Center Network,”
http://www.mwpvl.com/html/amazon_com.html, accessed October 21,
2015; www.amazon.com, www.ups.com, www.fedex.com, www.usps.com,
accessed October 21, 2015.
Questions
1. Describe the problems that Amazon faced during the 2013 holiday
season.
2. Discuss how Amazon solved those problems via its supply chain
management system.
Closing Case 2
POM Sustainability by the Supply Chain
The Problem
Sustainable business practices—including green business, environmental responsibility, minimal impact on global or local environment,
and the use of renewable clean energy sources—have become more
than just a good idea in many industries. History has taught us that
non-sustainable business practices—such as early settlers killing off
bison for their hides—lead to the rapid decline of an industry.
Tectona grandis, or teak wood, is a prized—and expensive—material due to its elegance and durability. Teak is a tree native to the tropics in the Southeast Asian nations of Thailand, Burma, Malaysia, and
Indonesia. Historically, it has been found only in the homes of wealthy
and powerful families. A tree takes about 80 years to reach maturity
and be ready to harvest. Even then, only the heart of the tree contains
the best wood for building furniture. Given the length of time required
to replenish a forest, it is critical for the teak furniture industry to use
sustainable practices.
Most teak farms are independently owned, and they operate based
on traditional practices rather than current knowledge about how to
efficiently manage a forest. Historically, they have not been connected
to the global supply chain. As a result, they might not understand the
impact of their decisions on the overall industry. This situation, however,
is beginning to change. Dipantara (http://www.en.dipantara.co.id), a
company engaged in Sustainable Community Forest Enterprise Management, works with the growers to emphasize the importance of maintaining their natural resources. Dipantara is particularly interested in teak.
In addition to the teak farms, several other parties are involved
in this industry. First, there are independent, nonprofit organizations
such as the Forestry Stewardship Council (http://us.fsc.org; FSC) that
promote the responsible management of the world’s forests. FSC also
provides industry certifications that a farm has pursued sustainable
management practices. Second, European, U.S., and Australian timber
regulations have been established to prevent companies from doing
harm to the forests. Finally, customers want assurance that their purchase is not harming the global environment.
These sustainability issues create challenges along the supply
chain from the retailer to the root (quite literally). They require a
coordinated effort to develop and maintain a consistent sustainability eff ort.
The IT Solution
The Forestry Trust (www.tft-earth.org; TFT) is an NGO that focuses on
the entire supply chain ecosystem, where all needs must be considered for the industry as a whole to operate and exist sustainably. TFT
identifies transparency as the key to establishing this sustainability. To
support this level of communication and transparency, the NGO developed a set of tools called SURE Technology that provide its members
with transparency dashboards, supply chain management, and product stories. SURE is designed to help growers and companies throughout the supply chain to plan, understand, and communicate.
TFT members use the SURE Technology system to balance the
interests and requirements of several external stakeholders. The only
way any company can meet the demands of its external stakeholders
is to obtain information about the practices of the suppliers of their
raw materials. The SURE supply chain management module maps
companies’ products all the way to the source to help product manufacturers ensure that their orders are the products of legal, responsible, sustainable harvesting and use of the forest.
The SURE Technology allows raw material providers (such as
members of the Dipantara community forests in Java) to identify their
social and environmental values and track their progress on adhering
to those values through dashboards. This information is available to
potential buyers, who require confirmation that the materials are provided in a manner that is consistent with their values.
The Results
Maisons du Monde (www.maisonsdumonde.com; MdM) is an environmentally focused home decoration retailer based in France. As a
member of TFT, the firm works with Dipantara community farmers in
Java, who supply the teak for some of their furniture. MdM has access
to information on the forestry practices of the entire supply chain
through its TFT membership and the SURE Technology tools that are
part of that membership. The result is that more than 50% of MdM
products are labeled with one or more industry certifications aff irming that the product is not contributing to deforestation. Further, MdM