Supply Chain Management. Case Study on Amazon


Seminar Paper, 2021

24 Pages, Grade: 1


Excerpt

Table of Contents

1. Wholeness System Thinking
1.1 Wholeness Synthesis
1.2 Wholeness Analysis

2. SCM Principles

3. Lean Principle

4. History of Amazon

5. Amazon Products

6. Supply Chain Management in Amazon
6.1 Whole process Overview in Amazon
6.2 Optimizing an order picking process at Amazon

7. Wholeness System thinking in Amazon
7.1 Wholeness Synthesis
7.2 Wholeness Analysis
7.3 Purpose of Amazon
7.4 Interaction
7.5 Parts

8. Principles of SCM in Amazon
8.1 Integration
8.2 Management of Processes
8.3 Value added processes
8.4 Push - Pull Strategy
8.5 Bullwhip effect
8.6 Decoupling Point

9. LEAN Principles in Amazon
9.1 Pull
9.2 One-piece Flow
9.3 Tact Time
9.4 Zero defects

10. Conclusion

11. References

12. List of Figures

List of Abbrivation

AWS - Amazon Web Services

FC - Fulfillment Centre

DC - Distribution Centre

WST - Wholeness System Thinking

WS - Wholness Synthesis

WA - Wholeness Analysis

FBA - Fulfillment by Amazon

OTT - Over the top

FBM - Fulfillment by Merchant BPM - Businness Process Management

Introduction

This term paper is written to identify and understand the application of SCM principles, Wholeness system thinking and principles in the supply chain of Amazon. We study how Amazons supply chain works in detail explaining its critical parts that makes the supply chain perform as a whole. Analysis of the SCM of amazon system is done to understand the important interaction fo different parts.

We choose to study SCM operations of Amazon because Amazon is the world leader in logistics with opearations around the world and to become aware of the different elements, interconnections and purpose of a successful company like Amazon and relate it to its current perspectives. The study is based on the definitions of the Lean principles, 6 principles of SCM, Whole system thinking and their inter-relation. We approach the study by defining all the concepts and then explaining the Amazon company's SCM strategy and inter-relations of various parts.

The Objective of the term paper is to study how the theoretical concepts are implemented practically by Amazon.

1. Wholeness System Thinking

Systems thinking is a perspective of seeing and understanding systems as wholes rather than as collections of parts. Systems behaviour is present when the system is operating as one; it is not merely the sum of the individual components. Systems thinking is a methodical approach to understanding problematic situations and identifying solutions to these problems. Systems thinking helps to organise studied system elements to reach a desired purpose. Systems thinking consists of parts, interactions and purpose. The systems thinking elements could be visualised as a pyramid hierarchy, which is critical for further comparison of current and proposed systems thinking approaches. The pyramid hierarchy describes a certain order of system elements (parts, interactions, and purpose). The new understanding of the role and importance of purpose in a system's pyramid hierarchy is defined by the Wholeness Synthesis (WS) and Wholeness Analysis (WA).

1.1 Wholeness Synthesis

The system purpose is the system element responsible for the performance of system parts and interactions, considering the important role of the external environment. WS synthesises the system purpose from the superior system perspective. The performance of a system's purpose is derived from the superior system and is defined in three steps:

- Identifying the superior system,
- Understanding the superior system,
- Identifying the purpose of the studied system in the superior system.

1.2 Wholeness Analysis

WA breaks a system down into elements (parts, and interactions) from a system purpose perspective (the purpose was already defined as WS). The WA is defined also in three steps:

- Taking a studied system apart (parts, and interactions) from the purpose perspective (as defined by WS).
- Understanding each part taken separately.
- Aggregating understanding of the parts and interactions into understanding of the whole system.

2. SCM Principles

- Integration - Integrated supply chain management refers to an enterprise resource planning approach to supply chain management. A business facilitates relationships with all of its suppliers and manages all distribution and logistics activities through a centralized system rather than having multiple systems within the organization. Concentrated professional expertise and cost efficiency are core benefits of the integrated supply chain process, but developing collaboration is an obstacle.
- Value added processes - Value Added Services are also called premium services. Many logistics services companies do not restrict themselves to transporting goods, but offer their customers services like picking, packing and quality control. Value Added Services (VAS) are usually exactly tailored to the wishes and needs of the customer. In most cases, it is an effort to create a more efficient supply chain.
- Management of Processes - According to the SCM's Purpose, the processes are designed. Organizations are dynamic structures that need to be broken down in order to handle them efficiently. A common way of breaking down a business is to hierarchically divide it into functional. This technique is called a functional strategy. Whereas on the other hand, the approach to process divides the business according to the system in which goods are made. Many processes are managed by company, which are typically divided into management, development and supporting processes. The development and management of a system of organizational processes, along with the identification and interaction of these processes, can be referred to as a "process approach “.
- The bullwhip effect - It is defined as the demand distortion that travels upstream in the supply chain from the retailer through to the wholesaler and manufacturer due to the variance of orders which may be larger than that of sales. The bullwhip effect in supply chain is caused by Demand forecast updating, Order batching and Price fluctuations.
- Pull-Push - In this combined approach, the approach aims to "push" customers to choose particular options and once options are chosen, the customer's order “pulls” demand through the company's supply chain. However, they do not tend to let customers choose just any option. Instead, they regulate the options provided to customers so as to depreciate lead times on delivery.
- The decoupling point - It is a standard term given to the position in the material pipeline where the product flow changes from "Push” to "Pull”. It is the point in the supply chain where customer order penetrates. The strategic position of the material decoupling point depends very much on the product type, consumer demands and adopted supply chain approach.

3. Lean Principle

Lean Principles are used in every organization for continuous improving of workflow and eliminating the unrequired waste. With the help of these simple principles, any business in any sector can provide a better service or product to their end users and make a sustainable improvement in profitability.

- Pull- It can be defined as avoiding the over-production and stockpiling to save the working capital. By letting continuous demand flow rate of the required goods or services which are to be delivered. It is a lean manufacturing strategy used to reduce waste in the production process. In this type of system, components used in the manufacturing process are only replaced once they have been consumed so companies only make enough products to meet customer demand. As a result, it optimizes the resources and reduce the possibility of overstocking.
- One piece flow- One piece flow is smooth, uninterrupted flow, from the start to the end of the production process. The ultimate effect of this principle is that all process steps are focused and aligned to adding value, one piece at a time, removing all wasteful and unnecessary activities. Thus, not affecting the entire order. Advantages of the process are it makes easier for employees to coordinate with one another. If problems should arise, they will be passed on quickly. Through this continuous optimization, a number of difficulties in conventional assembly can be avoided.
- Takt time- The principle which states that customer should get his purchase order according to the scheduled time. German word for timing is “Takt” which refers to the rhythm at which goods or services are produced to meet customer demand. When we know the takt time, we are always in tune with customer on-time requirements, and less likely to miss a deadline due to ignorance of our own capabilities. Takt time reflects quick calculation that always lets in tune with customers on time requirements, and less likely to miss a deadline due to ignorance.
- Zero Defects- Defects are to be avoided to increase the product efficiency. It's all about identifying errors or defects as closely as possible to where they occur subsequently avoiding the product deficiency. It is standard measure against any system, process, action, or outcome to be analysed. Changing the perspective thus continuously thinking of the places where flaws may be introduced. With the zero defect there is increase in profits both by eliminating the cost of failure and increasing revenues through increased customer satisfaction.

4. History of Amazon

Abbildung in dieser Leseprobe nicht enthalten

Source: https://en.wikipedia.org/wiki/Amazon_(company)

Figure 1: Jeff Bezos - Amazon Company Founder

Jeff Bezos founded Amazon from his garage in Bellevue, Washington, on July 5, 1994. It started as an online marketplace for books but expanded to sell electronics, software, video games, apparel, furniture, food, toys, and jewelry.

In 2002, Amazon launched Amazon Web Services (AWS), which provided data on website popularity, Internet traffic patterns and other statistics for marketers and developers. In 2006, Amazon grew its AWS portfolio when Elastic Compute Cloud, which rents computer processing power as well as Simple Storage Service, that rents data storage via the Internet, were made available. That same year, Amazon started Fulfillment by Amazon which managed the inventory of individuals and small companies selling their belongings through the company internet site. In 2012, Amazon bought Kiva Systems to automate its inventory­management business, purchasing Whole Foods Market supermarket chain five years later in 2017. In January 2021, Amazon invested with over $278 million by opening two new centers in Italy (Novara and Modena) and creating over 1100 jobs.

Abbildung in dieser Leseprobe nicht enthalten

Source: https://en.wikipedia.org/wiki/Amazon_(company)

Figure 2: Amazon Company Logo

5. Amazon Products

Amazon's product lines available at its website include several media (books, DVDs, music CDs, videotapes and software), apparel, baby products, consumer electronics, beauty products, gourmet food, groceries, health and personal-care items, industrial & scientific supplies, kitchen items, jewelry, watches, lawn and garden items, musical instruments, sporting goods, tools, automotive items and toys & games. In August 2019, Amazon applied to have a liquor store in San Francisco, CA as a means to ship beer and alcohol within the city. Amazon has separate retail websites for some countries and also offers international shipping of some of its products to certain other countries. In November 2020, the company started an online delivery service dedicated to prescription drugs. The service provides discounts up to 80% for generic drugs and up to 40% for branded drugs for Prime subscribe users. The products can be purchased on the company's website or at over 50,000 bricks-and-mortar pharmacies in the United States.

Amazon has a number of products and services available such as:-

Abbildung in dieser Leseprobe nicht enthalten

Source: https://en.wikipedia.org/wiki/Amazon_(company)

Figure 3: Amazon Services

6. Supply Chain Management in Amazon

Amazon is one of the biggest and most successful e-commerce companies and online retailers. The company stores their products in huge warehouses, called Amazon Fulfilment Centres, which handle the marketing, shipping and returns. “Warehousing is an integral part of every logistics system”. The warehouses are managed by more than 500 people and different kinds of technology. According to the estimates, the operation of collecting orders amounts more than 50% of the total operational costs of running the warehouse. To better understand the problem at hand, the three fundamental components of a warehouse are receiving, picking and shipment. The first one is how the warehouse gets its inventory — from different dealers, sellers and so on, and then sent to storage. The last one is the last step before the product leaves the warehouse, that involves labelling, packaging and finally sending the product out. The storage in a warehouse is of great importance, because it needs to be optimized for the ‘pickers' who pick the items.

6.1 Whole process Overview in Amazon

6.1.1 Order Placement and location of warehouse

This happens when the user places an order on the website. Once the order is placed, the warehouse where the item can be fetched from is located. This depends on a number of factors. Below is the Flow chart of an ordered product being located in a warehouse.

Abbildung in dieser Leseprobe nicht enthalten

Source: https://www.qeretail.com/blog/wp-content/uploads/2017/11/amazon-ecommerce-product-management.jpg Figure 4: order placement and location of warehouse flowchart

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Excerpt out of 24 pages

Details

Title
Supply Chain Management. Case Study on Amazon
College
University of Applied Sciences Hof
Course
Masters in Operational Excellence
Grade
1
Author
Year
2021
Pages
24
Catalog Number
V1289696
ISBN (Book)
9783346751898
Language
English
Keywords
Supply chain management, SCM case study, Amazon case study, Supply chain management case study on Amazon, Lean management Amazon, Logistics Amazon, SCM, Pull Push strategy, Amazon supply chain
Quote paper
Vishal Sawale (Author), 2021, Supply Chain Management. Case Study on Amazon, Munich, GRIN Verlag, https://www.grin.com/document/1289696

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