Inventory Management Amazon


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Inventory Management Amazon

  1. 1. Inventory Management<br />Presented by :<br />Ashutosh Kumar Jha(91011)<br />Deepinder Singh(91016)<br />DivanshuKapoor (91017)Harsh Agrawal (91022)<br />Nishant Singh(91039)<br />SwetaAgarwal (91059)<br />
  2. 2. "In the physical world it's the old saw: location, location, location. The three most important things for us are technology, technology, technology."<br />- Jeff Bezos, CEO,<br />
  3. 3.<br /><ul><li> One of the first online shopping sites launched in 1995.
  4. 4. Consistently ranked as one of the best retail sites on the Internet.
  5. 5. According to an analyst, "When you think of web shopping, you think of Amazon first."
  6. 6. It is an American electronic commerce company based in Seattle, Washingtonwith an additional office in Coffeyville, Kansas. It has six global websites to serve domestic customers in the US, the UK, Germany, France, Japan and Canada </li></li></ul><li><ul><li>Features include: one-click shopping, customer review and e-mail order verification.
  7. 7. The company is in coalition with other retailers and offer various new, and used items in categories.
  8. 8. It has expanded from its existing business of selling books to selling a wide variety of products such as DVDs, music CDs, computer software, video games, electronics, apparel, furniture, food and more </li></li></ul><li>HISTORY<br />Jeff Bezos, in 1995, started as a “virtual” retailer – no inventory, no warehouses, no overhead; just computers<br />Amazon owed its popularity to its excellent customer service, which was due to its effective inventory management.<br />
  9. 9. TYPES OF INVENTORIES<br /><ul><li> Raw materials (items to be used for manufacturing)
  10. 10. Work in process(semi finished items that are stored temporarily)
  11. 11. Finished goods(waiting in stores for delivery)
  12. 12. Transit inventory (need to transport items)
  13. 13. Buffer inventory(uncertainties of supply and demand)
  14. 14. Anticipation Inventory(anticipation of a possible future event)</li></li></ul><li>Reasons for Huge inventories<br /><ul><li> Customer’s orders in anticipation
  15. 15. To protect against stock-outs
  16. 16. To take advantage of quantity discounts
  17. 17. To protect against inflation
  18. 18. To protect the uncertainties of supply and demand
  19. 19. Unpredictable events
  20. 20. Seasonal increase in demand
  21. 21. Stocking when customer demands may be uneconomical</li></li></ul><li>Different types of Inventory Costs<br />Carrying costs- basically opportunity costs<br />E.g - rent, lighting, staffing etc<br /> Ordering costs – basically acquistion costs<br />E.g – purchase order, recording , accounting etc<br />Shortage costs – E.g – urgent purchases, loss of reputation etc<br />
  22. 22. Inventory Management<br /><ul><li>Initially Bezos aimed at hassle-free operations
  23. 23. Time and money not to be spent in dealing with the inventory.
  24. 24. Satisfy customers ; forced to build warehouses.
  25. 25. Each warehouse cost him around $ 50 million and in order to get the money, Amazon issued $ 2 billion as bonds</li></li></ul><li>In 1999:<br /><ul><li>Added 6 new warehouses to total to 10
  26. 26. Computerized warehouses
  27. 27. Increased warehousing capacity from 300,000 sq. feet to over 5 million sq. feet
  28. 28. Automation of events after placement of order to make inventory management easier</li></li></ul><li>In 1999, when Amazon's sales grew 170% from the previous year, its inventories ballooned by 650%, Suria pointed out. ''When a company manages inventory properly, it should grow along with its sales-growth rate,'' he noted. When inventory grows faster than sales, ''it means simply that they're not selling as much as they're buying.''<br /><ul><li>Decided to stock all possible items that customer could demand during holiday season
  29. 29. Appreciated; but faced a lot of problems in inventory management
  30. 30. Thus looked for alternatives</li></li></ul><li>Initial Changes<br />Decided to buy directly from publishers rather than distributors <br />Upgraded software which helped to accommodate inventory as per demand <br />Placed products which were generally bought together at one point. Eg. CD’s and CD player<br />
  31. 31. Deciding the Strategy<br />Inventory goals: right product in the right quantity to the right place at the right time.<br />Reduce redundant inventory<br /> Blockage of working capital.<br /> Low inventory turnover.<br /> Cost of holding > cost of outsourcing<br />Thus they OUTSOURCED<br />
  32. 32. Inventory Outsourcing<br /><ul><li>Stocked only popular items and rest were outsourced from distributors.
  33. 33. Outside distributors at Amazon for three kinds of products: cell phones, computers and books, excluding those on best-seller lists
  34. 34. CellStar handled the cell phone sales
  35. 35. Wholesale distributor Ingram Micro handled the computers and books.</li></li></ul><li>Advantages of Outsourcing<br />Concentrate on main activities <br /> To reduce the inventory holding costs.<br /> To earn more profits<br /> To free the working capital and increase liquidity.<br /> Adoption of Drop-shipment model which increased the overall efficiency and streamline supply chain logistics.<br /> Warehouses could handle thrice the volumes<br /> Reduced the shipping charges.<br />
  36. 36. Drop-Shipment Model<br />
  37. 37. Disadvantages of Drop-Shipment Model<br />The variable cost incurred by multiple delivery attempts and reverse logistics.<br />Multiple delivery attempts cost the company about 20-30% of the total cost for home deliveries.<br />35% of orders placed at Amazon belonged to different product categories.<br />
  38. 38.’s Customer Fulfillment Network<br />
  39. 39. Steps taken for improvement<br />Made improvements in its distribution centre which reduced 12% of the wrong inventory to 4% by 2002.<br />Tightened its operation to ensure that it did not miss any customer orders.<br />
  40. 40. Success Story<br />Till 2001 Amazon was in deficit of US$2.86 billion.<br />Earned its first ever profit of $5 million in the 4th quarter of 2001.<br />Year 2002 recorded sales of $3.93 billion which was 26% higher than sales of 2001.<br />Cost of operating warehouses reduced from 20% to 10% where as the capacity increased 3 times.<br />Inventory turnover was 20 times as compared to other retailers having 15 times.<br />