Amazon's role in the retail

111 Pages·2016·7.18 MB·English

„To
 E
 or
 not
 to
 Be“

Amazon's
 role
 in
 the
 retail

industry

How
 is
 Amazon
 able
 to
 differentiate
 itself
 from
 its

competitors
 and
 why
 is
 its
 supply
 chain
 strategy
 so
 significant

for
 its
 success?

Bachelor
 Thesis
 for
 Obtaining
 the
 Degree

Bachelor
 of
 Business
 Administration
 in

Tourism
 and
 Hospitality
 Management

Submitted
 to
 Miguel
 Suarez

Nicole
 Bluschke

1311069

Vienna,
 13
 June
 2016
Affidavit

I
 hereby
 affirm
 that
 this
 Bachelor’s
 Thesis
 represents
 my
 own
 written
 work
 and
 that
 I

have
 used
 no
 sources
 and
 aids
 other
 than
 those
 indicated.
 All
 passages
 quoted
 from

publications
 or
 paraphrased
 from
 these
 sources
 are
 properly
 cited
 and
 attributed.

The
 thesis
 was
 not
 submitted
 in
 the
 same
 or
 in
 a
 substantially
 similar
 version,
 not

even
 partially,
 to
 another
 examination
 board
 and
 was
 not
 published
 elsewhere.

13
 June
 2016

Date
  Signature

2
Abstract

This
 study
 aims
 to
 clarify
 the
 position
 of
 Amazon
 in
 the
 retail
 industry
 which
 it

primarily
 gained
 through
 high-­‐level
 supply
 chain
 and
 logistics
 developments.
 The

first
 part
 of
 this
 research
 describes
 the
 retail
 industry,
 especially
 E-­‐Commerce,
 as

well
 as
 supply
 chain
 practices
 whereas
 the
 second
 part
 focuses
 on
 Amazon
 as
 a

representative
 company.
 Drivers
 of
 the
 company's
 supply
 chain
 as
 well
 as
 numerous

product
 and
 service
 developments
 such
 as
 Anticipatory
 Shipping,
 Amazon's
 Chaotic

Storage
 Model
 and
 Amazon's
 Logistics
 Network
 Plan
 are
 identified
 and
 discussed.
 It

becomes
 apparent
 that
 constant
 innovation
 in
 a
 supply
 chain
 context
 has
 more

extensive
 and
 significant
 long-­‐term
 effects
 on
 company
 success
 than
 large
 profit

figures.
 A
 comparison
 of
 Amazon
 with
 Apple,
 Google,
 Walmart
 and
 other
 relevant

companies
  shows
  that
  Amazon's
  supply
  chain
  is
  more
  diverse,
  implying
  that

numerous
 services
 that
 are
 offered
 by
 competitors
 are
 combined
 within
 Amazon

and
 its
 supply
 chain.

 Amazon's
 supply
 chain
 may
 be
 described
 by
 an
 efficient
 and

flexible
  inventory
  management,
  fast
  delivery
  fulfillment,
  effective
  collaborations

with
 partners,
 strategic
 acquisitions
 of
 supporting
 systems
 and
 companies
 and
 a
 high

level
 of
 customer
 service.

 The
 results
 of
 this
 research
 paper
 may
 direct
 future

studies
 towards
 the
 investigation
 of
 further
 competitive
 advantages
 of
 Amazon
 as

well
 as
 how
 potential
 threats
 and
 weaknesses
 a
 company
 faces
 may
 be
 overcome
 in

a
 supply
 chain
 context.

3
Table
 of
 Contents

AFFIDAVIT
  2

ABSTRACT
  3

LIST
 OF
 TABLES
  7

LIST
 OF
 FIGURES
  8

LIST
 OF
 ABBREVIATIONS
  9

1
  INTRODUCTION

  10

1.1
  RESEARCH
 PROBLEM
 AND
 RESEARCH
 QUESTION

  11

1.2
  METHODOLOGY
  12

2
  LITERATURE
 REVIEW

  13

2.1
  INTRODUCTION
 TO
 THE
 RETAIL
 INDUSTRY
  13

2.1.1
  ORGANIZATIONAL
 CONCEPTS

  13

2.1.2
  TOP
 250
 RETAILERS
 WORLDWIDE
  14

2.1.3
  RETAIL
 TRENDS
 AND
 PREDICTIONS
 2016

  15

2.1.4
  SUPPLY
 CHAIN
 APPLICATIONS
 IN
 THE
 RETAIL
 BUSINESS
  16

2.2
  E-­‐COMMERCE
  16

2.2.1
  FRAMEWORK
 FOR
 ELECTRONIC
 COMMERCE

  17

2.2.2
  E-­‐COMMERCE
 CLASSIFICATION
 AND
 CONTENT

  18

2.2.3
  BENEFITS
 OF
 E-­‐COMMERCE

  18

2.2.4
  LIMITATIONS
 OF
 E-­‐COMMERCE

  19

2.2.5
  IMPACT
 ON
 MARKET
 AND
 RETAILERS

  20

2.2.6
  IMPACT
 ON
 SUPPLY
 CHAINS
 AND
 THEIR
 MANAGEMENT

  20

2.2.7
  MASTERCARD
 OMNISHOPPER
 REPORT

  21

2.3
  SUPPLY
 CHAINS
 AND
 THEIR
 MANAGEMENT
  25

2.3.1
  DETERMINANTS
 OF
 SUPPLY
 CHAIN
 SUCCESS
  26

2.3.2
  SUPPLY
 CHAIN
 STRATEGY

  26

2.3.3
  DRIVERS
 OF
 SUPPLY
 CHAIN
 PERFORMANCE
  27

2.3.4
  SOURCING
  28

4
2.3.5
  INVENTORY
  28

2.3.6
  TRANSPORTATION
  29

2.3.7
  FACILITIES
 AND
 NETWORK
 DESIGN
  30

2.3.8
  PRICING
  31

2.3.9
  INFORMATION
  31

2.4
  INFORMATION
 TECHNOLOGY
 APPLICATIONS
 AND
 SUPPLY
 CHAIN
 AUTOMATION
  31

2.4.1
  RFID
  33

2.5
  FINANCIAL
 MANAGEMENT
 IN
 LOGISTICS
  33

3
  AMAZON
 CASE
 STUDY

  34

3.1
  GENERAL
 INFORMATION
 AND
 COMPANY
 BACKGROUND

  34

3.2
  BUSINESS
 STRATEGY
 AND
 BUSINESS
 MODEL

  35

3.3

 AMAZONS'
 FINANCIAL
 POSITION
  36

3.4
  AMAZON'S
 SUPPLY
 CHAIN
  38

3.5
  SUPPLY
 CHAIN
 DRIVERS
 OF
 AMAZON

  40

3.5.1
  INVENTORY
 PLANNING
 AND
 MANAGEMENT
  40

3.5.2
  AMAZON'S
 FACILITIES
  42

3.5.3
  AUTOMATED
 WAREHOUSES
 AND
 KIVA
 ROBOTS
  44

3.5.4
  FBA
 –
 FULFILLMENT
 BY
 AMAZON
  45

3.5.5
  PRICING
 ADJUSTMENT
 STRATEGY
  46

3.5.6
  TRANSPORTATION
  47

3.5.7
  AMAZON'S
 LOGISTICS
  47

3.5.8
  ANTICIPATORY
 SHIPPING
  48

3.5.9
  AMAZON
 DASH
 BUTTON
 DELIVERY
  48

3.5.10
  INFORMATION
 AND
 TECHNOLOGY
  49

3.5.11
  RFID
  50

3.6
  AMAZON'S
 CUSTOMER
 SERVICE
  51

3.6.1
  RESPONSE
 TIME
 TO
 CUSTOMERS
  51

3.6.2
  PRODUCT
 VARIETY
 AND
 AVAILABILITY
  51

3.6.3
  CUSTOMER
 EXPERIENCE
  52

3.6.4
  TIME
 TO
 MARKET
  52

3.6.5
  RETURNABILITY
  52

3.7
  SUPPLIER
 CODE
 OF
 CONDUCT
  53

5
4
  AMAZON'S
 COMPETITION

  55

4.1
  GARTNER
 LIST
  59

4.2
  TOP
 50
 E-­‐RETAILERS

  60

4.3
  THE
 Q
 RATIO
  61

5
  DISCUSSION
 AND
 ANALYSIS
  63

5.1
  SWOT
 ANALYSIS
  63

5.2
  PORTER'S
 FIVE
 FORCES
  64

5.2.1
  THREAT
 OF
 SUBSTITUTE
 PRODUCTS
 OR
 SERVICES
  65

5.2.2
  THREAT
 OF
 NEW
 ENTRANTS
  65

5.2.3
  BARGAINING
 POWER
 OF
 CUSTOMERS
  65

5.2.4
  BARGAINING
 POWER
 OF
 SUPPLIERS
  66

5.2.5
  COMPETITIVE
 RIVALRY
 WITHIN
 THE
 INDUSTRY
  66

5.3
  GLOBAL
 VALUE
 CHAIN
 ANALYSIS

  66

5.3.1
  GLOBAL
 VALUE
 CHAIN
 CLASSIFICATIONS

  66

5.3.2

 PORTER'S
 GLOBAL
 VALUE
 CHAIN

  67

6
  CONCLUSION
  70

6.1
  IMPLICATIONS
 AND
 RECOMMENDATIONS

  74

6.2
  LIMITATIONS
  75

6.3
  DIRECTIONS
 FOR
 FUTURE
 RESEARCH
  76

BIBLIOGRAPHY
  77

APPENDICES
  86

APPENDIX
 1
 AMAZON
 Q4
 2015
 FINANCIAL
 RESULTS

  86

APPENDIX
 2

 MWVL
 OVERVIEW
 AMAZON
 FACILITIES

  104

APPENDIX
 3
 AMAZON
 SUPPLIER
 CODE
 OF
 CONDUCT

  105

6
List
 of
 Tables

Table
  1:
  Organizational
  Concepts
  in
  Retailing
  (Kalakota
  et
  al.,
  e-­‐Business
  2.0
  –

Looking
 over
 the
 New
 Horizon,
 2000)

Table
 2:
 Top
 250
 retailers
 (Deloitte,
 Global
 Powers
 of
 Retailing
 2016.
 Navigating
 the

new
 digital
 divide,
 2015)

Table
  3:
  E-­‐Commerce
  Classification
  Models
  and
  Characteristics
  (DigitSmith,
  E-­‐
Commerce
 definition
 and
 types
 of
 E-­‐Commerce,
 n.d.)

Table
 4:
 Benefits
 of
 E-­‐Commerce
 (Turban
 et
 al.,
 Electronic
 Commerce
 2008,
 2008)

Table
 5:
 Amazon's
 Competitors

Table
 6:
 Global
 Value
 Chain
 Classification
 (Gereffi
 et
 al.,
 The
 governance
 of
 global

value
 chains,
 2005)

Table
 7:
 Amazon's
 Global
 Value
 Chain

7
List
 of
 Figures

Figure
  1:
  The
  Dimensions
  of
  Electronic
  Commerce
  (Önder,
  I.
  New
  Media
  &
  E-­‐
Business
 Applications
 -­‐
 Electronic
 Commerce:
 Definitions
 and
 Concepts.
 (2014))

Figure
 2:
 How
 has
 technology
 changed
 the
 way
 that
 you
 shop?
 (MasterCard,
 The

Omnishopper
 Project,
 2015)

Figure
  3:How
  often
  do
  you
  use
  technology
  when
  shopping?
  (MasterCard,
  The

Omnishopper
 Project,
 2015)

Figure
 4:
 Why
 don't
 you
 shop
 more
 online?
 (MasterCard,
 The
 Omnishopper
 Project,

2015)

Figure
  5:
  Where
  online
  is
  better
  than
  in-­‐store
  (MasterCard,
  The
  Omnishopper

Project,
 2015)

Figure
  6:
  Where
  in-­‐store
  is
  better
  than
  online
  (MasterCard,
  The
  Omnishopper

Project,
 2015)

Figure
 7:
 Supply
 Chain
 Strategy
 Dimensions
 (Lee,
 Aligning
 Supply
 Chain
 Strategies

with
 Product
 Uncertainties,
 2002)

Figure
 8:
 IT
 systems
 classification
 in
 a
 SCM
 context
 (Mangan
 et
 al.,

 Global
 Logistics

and
 Supply
 Chain
 Management,
 2008)

Figure
 9:

 The
 Gartner
 Supply
 Chain
 Top
 5
 for
 2015
 (Aronow
 et
 al.,
 The
 Gartner

Supply
 Chain
 Top
 25
 for
 2015,
 2015)

Figure
 10:
 Top
 20
 e-­‐retailers
 (Deloitte,
 Global
 Powers
 of
 Retailing
 2015,
 Navigating

the
 new
 digital
 divide,
 2015)

Figure
 11:
 Top
 10
 retailers
 by
 Q
 ratio
 (Deloitte,
 Global
 Powers
 of
 Retailing
 2016,

Navigating
 the
 new
 digital
 divide,
 2015)

Figure
 12:
 SWOT
 Analysis
 Amazon's
 Supply
 Chain

8
List
 of
 Abbreviations

ASEAN
 –
 Association
 of
 Southeast
 Asian
 Nations

AWS
 –
 Amazon
 Web
 Services

B2B2C
 –
 Business
 to
 Business
 to
 Consumer

B2E
 –
 Business-­‐to-­‐Employee

BRIC
 –
 Brazil,
 Russia,
 India,
 China

CEO
 –
 Chief
 Executive
 Officer

CFO
 –
 Chief
 Financial
 Officer

CPFR
 –
 Collaborative
 Planning,
 Forecasting
 and
 Replenishment

EDI
 –
 Elecfronic
 Data
 Interchange

ERP
 –
 Enterprise-­‐Resource-­‐Planning

EU
 –
 European
 Union

FBA
 –
 Fulfillment
 By
 Amazon

IT
 –
 Information
 Technology

MRP
 –
 Materials
 Requirements
 Planning

MRPII
 –
 Manufacturing
 Resource
 Planning

R&D
 –
 Research
 and
 development

RFID
 –
 Radio-­‐frequency
 Identification

ROA
 –
 Return
 on
 Assets

ROI
 –
 Return
 on
 Investment

SCM
 –
 Supply
 Chain
 Management

SWOT
 Analysis
 –
 Strenghts,
 Weakenesses,
 Opportunities,
 Threats
 Analysis

UCLA
 –
 University
 of
 California,
 Los
 Angeles

VMI
 –
 Vendor
 Managed
 Inventory

WMS
 –
 Warehouse
 Management
 Systems

9
1 Introduction

Until
 approximately
 25
 years
 ago,
 a
 product
 order
 that
 was
 placed,
 took
 between
 15

to
 30
 days
 to
 be
 entirely
 fulfilled
 (Ali,
 2015).
 Nevertheless,
 even
 when
 planning
 was

accurate,
 this
 time
 frame
 often
 extended
 to
 more
 than
 30
 days.
 Reasons
 for
 delayed

deliveries
 and
 long
 lead
 times,
 meaning
 the
 time
 frame
 between
 an
 order
 initiation

and
  the
  completion
  of
  a
  production
  process,
  were
  mostly
  inventory
  shortages,

misplaced
  orders
  or
  wrong
  shipments
  (Bowersox
  et
  al.,
  2007).
 Today
  it
  is
  not

imaginable
 or
 acceptable
 for
 any
 customer
 to
 be
 forced
 to
 wait
 longer
 than
 a
 week

for
 an
 order.
 The
 combination
 of
 wide
 choice,
 constant
 availability,
 IT
 systems
 and

quick
 transportation
 has
 created
 “perfect
 orders”
 (Bowersox
 et
 al.,2007).
 According

to
 the
 authors
 mentioned,
 perfect
 orders
 are
 defined
 as
 „delivering
 the
 desired

assortment
 and
 quantity
 of
 products
 to
 the
 right
 location
 on
 time,
 damage-­‐free
 and

correctly
  invoiced“
 (Bowesox
  et
  al.,
  2007).

 As
  years
  ago
  the
  above
  mentioned

requirements
  were
  exceptions
  in
  the
  retail
  industry,
  today,
  those
  are
  every

customer's
 expectations.

 This
 shows
 that
 in
 the
 past
 20
 to
 25
 years
 the
 retail

industry
 has
 gone
 through
 various
 changes,
 shifts
 and
 optimization
 processes.
 One

development
 which
 mainly
 influenced
 and
 revolutionized
 the
 industry
 and
 the
 linked

customer
 approach,
 was
 the
 introduction
 of
 E-­‐Commerce.
 Another
 business
 aspect

which
  has
  gone
  through
  numerous
  developments
  and
  changes,
  and
  which
  has

therefore
 gained
 importance
 in
 previous
 years,
 are
 companies'
 supply
 chains.

 As

evaluated
  by
  Mahdavi
  et
  al.,
  changes
  and
  adaptions
  in
  global
  economy
  are

omnipresent,
 fast
 and
 dynamic.
 This
 also
 implies
 that
 today
 special
 emphasis
 is
 put

on
  the
  role
  of
  supply
  chains,
  supply
  chain
  management
  and
  supply
  networks

(Mahdavi
 et
 al.,
 2011).

One
 of
 the
 most
 successful
 companies
 in
 the
 E-­‐Commerce
 sector
 today
 is
 Amazon

which,
  according
  to
  Chopra
  et
  al.,
  is
  „one
  of
  the
  pioneers
  of
  consumer
  e-­‐
business“(Chopra
  et
  al.,
  2007).
  The
  great
  impact
  of
  Amazon
  on
  the
  E-­‐Business

industry
 cannot
 only
 be
 explained
 by
 the
 fact
 that
 the
 company
 constantly
 strives
 for

innovation
 and
 development
 and
 continuously
 introduces
 new
 products,
 but
 also
 by

the
 fact
 that
 Amazon
 is
 retailer
 and
 marketplace
 at
 once.

This
 strategic
 combination
 creates
 economies
 of
 scale
 which
 are,
 according
 to
 The

Economist,
 unreachable
 by
 rivaling
 companies
 (The
 Economist,
 2011).

 Amazon
 has

10