JULY 21ST 2017
How Supply Chain Excellence Paves the Way for the World's Biggest Retailer
By: Annie Wu
More than a retailer

Amazon surprises us every day – keeping up with its many moves is nearly impossible. Starting as an online bookstore, Amazon has evolved into an online retail giant that sells everything from Dippin' Dots, to wall decals, to the latest tech gadgets.

Throughout all of its metamorphoses, there is one constant: supply chain excellence. In 2015, Amazon was named number one in the Gartner global supply chain ranking and in 2017, it was promoted to the "Masters" category. In 2016, Amazon was named Company of the Year of the Dive Awards for supply chain. Selling over 600 items per second, much of its success can be credited to supply chain management.

Fast shipping as a competitive advantage

Amazon grasped the importance of fast delivery earlier than competitors, and continues to set the standard. When it launched Amazon Prime, a paid membership service that offers two-day shipping, other companies followed also began offering two-day shipping. In response, Amazon offered one-day shipping and eventually introduced Prime Now, one-hour delivery.

Core strength: supply chain

How does it manage to out-ship the online retail competition? Amazon takes bold bets to out-operate its competition.

First and foremost, it compromises profit margins for customers satisfaction, leveraging its positive cash flows and operating with airtight profit margins. Amazon was not expected to churn a profit for five years and used its free cash flow to fund growth.

In 2009, it started manufacturing its own versions of bestsellers and selling them for less than the competition. Amazon now manufactures 3000 products.

In late 2015, Amazon received licenses from both the U.S. Government and the Chinese Ministry of Commerce to enter the freight cargo business, allowing them to buy and sell space on freight containers, cutting out the middleman. Around the same time, Amazon partnered with the Air Transport Services Group and leased 20 Boeing 767 aircrafts, further reducing high shipping expenses. Amazon has also purchased Colis Privé, a top delivery company in France.

The Amazon supply chain is unique in the sense that there are various paths depending on how soon the customer wants their order, as seen from the image below. For the most part, these paths can be simplified to be the same.

Amazon's supply chain is different because it ships its own products and products from other retailers, such as Sony or Cadbury. Part of its success is credited to anticipatory shipping, a patented algorithm that starts the moving and boxing of products before the shopper completes the checkout process.
(Source: MBA@Syracuse)
Hunger for growth

Amazon in aggressively investing in growing its supply chain capacity and infrastructure. Many experts guess it acquired Whole Foods to gain knowledge of the supply chain for perishables, something Amazon has been unable to master, as well as 15 cold chain distribution centers and 436 brick-and-mortar stores.

Offering customers the most variety with the fastest delivery, Amazon has crowned itself the undisputed leader of online retailer thanks to its supply chain excellence. Its infrastructure, delivery networks, and dedication to new improvement sets Amazon apart. What can supply chain executives learn from Amazon's evolution?
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