amazon com supply chain management case study summary

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Amazon.com, 2021

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• | Pages: 48

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• Amazon.com, 2016  By: John R. Wells and Gabriel Ellsworth
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Amazon.com, 2021

By: John R. Wells, Benjamin Weinstock, Galen Danskin, Gabriel Ellsworth

In February 2021, Amazon announced 2020 operating profits of $22,899 million, up from $2,233 million in 2015, on sales of $386 billion, up from $107 billion five years earlier (see Exhibit 1). The…

• Length: 48 page(s)
• Publication Date: Aug 3, 2015
• Discipline: Strategy
• Product #: 716402-PDF-ENG

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In February 2021, Amazon announced 2020 operating profits of $22,899 million, up from $2,233 million in 2015, on sales of $386 billion, up from $107 billion five years earlier (see Exhibit 1). The shareholders expressed their satisfaction (see Exhibit 2), but not all were happy with Amazon's meteoric rise. Many traditional retailers in the United States were going bankrupt, while major competitors such as Walmart and Best Buy were forced to invest aggressively in online retailing to prevent their market share from eroding. Every retail sector appeared to be under threat, fueling anxieties that Amazon and America's other tech giants were becoming too big and powerful. These anxieties were only exacerbated by the COVID-19 pandemic, during which Amazon grew rapidly, while most traditional retailers foundered. Amazon's increasingly clear ambitions in healthcare and autonomous vehicles were also causing concern. In early 2021, Amazon was drawing criticism from across the political spectrum in the United States, with calls for it to be broken up. The European Union was also investigating its practices. Meanwhile, on February 2, 2021, Amazon reported that company founder and CEO Jeff Bezos would step down from his role and become executive chairman of the board. Andy Jassy, the leader of Amazon Web Services (AWS) would become the new CEO. How would Jassy navigate the many challenges to come and continue Amazon's record of success?

Learning Objectives

We describe the history of Amazon from its founding to 2021: its expansion into many lines beyond the original book business, its evolving distribution network, and vertical integration into hardware design and manufacturing. This case is intended to teach students about the strategic challenges that Amazon faced throughout its history and in

• Students should gain a greater understanding of first mover advantage, core competency, and the evaluation of online retail in the 21 century. This case provides a vehicle for discussing the key features of online retail strategy and the way it is disrupting traditional retailing. It also addresses key corporate strategy choices such as whether it makes sense for online retailers to open their platforms to third parties. The case is suitable for courses in basic strategy, strategy and change, disruptive business models, and retail strategy. It can be taught alone or as part of a case pair with "Reinventing Best Buy" (716-455), which describes how Best Buy built a "multi-channel" strategy in response to Amazon. The case can also be taught as part of a six-case module that addresses disruptive retail models in the consumer-electronics sector. (For more information, see the accompanying Teaching Note.)

Aug 3, 2015 (Revised: Jun 6, 2021)

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United States, Washington

Industries:

Advertising industry, Consumer electronics, Distribution and logistics industry, Fabrication and manufacturing, Information technology industry, Retail and consumer goods

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Amazon.com: Supply Chain Management

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Learning objectives.

• assess Amazon’s supply chain, and identify its key competitive advantages;
• quantify Amazon’s ability to generate value from its supply chain;
• identify potential opportunities and challenges for Amazon in improving its supply chain; and
• analyze the effects of the opportunities and challenges facing Amazon on its growth and evolution.
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reMARS revisited: Amazon’s supply chain optimization

How the scot team implemented a system that leverages operations research and machine learning to decide what products to buy, how much to buy, where to place them, and more..

[Editor's note: INFORMS, the world's largest operations research and analytics conference, is occurring this week, so we're sharing this interview and presentation on how Amazon's Supply Chain Optimization Technologies team deployed one of the largest algorithmic decision-making machines in the world for supply chain optimization.]

In June 2022, Amazon re:MARS, the company’s in-person event that explores advancements and practical applications within machine learning, automation, robotics, and space (MARS), took place in Las Vegas. The event brought together thought leaders and technical experts building the future of artificial intelligence and machine learning, and included keynote talks, innovation spotlights, and a series of breakout-session talks.

Now, in our re:MARS revisited series, Amazon Science is taking a look back at some of the keynotes, and breakout session talks from the conference. We've asked presenters three questions about their talks, and provide the full video of their presentation.

On June 27, Deepak Bhatia, vice president of Supply Chain Optimization Technologies (SCOT), and Salal Humair, SCOT vice president and Amazon distinguished scientist, presented their talk, "Hands-off-the-wheel automation: Amazon’s supply chain optimization". Their session focused on a large-scale, hands-off-the-wheel automated system that leverages advanced mathematical optimization and machine learning to decide what products to buy, how much to buy, where to place them, and more.

What was the central theme of your presentation?

We shared the story of how Amazon continuously innovates to deliver better results to our customers, highlighted by the evolution of the SCOT team. We discussed how SCOT deployed one of the largest algorithmic decision-making machines in the world for supply chain optimization, how it helped Amazon scale worldwide, and how — while running the business — we went back to the drawing board to develop new technologies to both meet increasingly higher customer expectations, and to navigate an increasingly complex network.

This innovation is instrumental to giving customers access to the best selection while also delivering products to customers within two to 24 hours in a network that has more than doubled in size in the past five years.

In what applications do you expect this work to have the biggest impact?

SCOT systems influence customers’ experiences with the Amazon Store every day. We build our systems to directly impact these experiences — e.g., promise speed, delivery accuracy, in-stock rates, new selection — and seller experiences, and we relentlessly monitor that impact. We continuously seek to build new capabilities that increase satisfaction and drive the Amazon flywheel.

What are the key points you hope audiences take away from your talk?

Amazon and SCOT are pushing the frontier of science, tech, and product management for e-commerce supply chains. It is possible to run a business at our scale through technology and still innovate as if you are a startup — SCOT’s history is a prime example of this. While a lot has been accomplished, the field for innovation, and for impact, in teams like SCOT is still wide open.

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Understanding Amazon’s Supply Chain Strategy

As one of the world’s largest and most successful retailers, Amazon’s supply chain strategy plays a crucial role in its overall success. The company’s ability to efficiently source, produce, and deliver a wide variety of products to customers around the globe has helped it become the preeminent e-commerce leader. 

A closer look at the Amazon supply chain strategy reveals the reasons for the company’s dominance. Key elements drive the effectiveness and innovation that has outperformed the competition and attracted the world’s biggest brands to the Amazon marketplace.  

The fulfillment process

Inventory and storage.

The first step in getting products to the customers who placed the order is making sure the items are available to be shipped out. For some sellers, this means having a supply of the inventory in stock at a business, warehouse space, storage facility or third-party warehouse. In the case of Fulfillment by Amazon (FBA), it requires sellers to ship products to Amazon’s distribution centers in a manner that meets the company’s strict compliance requirements. 

Success for an Amazon seller via FBA or other means requires careful inventory management. It’s imperative that the sellers are capable of meeting customer demand and planning for seasonal surges and events such as Cyber Monday or Prime Day. 

Understanding Amazon’s FBA shipping criteria allows sellers to keep their products in stock for customers and ensures a fast and efficient shipping process. The rules include using boxes that match Amazon’s size requirements and avoiding loose packing materials such as packing peanuts or shredded paper. In addition, the shipping label should not be placed over box seams, and each unit should have a scannable barcode with no extraneous barcodes on case-packed units or shipping containers that might create confusion at Amazon’s warehouse. Finally, of course, the packaging should also be sufficient to protect the products while in transit to the Amazon distribution centers. 

Order placement

With the inventory ready for distribution, the next step in the process occurs when a customer orders the item. A brand’s marketing, optimization and reputation all play an integral role in driving these conversions. 

Once a transaction is completed, the seller can begin processing the order and moving on to the final phase of delivering the chosen item to its intended recipient. 

Pick, pack and ship

The pick, pack, and ship stage includes the steps required to ship a product to a customer. The process typically involves the following steps:

Picking – This is the selection of the specific items that are included in the customer’s order. In a warehouse setting, this might involve using a handheld device to scan the items and add them to the order.

Packing – Once the items have been picked, they need to be appropriately packaged for shipping. This usually requires placing the items in a box or other packaging, along with any necessary packing materials to protect the items during shipping.

Shipping – The final step is to ship the order to the customer. The shipper must print a shipping label, attach it to the package, and hand it off to the appropriate shipping carrier, such as USPS, UPS or FedEx.

Seller fulfillment options

Fulfillment by merchant.

Fulfillment by Merchant (FBM) is when a brand uses its own warehouse or fulfillment provider to ship a product to the end customer. For example, a customer would order a product on Amazon. That order is transmitted to the brand’s warehouse, which then picks, packs, and ships it to the end customer. On the surface, this seems like a suitable fulfillment method since inventory can be stored in one location and used to fulfill orders on Amazon, on a brand’s website, and on other marketplaces like Walmart.com . In addition, the merchant avoids having to comply with any Amazon-specific packaging, labeling or shipping requirements and may enjoy more flexibility when bundling products for sale to customers. 

However, companies relying on this model will be unlikely to gain Prime eligibility for their products and will have to manage the return process in-house. In most cases, shipping costs will also be higher than the FBA alternative, and shipping times will be longer by several days. 

Fulfillment by Amazon

One of the ways that Amazon sellers try to reach their full potential and land the coveted Buy Box is by opting to use Fulfillment by Amazon (FBA) rather than managing the process alone. The service outsources order fulfillment to the online retailer and puts your products inside an Amazon FBA warehouse where they can be picked, packed and shipped by an Amazon employee. Unlike a Vendor Central 1P relationship, the seller retains complete control over pricing and inventory management while relying on Amazon logistics for the rest. 

Obviously, the decision to use Amazon’s FBA service comes with added costs. In addition to paying standard seller fees on orders, Amazon will also charge a fulfillment fee based on the type and size of the product. Storage fees for the space that inventory takes up in Amazon’s fulfillment centers are yet another cost that results from using an FBA model for sales. 

However, some of these costs would simply originate elsewhere, such as from in-house employees or a different logistics provider. By partnering with Amazon on fulfillment, sellers enjoy an easier path to Amazon Prime status for their products, reduced customer interactions and more streamlined processes for returns. 

Multi-channel fulfillment

Many Amazon businesses already take advantage of the platform’s Fulfillment by Amazon (FBA) program to support their efforts to get products ordered on Amazon to the buyer. However, fewer companies may realize that Amazon also offers similar fulfillment services for products that are ordered from other websites. With this option, Amazon Multi-Channel Fulfillment (MCF) can simplify the logistics of order fulfillment by providing the same features and services of Amazon FBA to fulfill orders that originate from most online merchants, including a brand’s direct-to-consumer (DTC) website.

Much like any other third-party logistics (3PL) company, Amazon allows sellers to store their inventory in their vast fulfillment network. Once products are in one or more of the company’s warehouses, order fulfillment can be automated by integrating Amazon’s services with other e-commerce platforms. Amazon will then handle the picking, packing and shipping of products even when they are ordered via a sales channel other than Amazon. These orders remain fully trackable, and Amazon Multi-Channel Fulfillment can also manage customer returns according to the seller’s preferences. 

While brands can use Amazon’s MCF and FBA programs simultaneously, it’s worth noting that the company will always prioritize Amazon orders over those from other sources. However, the Multi-Channel Fulfillment program is not restricted to sellers who use Amazon as one of their sales channels. Even brands that use only their own DTC site or alternative e-commerce solutions can still choose to have Amazon handle their order fulfillment. 

Amazon’s fulfillment advantages

Warehousing.

Amazon’s growth over the past two decades is largely due to its approach to order fulfillment. The marketplace’s emphasis on quickly delivering items, including its popular two-day Prime shipping, has set the standard for the industry. But, clearly, their fulfillment strength begins with their warehousing strategy. 

The company’s largest warehouses are located in near population hubs, with the Amazon inventory split among them to minimize delays. Each distribution center is optimized to make picking, packing and shipping as efficient as possible. In addition, inventory storage is divided into separate areas according to demand and shipping requirements, such as one for magazines and books, another for Prime items and others for oversized or irregularly-shaped products. 

In addition, Amazon utilizes various types of warehouses and fulfillment centers dedicated to particular tasks. According to the company, these include:

Sortable fulfillment center – Around 800,000 square feet, sortable fulfillment centers can employ more than 1,500 full-time associates. In these buildings, Amazon employees pick, pack, and ship customer orders such as books, toys, and housewares. Thanks to the innovations of Amazon Robotics, associates often work alongside robots, allowing them to learn new skills and help create a more efficient process to meet customer demand.

Non-sortable fulfillment centers – Between 600,000 to 1 million square feet, non-sortable fulfillment centers employ more than 1,000 full-time associates. In these centers, associates pick, pack, and ship bulky or larger-sized customer items such as patio furniture, outdoor equipment, or rugs.

Sortation centers – At sortation centers, Amazon associates sort customer orders by final destination and consolidate them onto trucks for faster delivery. Amazon’s sort center network powers the ability to provide customers with everyday delivery, including Sunday delivery.

Receive centers – Amazon’s receive centers support customer fulfillment by taking in large orders of the types of inventory that are expected to sell quickly and then allocating those items to fulfillment centers within the network. 

Specialty – Amazon’s fulfillment network is also supported by additional types of buildings that handle specific categories of items or are pressed into service at peak times of the year, such as the holiday season. 

Similar to its approach to warehousing, Amazon is revolutionizing the delivery options that customers can utilize when shopping on the platform. In recent years, Amazon has accelerated the time needed to get orders from storage to the purchaser and launched new methods that increase efficiency. 

Free, two-day Prime deliveries are likely one of the most familiar. While the company and its sellers still use third-party carriers like UPS, FedEx and the U.S. Postal Service for some deliveries, Amazon has also added its own proprietary shipping options. Drones that land in your backyard or on your roof can deliver products in a matter of hours. Amazon-branded trucks and delivery vans are now offered via a franchise-like structure to entrepreneurs and small businesses interested in expanding the company’s delivery footprint. 

The company also focuses on making the delivery process more convenient via its Hub & Locker and Hub Counter locations. At the same time, Amazon Key gives delivery drivers the ability to place packages inside a home or garage. As a result of these innovations, delivery times are reduced and convenience for shoppers and Amazon is increased.

Customer service and returns

Amazon has built a reputation for having a strong customer service team and for making it easy for customers to return products. This is likely because Amazon has invested heavily in developing a comprehensive and user-friendly returns policy and process and training its customer service staff to be knowledgeable, helpful, and efficient.

Amazon also offers a wide range of options for returning products, including the ability to return items by mail, at a local drop-off location, or select retail stores, and provides clear instructions for how to do so. Additionally, Amazon provides convenient tracking and updates throughout the returns process and often offers refunds or replacements quickly and without hassle. All of these factors contribute to making the customer service and returns experience with Amazon generally positive and stress-free.

When third-party sellers opt for an FBA agreement, Amazon handles the customer service and return processing for those brands. While this sometimes leads to concerns about the condition of returns and fraud, it does minimize the costs and time-consuming burden of handling those responsibilities in-house. 

Technology  

Amazon’s supply chain management relies heavily on technology and is often among the first to integrate new technologies. The company uses robots, automated conveyor belts, and other technology in its fulfillment centers to streamline the process of sorting, storing, and shipping orders. Advanced software optimizes routes and schedules for its delivery trucks, planes, and other transportation assets, to reduce costs and increase efficiency. Sophisticated algorithms and data analytics help track and manage inventory levels and predict product demand. Technology such as barcodes and RFID tags can track products throughout the supply chain and ensure that goods are shipped and delivered accurately and on time. And as mentioned, drones are now being used to make some Amazon Prime Air deliveries in larger markets. 

Overall, Amazon’s use of technology in its supply chain helps the company to operate more efficiently, reduce costs, and improve the speed and accuracy of its fulfillment and delivery operations. But the advantages also extend to the companies it works with. For example, the Seller Central and Vendor Central dashboards provide sellers with a central hub to manage their relationship with Amazon, and each offers a wealth of data to help with forecasting and optimization. 

Manufacturing

As Amazon has grown, so has its focus on private-label brands. Inspired by the success of house brands in brick-and-mortar stores, Amazon hoped to capitalize on its ability to market low-priced products backed by the company itself. Since committing to the tactic, they have offered private label products, some bearing the Amazon name, in categories ranging from food to clothing to electronics. 

However, new reporting indicates a shift may be on the horizon. While sellers and brands utilizing Amazon have previously focused on competing with Amazon’s private label brands, the new priority may be on learning how to adjust to a marketplace with fewer Amazon-branded products available, but new challenges that would accompany such a transition.

Both Vox and the Wall Street Journal addressed the potential change in Amazon’s strategy in recent weeks. Their reports centered on the possibility that Amazon’s efforts to drive market share in-house may lead to more harm than profit.  

Among the motivations for a decision to minimize these offerings is the scrutiny Amazon has faced from government regulators due to their private label products. There are well-documented questions about how Amazon’s role as a marketplace and data-collection company may conflict with its aspirations to sell more of its in-house brands. Regardless of what happens in the future, current sellers should be aware of the industry climate and have a plan to respond in ways that will grow their businesses. 

Amify can deliver for your brand 

Find the right Amazon warehousing strategy for your business with help from the experts at Amify . They understand the impact that a delivery option can have on your bottom line and how growing sellers can make Amazon’s supply chain strategy and operations an important advantage. Contact us today to learn more.

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Amazon Supply Chain: Understanding how Amazon’s supply chain works

Whether you are a small or medium-sized business looking to scale your eCommerce operations, Amazon is one of the best examples to learn from to improve productivity, expand the reach, and maximize profits. Though several factors make Amazon the eCommerce leader it is today, one of the most critical elements to its success has been Amazon’s state-of-the-art supply chain.

Amazon has one of the biggest and most efficient supply chain operations globally. While the basic model has remained the same since its inception, it has adopted newer technologies over the years to streamline its operations and improve its efficiency.

Below, we explain how Amazon’s supply chain works and look at the key elements contributing to the company’s success.

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What is the Amazon Supply Chain?

Amazon fba and fbm, how does the amazon supply chain work, what happens when you buy a product on amazon, components of amazon supply chain strategy.

The supply chain of Amazon refers to the entire process on the platform, right from product warehousing and inventory management to pricing and delivery. Over the years, Jeff Bezos and his team have devised new ways to optimize every part of the supply chain process, ensuring everything works efficiently and smoothly to guarantee customer satisfaction.

As third-party sellers contribute up to 55 per cent of the total sales Amazon makes, the company makes sure these sellers using the platform have multiple fulfilment options available.

when it comes to selling on the platform, Amazon sellers have two options:

Fulfilment By Amazon (FBA) – Amazon takes care of logistics and customer support in this model. Sellers send products in bulk to the fulfilment centres from where the company picks, packs, and ships to customers. This fulfilment option is ideal for sellers who handle small and lightweight products or cannot arrange for logistics.

Fulfilment By Merchant (FBM) – With this option, third-party sellers are responsible for listing their products and taking care of storage and fulfilment on their own.

There is also an FBA Onsite option where Amazon uses its warehouse management program to help sellers optimize their operations. Third-party sellers take care of the inventory of the products, but Amazon is responsible for picking the products from the inventory and selecting the best fulfilment method.

Amazon covers all the bases for different seller types by offering these two programs. Sellers who want to store, pack, and ship products on their own can use FBM, while others can go with the FBA.

Related: How to start an Amazon FBA business

Amazon has been known to reduce delivery times and even offer same-day delivery. This is because it recognized the need for super-fast delivery among customers. There are two main components crucial to the success of Amazon’s supply chain – Amazon Fulfilment Centers & Amazon Delivery Fleet.

Amazon Fulfilment Centres

Amazon puts a robust fulfilment and logistics network to complete orders and meet the ultra-fast delivery expectations of over 110 million Prime membership subscribers. At present, it has more than 175 fulfilment centres across the world. Amazon also has approximately 500 warehouses near metropolitan cities globally.

Related: Crucial Tips for Selling on Amazon that every Seller must know

As the eCommerce sector experienced a boom in the past few months, Amazon has shown considerable growth. In ten months, it has hired about 427,000 employees to keep up with the increasing demand.

Third-party sellers have seen up to 60 per cent growth in sales, and the trend is expected to continue in the coming months. To respond to the growing demand, it will also open about 50 new warehouses and fulfilment centres in the United States.

Amazon Delivery Fleet

Amazon uses many logistics and delivery partners to deliver orders to customers on time. Trucks are used to carry boxes from fulfilment centres to sort centres. Then packages are sorted depending on the delivery speed and location. After this, the most efficient transportation mode is chosen to transport the packages.

Amazon uses an airplane fleet to meet the one-and-two-day delivery window offered to Prime members. The company uses vans, trucks, bikes, and even robots to facilitate timely delivery on the land. Amazon is presently working on drones to deliver products to locations near fulfilment centres.

Let us understand how Amazon’s fulfilment centre works to complete an order.

Receiving Products

Products are either stored into pallets manually or handled by machines at these centres. Freight is separated based on where it comes from, whether third-party vendors or Amazon facilities. Over half of the products sold on the platform come from small businesses and solopreneurs.

Product Storage

Amazon does not categorize its storage by type but instead stores everything randomly. There are yellow bins containing random items tracked by computers. The containers are then transported to associates depending on the size.

Picking Orders

When a customer buys a product, a robot brings pods of items to Amazon associates at the pick stations. The pickers read the screen, retrieve the product and place the product in a tote box.

Quality Assurance

A lot of quality assurance is required for the proper working of robots with humans. An item’s physical location should match the computer entries so that robots can function well.

Finally, products are organized and sent to the pack station, where box sizes are chosen, and the amount of tape required to pack them is measured. Items coming from third-party vendors ship out in their original packaging, but Amazon works with them to reduce these costs.

While the process of buying from Amazon seems straightforward, it involves a few crucial elements that come together to ensure a smooth shopping experience.

Warehousing

A big factor behind Amazon’s success, the warehousing strategy the company adopts is smart enough to make sure products are accessible from anywhere in the world. It hosts many warehouses and distribution centres near big metropolitan cities. Currently, there are 175 warehouses globally, the majority of which are located in Europe and North America.

Amazon stores its product inventory across these centres to quickly meet the demand. Such an extensive network of warehouses allows it to deliver orders to customers quickly and cost-efficiently. It also has mini-warehouses in smaller areas to ensure enough supply. All the warehouses are optimized from within, with five storage areas. Employees and robots can quickly find products and get them ready for dispatch.

Amazon’s delivery options are one of the most significant factors differentiating the supply chain from other eCommerce operators. The company offers two-day Prime deliveries, free delivery, and even the Prime Now option that delivers the products within two hours. Amazon uses a host of methods ranging from traditional to high-tech to deliver orders with lightning speeds worldwide.

Amazon has delivery trucks, vans, and even bikes operating in specific areas; it also leverages traditional routes like UPS and FedEx. Such a wide range of delivery strategies enables it to deliver faster, more efficiently, and easily to any location globally, even in rural and remote areas that traditional options don’t cover.

Related: 10 Dropshipping Tips that will drive sales growth

Technology adoption is at the core of the Amazon supply chain strategy, helping it work efficiently and cut costs. The company relies on several automation and robotic solutions to pick, pack and ship orders. Such tools and techniques improve the delivery speeds and cut down the costs associated with warehousing and staffing, saving funds for other processes.

One of the biggest advancements in technology anticipated by Amazon is its Prime Air Drone Delivery. Though still in its development phase, the program will ensure 30-minute deliveries in some areas once operational. Customers with an Amazon-branded landing mat living within 15 miles of the nearest fulfilment centre can qualify for a delivery option.

Manufacturing

Amazon has discovered that it can benefit from manufacturing more popular products to increase its profits and provide cheaper options.

Currently, the company has started white-labelling products from sellers and offering options across categories that include everything from household goods and pet supplies to a lot more. This strategy allows Amazon to keep the entire lifecycle of products, from production to delivery, in-house.

Related: What are the risks of dropshipping, and how do you avoid them?

Cost-effectiveness is one of the most crucial parts of the Amazon supply chain. One of the most innovative strategies is to segment the customers into Prime and Standard, offering varying service options at different prices. By creating additional shipping and delivery windows, Amazon keeps the flow of orders smooth, allowing it to respond to changes in demand without affecting the supply chain as a whole.

Amazon also uses such a pricing strategy for its FBA program. It understands that the large inventory can raise costs and slow down fulfilment. It, therefore, charges high storage fees for long-term usage from FBA sellers. This ensures that sellers only send sufficient inventory to meet the demand, and Amazon’s costs don’t rise.

Global Reach

Amazon operates 11 online marketplaces globally to let sellers grow their business worldwide, regardless of where they are physically based.

Businesses can introduce their products to millions of potential customers with these marketplaces located across Asia, Europe, and North America. When sellers register with one of these marketplaces, they get instant access to loyal customers who trust Amazon’s experience.

Related: Which is the Best Online Marketplace: Selling on Etsy vs eBay vs Amazon

Final Thoughts

The Amazon supply chain works efficiently with its latest innovations to beat the biggest competitors. This retail giant has set an example for eCommerce businesses with its consumer-centric approach and use of technology.

Regardless of the industry it enters next, Amazon’s unique supply chain strategy combined with innovations suggests that it will continue to rule the landscape.

Pia has consulted for a number of digital startups and small businesses in Asia before coming to the UK. Pia writes about a wide range of SaaS and B2B products, including trends and issues on e-commerce, accounting and customer service software. She’s also covered a wide range of topics in business, science, and technology for websites in the U.S., Australia and Singapore.

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Customer Stories / Transportation & Logistics

Processing 51K Daily Queries to Drive Supply Chain Excellence for Amazon.com using Amazon Redshift

Learn how Amazon.com uses Amazon Redshift to drive actionable insights across the company and cut error analysis time within its global supply chain.

Overview | Opportunity | Solution | Outcome | AWS Services Used

83% reduction

in supply chain error analysis time

51,000 queries supported

40,000 operators.

with daily website access

500 sources of near-real-time data

from 100+ teams incorporated in solution

The transportation and logistics industry covers a variety of services, such as multimodal transportation, warehousing, fulfillment, freight forwarding, and delivery. At Amazon Transportation Service, the lifecycle of the shipment is digitally tracked and attached to dozens of tracking updates on average. These updates are vital to understanding the shipment, operations, and billing lifecycle, including delay identifications and route optimization. They also provide the foundation for the customer-tracking experience across different touch points. Amazon.com was looking to use this data to improve operations by providing actionable insights to various Amazon Transportation Service teams. This was supported by the PerfectMile team within Amazon.com, a business intelligence and data integration team supporting Amazon Transportation Service teams in all geographies. It collects and centralizes reliable data from hundreds of sources surrounding the delivery of millions of packages every day. These insights are analyzed by thousands of users daily. To successfully operate at this scale in a cost-efficient manner, the PerfectMile team turned to Amazon Redshift , a fully managed, petabyte-scale data warehouse service from Amazon Web Services (AWS). Leveraging Amazon Redshift, the PerfectMile team could scale and generate metrics and insights that supports critical supply chain decisioning.

Opportunity |  Using Amazon Redshift to Optimize Delivery Performance for Amazon.com Customers

In 2012, Amazon.com launched Amazon Logistics to handle direct-to-customer deliveries, expanding the company’s previous focus, which was solely on logistics in Amazon fulfillment centers. To support this new service in a data-driven manner and to help derive insights from all package touch points while improving supply chain metrics, Amazon created the PerfectMile team within the finance department. Initially, Amazon Logistics was growing 115 percent every year. For the first 5 years after its launch, the team changed its technology every 6 months, looking for a relational database solution that could scale to accommodate this rapid growth and that had the compute power to handle enormous volumes of data.

Following Amazon’s company-wide principle—customer obsession—and to fulfill delivery promises, the team wanted to provide a single view of truth for packages in the supply chain. Hundreds of Amazon teams needed access to information that was consumable, regularly available, and optimized to facilitate near-real-time decisions for billions of packages. The solution needed to connect a complex network of supply chain actors and activities from volumes of data across driver information, package scans, truck routes, touch points at fulfillment and sort centers, and many more. “At the beginning, we were strongly constrained in terms of resources,” says Lionel Abderemane, senior technical program manager at Amazon. “We had to find ways to automate the production of key performance indicators and facilitate broad access to this information.”

Amazon Redshift provides the scale that we as a company need to get an overview of each and every package’s life cycle."

Arnaud Colin Founder of the PerfectMile team and Senior Manager of Data Engineering at Amazon.com

Solution |  Processing High Volumes of Granular Data Quickly Using Amazon Redshift

The team turned to Amazon Redshift in 2017 and built a website that secured and centralized data insights for more than 200 Amazon analysts and developers at that time. At the end of 2022, more than 40,000 operators were using the website daily, including those on the front line, senior leaders monitoring transportation networks, and business intelligence engineers and analysts. They query data at a granular level—down to the shipment ID—to track deliveries and gain operational insights. “We couldn’t find anything equivalent to Amazon Redshift that had the power and capacity to transform and process high volumes of data with the timing that we needed,” Abderemane says.

Using Amazon Redshift, the PerfectMile team improved the accuracy and speed of issue identification in a supply chain that handled billions of items shipped in 2021, about double the number of shipments from 2020. The team optimized its architecture by using different Amazon Redshift clusters, which offered faster query performance using the same SQL-based tools that the team had already been using. Using the Amazon Redshift Data Sharing feature, the solution does not need to migrate data physically among clusters, which improves speed while scaling to handle more than 500 sources of near-real-time data from at least 100 different teams. The solution ingests data from more than 30 upstream technical services in transportation and last mile, adds business rules for measurements and targets, and generates metrics and reports. Using Amazon Redshift Federated Query , the PerfectMile team consolidates data from its data lake as well as its operational stores to help enhance decision-making and operational insights. When internal Amazon teams identify delivery issues and find solutions quickly, Amazon customers benefit from a more efficient package delivery service.

Rather than the limit of 45 concurrent queries under the previous solution, 51,000 queries per day run using Amazon Redshift. The team ingests data from more than 100 data sources and processes hundreds of MB per second using Amazon Redshift. This helps to analyze errors, optimize forecasting, and proactively address potential issues. More than 500 internal teams at Amazon.com are able to build their own sales and financial models. Teams identify and act on gaps in the supply chain quicker by independently collecting and consolidating the data, applying logic to identify exactly where a problem occurred, and publishing the analysis for leadership. “Amazon Redshift provides the scale that we as a company need to get an overview of each and every package’s life cycle,” says Arnaud Colin, founder of the PerfectMile team and senior manager of data engineering at Amazon.com. The insights that the team generates drive operational excellence during supply chain strain during the holiday season or supply delivery challenges during a crisis.

Outcome |  Using Machine Learning to Optimize Operations through Forecasting

Additionally, Amazon.com can act as a carrier for shipments that are sold outside Amazon, and the solution is expanding vertically to accommodate third-party seller and fulfillment data. The team also uses Amazon Redshift to drive horizontal scaling as it launches in new countries, including Brazil, Singapore, Australia, Saudi Arabia, and the United Arab Emirates.

“You cannot imagine the savings that we realize by staying in the same environment, with the stability of data that persists over time, which we can still use after 5 years,” Colin says.

The ability to streamline processes internally has helped to optimize and simplify Amazon deliveries, providing a better customer experience. After working primarily with historical data, the team will use the new data pipelines to feed models to forecast peaks and other potential delivery challenges. Using Amazon Redshift, the team will help Amazon Robotics and other internal teams use machine learning to optimize operations. “We will continue to partner and innovate with Perfect Mile team so they keep achieving their business outcomes faster and at low cost using Amazon Redshift” says Pradeep Misra, Analytics specialist architect at AWS.

About the PerfectMile team within Amazon.com

The PerfectMile team within Amazon.com is a worldwide business intelligence and data integration team that supports Amazon operations, finance, and human resources teams.

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Amazon Company’s Supply Chain Case Study

Introduction, continuous modernization and adaptation, cost reduction and economy.

Amazon is a Canadian e-commerce corporation, which occupies a large percentage of the U.S. domestic market for online trade. According to Mark and Johnson (2018), its share of the U.S. retail sales is 43%. The organization’s tremendous success in business operations enabled many researchers to study and analyze this company to apprehend its managerial wisdom. In this paper, the remarkable market performance of Amazon will be explained from the standpoint of supply chain management using the materials kindly provided in the case study by Mark and Johnson.

One of the reasons why Amazon grows to acquire more and more presence in the online retail sector is that it continually invests in technology and scale. As reported by Mark and Johnson (2018), Amazon builds new distribution centers as its network increases in size. Also, the company is aware that its shipping and delivery partners may not always maintain the same level of development, which led the owners to opt for creating their logistics. Thus, after suffering sufficient financial losses due to the U.S. Postal Services failing to deliver goods to customers on New Year’s Eve, Amazon decided to create an internal logistics network.

Amazon optimizes the use of resources through automation, which allows for increased efficiency and, therefore, competitiveness. As such, the company transitioned to electronic document flow, which boosted communication effectiveness and procurement procedures in general (Mark & Johnson, 2018). The company also simplified the process of gathering necessary information from its suppliers by introducing Vendor Central, a software that allows for faster and more organized reception of shipment details and invoices.

Amazon investments into automation also included optimization of warehousing operations through the use of robotics (Mark & Johnson, 2018). Thus, Amazon storage practices include autonomous loading, movement, control, object recognition, and other AI-enhanced services. The company avidly implements and tests new technological developments such as drones for delivery purposes.

While Amazon invests in the growth and development of new facilities to cover new areas and increases the effectiveness of its operations, it also seeks ways to decrease their cost. As such, the organization tried using individual driver services similar to Uber to deliver small packages within densely populated urban areas. By arranging an outbound sortation and using low-cost carriers, Amazon manages to maintain the delivery costs to a minimum, which also allows the company to stay competitive. The organization also utilizes the full potential of its status as the largest online retailer to negotiate better pricing schemes with its suppliers and transportation firms. The aforementioned decision to transition toward internal logistics is also projected to decrease Amazon’s shipping costs.

The case study of Amazon’s supply chain revealed a variety of nuances that help the firm to aspire to the 43% market share of domestic online retailing. Among the factors that influenced the success of Amazon are its orientation towards cost reduction, a technological boost of operations productivity, and strategic decision-making in terms of logistics. The company invests heavily in expanding, modernizing, and internalizing its operations to maintain control and efficacy of all business affairs concerning supply chains.

It continually seeks ways to reduce costs and tries new approaches. Finally, it realizes and utilizes its status privileges and bargaining power. Overall, these actions led Amazon corporation to be the largest and one of the most successful market players in online retailing.

Mark, K., & Johnson, F. (2018). Amazon.com: Supply chain management . W18451. Ontario, Canada: Ivey Publishing.

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IvyPanda. (2021, July 20). Amazon Company's Supply Chain. https://ivypanda.com/essays/amazon-companys-supply-chain/

"Amazon Company's Supply Chain." IvyPanda , 20 July 2021, ivypanda.com/essays/amazon-companys-supply-chain/.

IvyPanda . (2021) 'Amazon Company's Supply Chain'. 20 July.

IvyPanda . 2021. "Amazon Company's Supply Chain." July 20, 2021. https://ivypanda.com/essays/amazon-companys-supply-chain/.

1. IvyPanda . "Amazon Company's Supply Chain." July 20, 2021. https://ivypanda.com/essays/amazon-companys-supply-chain/.

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IvyPanda . "Amazon Company's Supply Chain." July 20, 2021. https://ivypanda.com/essays/amazon-companys-supply-chain/.

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Lessons from Amazon’s Early Growth Strategy

If you’re interested in strategies for scaling start-ups, this episode is for you.

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So much has been written about Amazon’s outsized growth. But Harvard Business School professor Sunil Gupta says it’s the company’s unusual approach to strategy that has captured his scholarly attention. Gupta has spent years studying Amazon’s strategy and its founder and former CEO Jeff Bezos.

In this episode, Gupta shares how Amazon upended traditional corporate strategy by diversifying into multiple products serving many end users, instead of having a narrow focus.

He argues that some of Amazon’s simplest business strategies — like their obsession with customers and insistence on long-term thinking — are approaches that companies, big and small, can emulate.

Key episode topics include: strategy, innovation, leadership, scaling, Jeff Bezos, long-term thinking, customer focus.

HBR On Strategy curates the best case studies and conversations with the world’s top business and management experts, to help you unlock new ways of doing business. New episodes every week.

• Listen to the full HBR IdeaCast episode: How Jeff Bezos Built One of the World’s Most Valuable Companies (2020)
• Find more episodes of HBR IdeaCast
• Discover 100 years of Harvard Business Review articles, case studies, podcasts, and more at HBR.org .

HANNAH BATES: Welcome to HBR On Strategy , case studies and conversations with the world’s top business and management experts, hand-selected to help you unlock new ways of doing business.

So much has been written about Amazon’s outsized growth. But Harvard Business School professor Sunil Gupta says it’s the company’s unusual approach to strategy that has captured his scholarly attention.

Gupta has spent years studying Amazon’s strategy and its founder and former CEO, Jeff Bezos.

In this episode, Gupta shares how Amazon upended traditional corporate strategy by diversifying into multiple products serving many end users instead of focusing more narrowly.

And he argues that some of their simplest business strategies – like their obsession with the customer and insistence on long-term thinking – are approaches that companies, big and small, should emulate.

If you’re interested in innovation strategy, this episode is for you. It originally aired on HBR IdeaCast in November 2020. Here it is.

ALISON BEARD:  Welcome to the HBR IdeaCast from Harvard Business Review.  I’m Alison Beard.

If you had to name the most successful business leader alive today, who would you say?  I can’t hear you from my basement podcasting room, but I would bet that for many of you, the answer is Jeff Bezos, CEO of Amazon.  This is a man who over the past 25 years turned his online bookstore startup into a diversified company currently valued at $1.6 trillion.

Amazon is a digital retailing juggernaut, it’s also a web services provider, media producer, and manufacturer of personal technology devices like Kindle and Echo.  Oh, and Bezos also owns the Washington Post and Blue Origin, a space exploration company.  Forbes tells us he is the richest person in the world.

How did he accomplish so much?  How did he change the business landscape?  What mistakes has he made along the way?  A new collection of Bezos’s own writing, which full disclosure, my colleagues at Harvard Business Review Press have published, offer some insights.  Here’s a clip from one speech that’s included.  The book is called Invent and Wander.

And our guest today, who has spent years studying both Amazon and Bezos, is here to talk with me about some of the key themes in it, including the broad drivers of both the company and the CEO’s success.  Sunil Gupta is a professor of business administration at Harvard Business School and cochair of its executive program, and cochair of its executive program on driving digital strategy, which is also the title of his book.  Sunil, thanks so much for being on the show.

SUNIL GUPTA:  Thank you for having me, Alison.

ALISON BEARD:  So Invent and Wander.  I get that Bezos is inventive.  You know, he created a new way for us to buy things – everything.  How is he also a wonderer?

SUNIL GUPTA:  So he’s full of experiments.  His company and his whole style is known for experimentation, and he says that in so many words that if you want big winners, then you have to be willing to have many failures.  And the argument is, one big winner will take care of a thousand failed experiments.  So I think that’s the wandering part.  But also his experiments are not aimless.  There is a certain thought and process behind what experiments to do and why they will connect to the old, old picture of what Amazon is today.

ALISON BEARD:  And your expertise is in digital strategy.  How does he break the traditional rules of strategy?

SUNIL GUPTA:  So for the longest time the way, at least I was taught in my MBA program and the way we teach to our MBA students and executives, is strategy is about focus.  But if you look at Amazon, Amazon certainly doesn’t look like it’s focusing on anything, so obviously Jeff Bezos missed that class, otherwise it’s a very, very different thing.

And then you’d say, why is it that so called lack of focus strategy seems to be working for Amazon?  And I think the fundamental underlying principle that he’s guiding his whole discussion of strategy is, he’s changed the rules of strategy.  So the old rules of strategy were, the way you gained competitive advantage is by being better or cheaper.  So if I am selling you a car, my car is better of cheaper.  But the inherent assumption in that strategy statement is, I’m selling one product to one customer.  And what Amazon is basically arguing is, the digital economy is all about connection.  We have got to connect products and connect customers.  Let me explain why that is so powerful.

So connecting products, here the idea is, I can sell you, this is a classic razor and blade strategy.  I can sell you a razor cheap in order to make money on the blade.  So I can sell you Kindle cheap in order to make money on the ebooks.  Now, at some level you might say, hey, razor and blade have been around forever.  What’s so unique today?  I think unique today is razor could be in one industry and blades could be in completely different industrys.

So for example, if you look at Amazon’s portfolio of businesses, you sort of say, not only Amazon is an e-commerce player, but also is making movies and TV shows, its own studio.  Well, why does it make sense for an e-commerce player, an online retailer to compete with Hollywood.  Well, Walmart doesn’t make movies.  Macy’s doesn’t make movies?  So why does it make sense for Amazon to make movies?

And I think once you dig into it, the answer becomes clear that the purpose of the movies is to keep and gain the Prime customers. Two day free shipping is fine, but if  you ask me to pay $99 or $119 for two day free shipping, I might start doing the math in my head, and say, OK, how many packages do I expect to get next year?  And is the Prime membership worth it or not?

But once you throw in, in addition to the two-day free shipping, you throw in some TV shows and movies that are uniquely found only on Amazon, I can’t do this math.  And why is Prime customers important to Amazon?  Because Prime customers are more loyal.  They buy three or four times more than the non-Prime customers, and they’re also less price sensitive.

And in fact, Jeff Bezos has said publicly that every time we win a Golden Globe Award for one of our shows, we sell more shoes.  So this is, and he said it in your book, Invent and Wander, also, that we might be the only company in the world which has figured out how winning Golden Globe Awards can actually translate into selling more products on the online commerce.

So this is a great example of the razor being in a very different industry and blade being in another industry.  Take another example.  Amazon has a lending business where they give loans to small and medium enterprises. If Amazon decides to compete with banks tomorrow, Amazon can decide to offer loans to the small merchants at such a low price that banks would never be able to compete.  And why would Amazon be able to do that?  Because Amazon can say, hey, I’m not going to make money on loans, as much money on loans, but I’ll make more money when these businesses, small businesses grow and do more transactions on my marketplace platform.  And I get more commissions.  So again, loan can become my razor in order to help the merchants grow and make money on the transaction and the commission that I get from that.  The moment I make somebody else’s, in this case the banks, core business my razor, they will make a very hard time competing.  So I think that’s the key change, the fundamental rules of strategy and competition in that direction.

The second part of connection is connecting customers, and this is the classic network effect.  So marketplace is a great example of network effects.  The more buyers I have, the more sellers I have.  The more sellers I have, the sellers I have, the more buyers I get, because the buyers can find all the items.  And that becomes flywheel effect, and it becomes a situation where it’s very hard for a new player to complete with Amazon.

ALISON BEARD:  In this diversification that Amazon has done, how have they managed to be good at all of those things?  Because they’re not focused.  You know, they’re not concentrated on an area of specific expertise.  So how have they succeeded when other companies might have failed because they lacked that expertise, or they were spreading themselves too thin?

SUNIL GUPTA:  So I think it depends on how you define focus.  Most of us, when we define focus, we sort of define focus by traditional industry boundaries, that I’m an online retailer, therefore going into some other business is lack of focus.  The way Amazon thinks about is focus on capabilities.

So if you look at it from that point of view, I would argue that Amazon had three fundamental core capabilities.  Number one, it’s highly customer focused, not only in its culture, but also in its capability in terms of how it can actually handle data and leverage data to get customer insight.  The second core capability of Amazon is logistics.  So it’s now a world class logistics player.  It uses really frontier technology, whether it’s key word, robotics, computer vision, in its warehouse to make it much more efficient.

And the third part of Amazon’s skill or the capability is its technology.  And a good example of that is Amazon Web Services, or AWS.  And I think if you look at these three core capabilities, customer focus and the data insight that it gets from that, the logistics capability, and the technology, everything that Amazon is doing is some way or the other connected to it.  In that sense, Amazon, and there’s no lack of focus, in my judgment on Amazon.

Now, if he starts doing, starts making cream cheese tomorrow or starts making airplane engines, then I would say, yes, it’s got a lack of focus.  But one of the other things that Jeff Bezos has said again and again is this notion of work backwards and scale forward.  And what that means is, because you’re customer obsessed, you sort of find ways to satisfy customers, and if that means developing new skills that we don’t have because we are working backwards from what the customer needs are, then we’ll build those skills.

So a good example of that is, when Amazon started building Kindle, Amazon was never in the hardware business.  It didn’t know how to build hardware.  But Bezos realized that as the industry moved, people are beginning to read more and more online, rather, or at least on their devices, rather than the physical paper copy of a book.  So as a result, he says, how do we make it easier for consumers to read it on an electronic version?  And they’re spending three years learning about this capability of hardware manufacturing.  And by the way, Kindle came out long before iPad came out.  And of course, that capability now has helped them launch Echo and many other devices.

ALISON BEARD:  Right.  So it’s the focus on the customer, plus a willingness to go outside your comfort zone, the wander part.

SUNIL GUPTA:  Exactly.

ALISON BEARD:  Yeah.  How would you describe Bezos’s leadership style?

SUNIL GUPTA:  So I think there are at least three parts to it.  One is, he said right from day one that he wants to be a long-term focus.  The second thing is being customer obsessed.  And many times he has said that he can imagine, in the meetings he wants people to imagine an empty chair.  That is basically for the customer. And he says, we are not competitor focused.  We are not product focused.  We are not technology focused.  We are customer focused.  And the third is, willingness to experiment.  And fail, and build that culture in the company that it’s OK to fail.

ALISON BEARD:  What about personally, though?  Is he a hard charger?  Is he an active listener?  What’s it like to be in a room with him?

SUNIL GUPTA:  Oh, he’s certainly a hard charger.  I mean, he’s also the kind of guy, when he hires people, he says, you can work long, hard, or smart.  But at Amazon, you can choose two out of three.  And I think this is similar to many other leaders.  If you look at Steve Jobs, he was also a very hard charging guy.  And I think some people find it exhilarating to work with these kind of leaders.  Some find it very tough.

ALISON BEARD:  Do you think that he communicates differently from other successful CEOs?

SUNIL GUPTA:  So the communication style that he has built in the company is the very famous now, there’s no PowerPoints.  So it’s a very thoughtful discussion.  You write six-page memos, which everybody, when their meeting starts, everybody sits down and actually reads the memo.

In fact, this was a very interesting experience that I had.  One of my students, who was in the executive program, works at Amazon in Germany.  And he is, he was at that point in time thinking of moving to another company and becoming a CEO of that company.  So he said, can I talk to you about this change of career path that I’m thinking about?  I said, sure.  So we set up a time, and five minutes before our call, he sends me an email with a six-page memo.  And I said, well, shouldn’t he have sent this to me before, so I could at least look at it?  He says, no, that’s the Amazon style.  We’ll sit in silence and read it together.  And so I read it together, because then you’re completely focused on it.  And then we can have a conversation.  But this discipline of writing a six-page memo, it’s a very, very unique experience, because you actually have to think through all your arguments.

ALISON BEARD:  You also mentioned the long term focus, and that really stood out for me, too, this idea that he is not at all thinking of next year.  He’s thinking five years out, and sometimes even further.  But as a public company, how has Amazon been able to stick to that?  And is it replicable at other companies?

SUNIL GUPTA:  I think it is replicable.  It requires conviction, and it requires a way to articulate the vision to Wall Street that they can rally behind.  And it’s completely replicable.  There are other examples of companies who have followed a similar strategy.  I mean, Netflix is a good example.  Netflix hadn’t made money for a long period of time.  But they sold the vision of what the future will look like, and Wall Street bought that vision.

Mastercard is exactly the same thing.  Ajay Banga is giving three year guidance to Wall Street saying, this is my three-year plan, because things can change quarter to quarter.  I’m still responsible to tell you what we are doing this quarter, but my strategy will not be guided by what happens today.  It will be guided by the three-year plan that we have.

ALISON BEARD:  There are so many companies now that go public without turning any profit, whereas Amazon now is printing money, and thus able to reinvest and have this grand vision.  So at what point was Bezos able to say, right, we’re going to do it my way?

SUNIL GUPTA:  I think he said it right from day one, except that people probably didn’t believe it.  And in fact, one of the great examples of that was, when he was convinced about AWS, the Amazon Web Services, that was back in the early 2000s, when a majority of the Wall Street was not sure what Jeff Bezos was trying to do, because they say, hey, you are an online retailer.  You have no business being in web services.  That’s the business of IBM.  And that’s a B2B business.  You’re in a B2C business.  Why are you going in there?

And Bezos said, well, we have plenty of practice of being misunderstood.  And we will continue with our passion and vision, because we see the path.  And now he’s proven it again and again why his vision is correct, and I think that could give us more faith and conviction to the Wall Street investors.

SUNIL GUPTA:  Oh, absolutely.  And he’s one of the persons who has his opinion, and you always surround yourself with people better than you.

ALISON BEARD:  How has he managed to attract that talent when it is so fiercely competitive between Google, Facebook, all of these U.S. technology leaders?

SUNIL GUPTA:  So a couple of things I would say.  First of all, it’s always good fun to join a winning team.  And all of us want to join a winning team, so this certainly is on a trajectory which is phenomenal.  It’s like a rocket ship that is taking off and has been taking off for the last 25 years.  So I think that’s certainly attractive to many people, and certainly many hard charging people who want to be on a winning team.

And a second thing is, Amazon’s culture of experimentation and innovation.  That is energizing to a lot of people.  It’s not a bureaucracy where you get bogged down by the processes.  So the two type of decisions that we talked about, he gives you enough leeway to try different things, and is willing to invest hundreds of millions of dollars into things that may or may not succeed in the future.  And I think that’s very liberating to people who are willing to take on the ownership and build something.

ALISON BEARD:  But don’t all of the tech companies offer that?

SUNIL GUPTA:  They do, but if you think about many other tech companies, they’re much more narrow in focus.  So Facebook is primarily in social media.  Google is primarily in search advertising.  Yes, you have GoogleX, but that’s still a small part of what Google does.  Whereas if you ask yourself what business is Amazon in, there are much broader expansive areas that Amazon has gone into.  So I think the limits, I mean, Amazon does not have that many limits or boundaries as compared to many other businesses in Silicon Valley.

ALISON BEARD:  So let’s talk a little bit about Bezos’s acquisition strategy.  I think the most prominent is probably Whole Foods, but there are many others.  How does he think about the companies that he wants to bring in as opposed to grow organically?

SUNIL GUPTA:  So some acquisitions are areas where he thinks that he can actually benefit and accelerate the vision that he already has.  So for example, the acquisition of Kiva was to improve the efficiency and effectiveness of the systems that he already put in place in his warehouse.  And logistics and warehouse is a key component or key part of Amazon’s business, and he saw that Kiva already was ahead of the curve in technology that he probably wanted to have that in his own company.  So that was obvious acquisition, because that fits in the existing business.

Whole Foods is kind of a slightly different story, in my judgment, because I some ways, you can argue, why is Amazon, an online player, buying an offline retail store, Whole Foods?  And in fact, they bought it at 27% premium.  So that doesn’t make sense for an online retailer commerce to go to offline channels.  And I think, in fact, part of the reason in my judgment is, it’s not just Whole Foods, but it’s about the food business, per se.  And why is Amazon so interested in food?  In fact, Amazon has been trying this food business, online food delivery for a long period of time without much success.  And Whole Foods was one, another way to try and get access to that particular business.  And why is that so important to Amazon, even though you could argue, food is a low margin business?

And I would say, part of the reason is, food is something, grocery is something that you buy every week, perhaps twice a week.  And if I, as Amazon, can convince you to buy grocery online from Amazon, then I’m creating a habit for you to come onto Amazon every week, perhaps twice a week.  And once you are on Amazon, you will end up buying other products on Amazon.  Whereas if you are buying electronics, you may not come to Amazon every day.

So this is a habit creation activity, and again, it may not be a very high margin activity to sell you food.  But I’ve created a habit, just like Prime.  I’ve created a loyal customer where you think of nothing else but Amazon for your daily needs, and therefore you end up buying other things.

ALISON BEARD:  And Amazon isn’t without controversy.  You know, and we should talk about that, too.  First, there are questions about its treatment of warehouse employees, particularly during COVID.  And Bezos, as you said, has always been relentlessly focused on the customer.  But is Amazon employee centric, too?

SUNIL GUPTA:  So I think there is definitely some areas of concern, and you rightly said there is a significant concern about the, during the COVID, workers were complaining about safety, the right kind of equipment.  But even before COVID, there were a lot of concerns about whether the workers are being pushed too hard.  They barely have any breaks.  And they’re constantly on the go, because speed and efficiency become that much more important to make sure customers always get what they are promised.  And in fact, more than promised.

Clearly Amazon either hasn’t done a good job, or hasn’t at least done the public relations part of it that they have done a good job.  Now, if you ask Jeff Bezos, he will claim that, no, actually, they have done things.  For example, they offer something called carrier choice, where they give 95% tuition to the employees to learn new skills, whether they’re relevant to Amazon or not.  Pretty much like what Starbucks does for its baristas, for college education and other things.  But I think more than just giving money or tuition, it requires a bit of empathy and sense that you care for your employees, and perhaps that needs, that’s something that Amazon needs to work on.

ALISON BEARD:  And another challenge is the criticism that it has decimated mom and pop shops.  Even when someone sells through Amazon, the company will then see that it’s a popular category and create it itself and start selling it itself.  There’s environmental concerns about the fact that packages are being driven from warehouses to front doors all over America.  And boxes and packaging.  So how has Bezos, how has the company dealt with all of that criticism?

SUNIL GUPTA:  They haven’t.  And I think those are absolutely valid concerns on both counts, that the small sellers who grow to become reasonably big are always under the radar, and there are certainly anecdotal evidence there, small sellers have complained that Amazon had decided to sell exactly the same item that they were so successful in selling, and becoming too big is actually not good on Amazon, because Amazon can get into your business and wipe you away.  So that’s certainly a big concern, and I think that’s something that needs to be sorted out, and Amazon needs to clarify what its position on that area is, because it benefits from these small sellers on his platform.

And your second question about environmental issues is also absolutely on the money, because not only emission issues, but there’s so many boxes that pile in, certainly in my basement, from Amazon.  You sort of say, and it’s actually ironical that Millennials who are in love with Amazon are extremely environmentally friendly.  But at the same time, they would not hesitate to order something from Amazon and pile up all these boxes.  So I think Amazon needs to figure out a way to think about both those issues.

ALISON BEARD:  And at what point will it have to?  I mean, it seems to be rolling happily along.

SUNIL GUPTA:  Well, I think those issues are becoming bigger and bigger, and it’s certainly in the eye of the regulators, also, for some of these practices.  And not only because it’s too big, and there might be monopoly concerns, but these issues will become larger, and any time you become a large company, you become the center of attraction for broader issues than just providing shareholder value.

ALISON BEARD:  Yeah.  So those are weaknesses possibly for the company.  What are some of Bezos’s personal weaknesses that you’ve seen in studying him and the company?

SUNIL GUPTA:  So I think one thing that stands out to me, and at least in the public forums, I have not seen any empathy.  And it’s, I mean, we talk about that the leaders have, should have three qualities.  They should be competent.  They should have a good character.  And they should have compassion.  So he’s certainly very competent.  I mean, he’s brilliant in many aspects, right, from the computer vision and AI and machine learning, to the nuances of data analytics, to the Hollywood production, etc.  He also seems to have good character, at least I have not heard any personal scandals, apart from his other issues in his personal life, perhaps.

Those characteristics of competence and character make people respect you.  What makes people love you is when you show compassion, and at least I haven’t seen compassion or empathy that comes out of him.  I mean, he certainly comes across as a very hard charging, driven person, which probably is good for business.  But the question of empathy is perhaps something lacking right now.

ALISON BEARD:  Yeah.  The other issue is his just enormous wealth.  He did invent this colossally valuable company, but should anyone really be that rich?

SUNIL GUPTA:  Well, I guess that’s, you can say that’s the good or the bad thing about capitalism.  But I think, and again, my personal view is there’s nothing wrong in becoming rich, if you have been successful and done it with hard work and ingenuity.  But how you use your wealth is something that perhaps will define Jeff Bezos going forward.  I think Bill Gates is a great example how he actually has used his wealth and his influence and his expertise and his brilliance into some certain thing that actually is great for humanity.

Now, whether Jeff Bezos does that down the road, I don’t know, whether his space exploration provides that sort of outlet which is both his passion as well as good for humanity, I don’t know.  But at some point in time, I think it’s the responsibility of these leaders to sort of say, my goal is not simply to make money and make my shareholders rich, but also help humanity and help society.

ALISON BEARD:  If you’re talking to someone who’s running a startup, or even a manager of a team at a traditional company, what is the key lesson that you would say, this is what you can learn from Jeff Bezos?  This is what you can put to work in your own profession?

SUNIL GUPTA:  So I would say two things that at least I would take away if I were doing a startup.  One is customer obsession.  Now, every company says that, but honestly, not every company does it, because if you go to the management meetings, if you go to the quarterly meetings, you suddenly go focus on financials and competition and product.  But there’s rarely any conversation on customers.  And I think, as I mentioned earlier, that Jeff Bezos always tells his employee to think of the imaginary chair in which a customer is sitting, because that’s the person that we need to focus on.  Howard Shultz does the same thing at Starbucks, and that’s why Starbucks is so customer focused.

So I think that’s the first part.  And the argument that Bezos gives is, customers are never satisfied.  And that pushes us to innovate and move forward, so we need to innovate even before the rest of the world even sees that, because customers are the first ones to see what is missing in the offering that you have.

And the second I would say that I would take away from Jeff Bezos is the conviction and passion with what you do.  And many times that goes against the conventional wisdom.  And the Amazon Web Services is a great example of that.  The whole world, including the Wall Street Journal and the Wall Street analysts were saying, this is none of Amazon’s business to do web services.  But he was convinced that this is the right thing to do, and he went and did that.

And part of that conviction may come from experiments.  Part of that conviction comes from connecting the dots that he could see that many other people didn’t see.  I mean, that’s why he went, left his job, and went to Seattle to do the online bookstore, because he could see the macro trends as to what the Internet is likely to do.  So, I think that’s the vision that he had.  And once you have the conviction, then you follow your passion.

ALISON BEARD: Sunil, thanks so much for coming on the show.

SUNIL GUPTA:  Thank you for having me. Alison.

HANNAH BATES: That was Harvard Business School professor Sunil Gupta, in conversation with Alison Beard on the HBR IdeaCast .

We’ll be back next Wednesday with another hand-picked conversation about business strategy from Harvard Business Review. If you found this episode helpful, share it with your friends and colleagues, and follow our show on Apple Podcasts, Spotify, or wherever you get your podcasts. While you’re there, be sure to leave us a review.

And when you’re ready for more podcasts, articles, case studies, books, and videos with the world’s top business and management experts, find it all at HBR.org.

This episode was produced by Mary Dooe, Anne Saini, and me, Hannah Bates. Ian Fox is our editor. And special thanks to Maureen Hoch, Nicole Smith, Erica Truxler, Ramsey Khabbaz, Anne Bartholomew, and you – our listener. See you next week.

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Amazon Business Case Study [2024]: In-depth Analysis

How does an online book retailer become a behemoth dominating the global e-commerce industry? The 28-year-old history of Amazon’s growth is a masterclass in building a successful business strategy that has revolutionised the retail experience forever! The company has achieved eponymous status with a global presence and diversified business. No wonder its sales are expected to reach an astounding USD 746.22 billion with a valuation of USD 2 trillion in 2024! From being an online bookseller headquartered in a garage to becoming the second most valuable brand in the world , the saga of this global brand is a case study in all the leading business schools.  

So what is the secret behind the explosive success of Amazon? This article provides a comprehensive case study of Amazon and its winning business strategy. 

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Glimpsing Back: A Brief History of Amazon

With a small team, the budding company made headway in the book-selling market by offering a wide virtual selection of books compared to brick-and-mortar stores with doorstep delivery. With a user-friendly interface, easy-to-search engine, and focus on creating a ‘virtual community,’ the business grew by leaps and bounds. The emphasis on customer choice, experience, and convenience serves the company well even today. 

The name was aspirational with a nod to the largest river in the world- Bezos’ Amazon sought to be the largest e-commerce bookseller in the world. By July 1995, Amazon was marketing itself as the “Earth’s Biggest Bookstore,” selling over one million titles to all 50 states in the US and across 45 countries . It provided stiff competition to brick-and-mortar giants like Barnes and Noble and Borders. 

The company went public with its IPO in 1997 ; since then, there has been no looking back. Since its listing, the company has significantly diversified its offering by including music, electronics, toys, kitchen utensils, clothes, and more on its e-commerce site. From the Earth’s Biggest Bookstore, Amazon shifted its tagline to “Books, Music and More.” The company expanded to Germany and the United Kingdom by purchasing online bookstores, thus increasing its revenue. At its core, the company established a dynamic, efficient, and successful distribution and logistical model that helped capture a global market.

The year 1999 marked two critical moments for Amazon. First, the company patents the “1-Click” technology allowing users to purchase a product with one click. Second, it launches the 3rd party seller marketplace to allow third-party sellers to sell their produce through Amazon. These measures exponentially increased the sales on the platform. The company’s success put Bezos on the map as he received the prestigious accolade of the “Time’s Person of the Year” in 1999 at 35 years of age. 

The company survived the dot-com bubble burst and got only stronger. In 2003, the company took a momentous step by launching Amazon Web Services , a web-hosting business, that marked its arrival into the tech business. It provides cloud computing services to individual developers, companies, and governments through the platform’s IT infrastructure. The strategic shift from an e-commerce platform to a tech company was instrumental in Amazon’s diversification strategy and revenue generation. 

The company took further measures to develop brand loyalty through its Amazon Prime program in 2005. Prime membership has since expanded its services significantly and is one of the most valuable assets for the company today. It reshaped consumer expectations and experiences of shopping across the world. 

Amazon has been on a path of extensive acquisition and alliance . From the online shoe retailer Zappos to the robotics company Kiva Systems and the grocery delivery service Whole Foods- each acquisition captured pre-existing markets and distribution networks of the acquired assets. With every move, the company strategically entered new markets, removed competitive businesses by acquiring them, made distribution and logistics more efficient, and improved consumer experience. These moves catapulted the company to a 1 trillion dollar valuation in 2018. The company’s profits surged during the pandemic as Bezos’ hourly wealth increased by USD 11.7 million . The following year, Bezos stepped down as the CEO and found his replacement in Andy Jassy, the CEO of Amazon Web Services.

Now that we know the history of Amazon, its business strategy becomes easier to decipher. Before we unravel its key business strategies, let’s look at its many businesses. 

Amazon and its Diversified Business Model

A case study of Amazon is incomplete without an understanding of the many businesses that it has a foot in. Here are the diverse businesses that help Amazon generate revenues from multiple streams and have made it a leader in the global market. 

Online retail store

Amazon began as an online seller of books, and it continues its operations as an e-commerce site. Today the site offers a variety of products for the best prices to the consumer’s doorsteps. With an easy-to-use interface, easy return policy, “1-Click” buying, customer reviews, and suggestions, the e-commerce site knits an unrivalled retail experience. 

Amazon Marketplace

Amazon opened its platform to third-party sellers who could leverage its large customer base to sell products. It brings a diversity of products to the retailer without holding inventory. Amazon would, in turn, charge the sellers a percentage of their revenue as a commission fee. It is estimated that third-party sellers generate a gross merchandise value (GMV) of USD 300 billion for the platform.

Amazon Web Services (AWS)

Amazon’s cloud platform offers individual developers, start-ups, established businesses, and governments a range of cloud computing services through its IT infrastructure. It is the fastest-growing business segment for the brand clocking a global net revenue of USD 80.1 billion in 2022. 

Amazon Prime

Amazon’s member subscription service offers numerous membership benefits ranging from access to digital video and music streaming, audiobook and ebook platforms, free delivery, exclusive deals, Prime Day access, and much more. The company’s global net revenue from its subscription services stood at USD 35.22 billion in 2022. 

Amazon revealed in 2022 that the advertising wing of the company had generated a revenue of USD 31.2 billion the preceding year. The company offers custom advertising solutions to customers and campaign placements across multiple channels like Fire TV placements, Amazon physical stores, the brand’s homepage, and customised destination pages.

Physical stores

Amazon made an entry into the brick-and-mortar business with the establishment of a physical bookstore in Seattle in 2015. The company has since expanded its physical presence with Amazon Go, Amazon Fresh, Amazon Go Grocery, Whole Foods Market, and Amazon Style. It has sought to transform the real-world shopping experience with its “Just Walk Out Shopping’ experience. 

Breaking Down Amazon’s Business Strategy

Amazon’s business strategy has been innovative and forward-thinking from the get-go. Its path-breaking business model has inspired many but retains its uniqueness in execution. At its core, the company has maintained its customer-centric ethos, where its customers comprise three sets: retail customers, seller customers, and developer customers.   

For a comprehensive case study of Amazon , let’s take a closer look at the secret recipe behind its success.

Customer Obsession

The company proudly proclaims that it aims to be the “Earth’s most customer-centric company.” Since its inception, Amazon has won over the trust and loyalty of its customers by perfecting its marketing mix by offering “a comprehensive selection of products, low prices, fast and free delivery, easy-to-use functionality, and timely customer service.”   As Amazon’s customer base and usage expands exponentially, the company has worked towards optimising user experience through continuous assessment and feedback mechanisms.

Diversification

Amazon has kept up with the emerging demands of the market with growth potential in the long term. Its future-oriented vision has helped the company grow by leaps and bounds by venturing into new businesses that have added to its revenue streams. From cloud computing services to OTT services and subscription-based benefits, Amazon has reinvented what a diversified business looks like. 

Expansion through partnerships and acquisitions

Amazon has continually acquired and partnered with businesses to expand its customer base, enter new markets, diversify its product offerings, eliminate competition, and gain distribution and logistical networks. From IMDB and The Washington Post to Twitch and Pillpack, Amazon has bought companies across multiple categories to gain a foothold in their markets and operations. It has helped the company scale up its functions rapidly across the globe.

Technologically-driven innovations

Initially, Amazon was written off as it was started by “computer guys” who knew nothing about selling books. However, it was a focus on innovative technology that the company grew into a tech giant dominating the e-commerce space. Whether it is the 1-Click technology, SEO, user interface, cloud computing services, Just Walk Out technology, or its e-devices, the company has optimised customer experience by leveraging technology.

Data-based metrics

Amazon has consistently relied on metrics to assess, strategise, and grow its business. Data is an invaluable currency left behind with every click by the customer. The company has effectively and efficiently amassed these data into actionable insights to improve user experience, build and improve products and services, and develop successful marketing strategies. 

Marketing strategy

A comprehensive marketing strategy has been central to Amazon’s brand-building exercise. With the right marketing mix, the brand has become a household name. Its name and logo are recognisable anywhere in the world. A continual push to diversify its portfolio, competitive pricing policy, expanding its operations, and consistent promotions through multiple channels have been integral to achieving this global status. 

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Amazon, the second-most valuable company in the world, has been almost three decades in the making. Every step and misstep has been strategic and guided by the principles of: “customer obsession rather than competitor focus, passion for invention, commitment to operational excellence, and long-term thinking.” This case study of Amazon has sought to highlight its history, business model, and business strategies that have gone into the making of the behemoth. Ultimately, the company is a product of the management of Jeff Bezos and Amazon’s leadership. 

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Frequently Asked Questions (FAQs)

Jeff Bezos has held the position of Founder and CEO of the company. However, he inherited the position of the Executive Chairman of Amazon after resigning as the CEO of the company in 2021.

Amazon launched in India in June 2013. Initially starting its operations to serve Indians with books, films, TV shows and subscription-based services, the company further expanded its wings to become one of the leading shopping destinations for Indians.

The most important focal point of Amazon’s business strategy is its customers (retail customers, sellers, and developers) and building a customer-centric company.

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