Amazon Inventory Management

Discuss in detail the strategy adopted by Amazon.com to manage its inventory. Also, examine whether Amazon.con was successful in executing the inventory management strategy.

Amazon is one of the 1st online shopping sites launched in 1995. Since its beginning, it has been continuously ranked as one of the best retail sites on the internet and exemplifies universal model for successful Internet retailing. The founder of Amazon was Jeff Bezos.

When Bezos began his venture, his aims were clear- Hassle-free Operations. He started Amazon as a on-line book store and he didn't want to spend time and money on opening stores and warehouses and in dealing with the inventory. However, he realized that the only way to stisfy customers and at the same time to make sure that Amazon enjoyed the benefits of time and cost efficiency was to maintain its own warehouse. Constructing warehouses and operating them was a very tough decision for Bezos. Each warehouse cost him around $50 million and in order to get the money, Amazon issued $2 billion as bonds. In 1999, Amazon added six warehouses in Fernley, Nevada; Coffeyville, Kansas; Campbellsville, Kentucky; Lexington, Kentucky; McDonough, Georgia; and Grand Forks, North Dakotta. On the whole, Amazon had 10 warehouses. Most of these warehouses were setup in states with little or no sales tax. Maintaining goods and logistics also created problems for Bezos with lot of costs involved.

Bezos then realized the importance of Inventory Management and decided to reduce the size of inventories. This was made possible by managing the warehouses efficiently. Amazon started making careful decisions about which products to buy from where. The company then decided to manage distributing channels. Instead of buying goods (CDs, books, videos) e.t.c. from distributors, they decided to buy it from publishers. They also upgraded the software and also tried split shipments.

Amazon also decided to outsource some of its activities to give more attention to its core activities. It partnered with other company for shipping the inventory. So, while partners shipped the items, Amazon leveraged on its e-commerce expertise. It revamped the lay-out of its warehouses making it easier for the company to locate and sort hte customers. By doing so, it managed to save all its expenses related t filling and shipping orders. Improved Inventory Management helped Amazon to get net profit of $5 million in the fourth quarter of 2001 after accumulating deficit of $2.86 billion since its launch in 1985,

Drop Shipment Model: In 2001 Amazon decided to outsource its inventory though it knew that it was a huge risk. When Amazon managed its own inventory it had earned the reputation of providing superior customer service, which was its biggest strength. Amazon did not stock every offered on its site. It stocked only those items that were popular and frequently purchased. If a book that is not so popular is ordered Amazon requested that item from its distributor who then shipped it to the company. In the company, the items the items were unpacked and then shipped to the respective customers. So basically, Amazon acted as a trans-shipment centre and ensured that the entire process of shipping from the distributor to customer was done very efficiently. The main distributors of Amazon included Ingram Micro and Cell Star handled cell phone sales while Ingram Micro, a whole sale distributor, handled computers and books. Amazon had external distributors for most of its products except the