Amazon FBA inventory management with brief history and future ventures

1. Inventory
Management at
Amazon

2. Brief History
▪ Amazon.com is American international electronic commerce
company with headquarters in Seattle, Washington.
▪ Amazon was founded in 1994 by Jeff Bezos.
▪ Amazon.com in 1995 started as an online bookstore, but soon
diversified, selling DVDs, VHSs, CDs, video and MP3
downloads/streaming, software, video games, electronics, apparel,
furniture, food, toys, and jewelry.
▪ Amazon operates as a pure internet retailers that does not have
retail store at all
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3. Growth
At the start of 2019, when
Amazon released its 10-K and
Annual Report, it had a market
capitalization of $755.7 billion.
The company's net income
more than tripled last year from
$3 billion in 2017 to $10.1 billion
in 2018
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4. 1. Frequency of inventory checks
2. Certainty of inventory levels
3. Losses due to inventory shrinkage
4. Out-of-stock and excess inventory
5. Velocity of order picking
6. Personnel costs or operations downtime
7. Resources and equipment
8. Handle high value activities
9. Safer environment for employees
Problems faced by Amazon

5. "In the physical world it's the
old saw: location, location,
location. The three most
important things for us are
technology, technology,
technology." - Jeff Bezos, CEO,
Amazon.com 5

6. Key Success strategies
▪ Knowing the market and industry.
▪ Focus on value-adding for customers.
▪ Logistics.
▪ Use of acquisitions, alliances and strategic partnership.
▪ Inventory cost
▪ Facility cost
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7. Initial inventory management
▪ Right product in the right quantity to the right
place at the right time.
▪ Reduce redundant inventory
▪ Blockage of working capital.
▪ Low inventory turnover.
▪ Cost of holding > cost of outsourcing
▪ Thus they OUTSOURCED
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8. Chaotic Storage
Chaotic storage is a system wherein
incoming products are placed randomly on
available shelving space within a given
warehouse with disregard for itemized
locations.
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9. ▪ Space
▪ Accuracy
▪ Simplicity
▪ Optimization
▪ Response time
Flexibility if Chaotic system
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10. Inventory management techniques
ABC analysis
Inventory optimization in supply
chain, ABC analysis is an
inventory categorization
method which consists in
dividing items into three
categories, A, B and C: A being
the most valuable items, C
being the least valuable ones.
JIT
JIT is a common inventory
management technique and
type of lean methodology
designed to increase efficiency,
cut costs and decrease waste
by receiving goods only as they
are needed.
Third Party seller
Third-party sellers are
independent sellers who
offer a variety of new, used,
refurbished, and collectible
merchandise. The steps to
place an order with a third-
party seller are the same
as placing any other order
on Amazon.com.
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11. In addition to a JIT production approach, an effective business should
implement JIT purchasing. Under this approach, materials and parts are
purchased from outside vendors only as they are needed. This avoids the
costly and wasteful buildup of raw material inventories. The following are
five (5) key features of JIT purchasing.
1. Only a few suppliers. This results in less time spent on vendor relations. Only highly reliable
vendors are used, who can deliver high quality goods on time.
2. Long- term contracts negotiated with suppliers.
3. Materials and parts delivered in small lot sizes immediately before they are needed.
4. Only minimal inspection of delivered materials and parts.
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JIT at amazon

12. ABC pareto method at amazon
● As your top performers, A-items need more attention
through better inventory control and sales forecasts, and
ensuring regular reorder points and avoiding stock-outs
of A-items should be your priority.
● On the other end of the scale, there are the C-items.
Stocking too much of these means you’ll have to bear
more carrying costs. Due to the low demand, a
recommended policy is to stock only one unit of every C-
item on hand, and to place reorders only once a
purchase is made.
● B-items straddle the two extremes, and reorder points
should be adjusted accordingly. The thing about B-items
is, they can easily swing either way: becoming top
sellers or bottom sellers, depending on their continued
performance. 12

13. Advantages of Outsourcing
▪ Concentrate on main activities.
▪ To reduce the inventory holding costs.
▪ To earn more profits.
▪ To free the working capital and increase liquidity.
▪ Adoption of Drop-shipment model which increased the overall
efficiency and streamline supply chain logistics.
▪ Warehouses could handle thrice the volumes.
▪ Reduced the shipping charges.
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14. Jeff Bezos’ 3 big
ideas Digital
enables
limitless
inventory
Digital
boosts
customer
care
Digital
allows high
margin,
lowest
prices
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15. Why large inventories?
▪ Customer’s orders in anticipation
▪ To protect against stock-outs
▪ To take advantage of quantity discounts
▪ To protect against inflation
▪ To protect the uncertainties of supply and
demand Unpredictable events
▪ Seasonal increase in demand Stocking when
customer demands may be uneconomical
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16. Know the Hazards of Running Out of
inventory
Lost Sales = Lost
Income
It’s obvious that you
can’t sell what you don’t
have in stock. But
running out of inventory
for a product sold on
Amazon is far more
detrimental to your
sales than being out of
stock on your own
website.
No Sales = No New
Product & Seller
Reviews
All-important product and
seller reviews also take a hit
when your products are out
of stock. No sales equals no
new seller reviews from
shoppers, it’s that simple
Zero Stock = Lower
Product Ranking
Being out of stock for a
long period of time, or
very often, affects your
shopping search results.
Amazon relies on many
factors when delivering
search results to
shoppers, and product
availability plays a huge
role in their search
ranking algorithm 16

17. Why amazon stopped outsourcing at
large?
Amazon’s supply chain heavily depends on the outsourcing of its
inventory management. Products that are infrequently ordered are not
stored in regular Amazon warehouses. It may come as a surprise to you
that third-party sellers are behind nearly 82% of Amazon’s sales. That
amounted to $42.75 billions.
Customer care.
Stockout problems
Transportation
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18. Amazon Inventory Management:
Increase no of warehouses:
Initially amazon.com has only
ten warehouses from where
they fulfill the orders from all
over the world but soon they
realize that the no of
warehouses are very less and
fulfillment of order takes
more time and this can effect
customer satisfaction.
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19. Amazon Inventory Management:
Initially the management of
amazon.com take hard
decisions only to provide
best service in order to
increase the numbers of
customers and that time
they didn’t care about profit,
that’s why amazon
make their first profit seven
years later after the
formation of company. 19

20. Amazon Inventory Management:
As amazon.com has added a
large variety of products in
their inventory based on
speculation. They didn’t do any
survey to find what the
customers want, they just add
every possible item in their
inventory which they think the
customer want and because of
this their inventory size
become very large due to
which their holding cost of
inventory increase
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21. How Amazon overcome this
problem
Improve forecasting
Initially amazon.com added a large verity of products in their inventory based
on speculation. They didn’t do any forecast to find what the customers will
buy, they just add every possible item in their inventory which they think the
customer will buy and because of this their inventory size become very large
due to which their holding cost of inventory increase. So to overcome this
problem amazon improve their forecasting, they make forecast and come to
know that which products the customers will buy and then they add only
those products in their inventory which they think the customers will buy, so
in this way they reduce their inventory due to which the holding cost of
inventory also decrease.
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23. Amazon warehouse automation:
As the no of customers of amazon.com increase day by day and
it was getting hard to fulfill the orders quickly in the
warehouses, so the management of amazon decided to make
their warehouses fully automated. Because this will decrease
fulfillment time which will leads to customer satisfaction. The
average number of people working in a good warehouse are
about 30-40 in a single shift to run the process fairly but the
figure will be doubled if they want to earn high customer rating.
But increase in the no of labor will increase labor cost.
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24. Multi-tire inventory network
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25. Process before and after
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26. Location & Manufacturing
postponement:
Amazon.com also improve the performance of their inventory management
by adopting location postponement. Postponement is the strategy adopted
by the companies to build agile supply chain. In postponement amazon
centralized their inventory in one strategic location and from that location
they supply the products to the desired locations. This process make the
supply chain faster because the inventory will stored in a centralized
location and it can be quickly forwarded to any location where required. This
make the process faster which leads to customer satisfaction.
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27. Reduce Safety stock
Amazon also reduce the safety stock in warehouses by
adopting the strategy of location postponement and
improving their forecasting. So by reduction the safety
stock in their warehouses the inventory holding cost
decrease.
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28. Limitless Inventory
When amazon started offered books to the
customers. But over the period it increased its
products from books to music, movie, cloud storage,
gaming and many more. Poter mentioned three distinct
sources-
1. Serving few needs of many customer
2. Serving broad needs of few customer
3. Serving broad needs of many customers.
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29. 12,600,000,000
Amazon is expected to ship from there fulfillment
centers
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30. Warehouses over the time
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32. Amazon shipping model :
Where products enter the
warehouse
At the inbound dock, products get
taken off trailers by forklift or
manually built into pallets.
The stow process
Instead of storing items as a retail
store would—electronics on one
aisle, books on another—all of the
inventory at Amazon fulfillment
centers is stowed randomly.
Picking orders
Pickers are like personal shoppers,
plucking from hundreds of items a
day to fulfill customer orders.
When the order comes in, a robot
brings pods full of items to
associates working at pick stations.
Quality assurance
Different teams along the way
ensure the fulfillment process runs
smoothly. The Inventory Control
and Quality Assurance team makes
sure an item's physical location
actually matches what's in the
computer, tracking millions of
units of inventory.
Packing orders
First, items that belong to different
shipments are organized and
scanned for accuracy. Then they're
sent to the pack station, where the
computer system recommends box
sizes to associates, and a machine
measures out the exact amount of
tape needed.
Shipping orders out
Packed envelopes and boxes then
race underneath the SLAM (Scan,
Label,Apply, Manifest) machines,
which deposit shipping labels
with astonishing speed and,
contrary to the name, a light
touch. For quality control, the
package is weighed to make sure
the contents match the order 32

33. Automation
Innovation that changed
the course of Amazon to
e-commerce to retailer
giant like wallmart.
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34. Thanks!
Any questions?
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