Background

Amazon.com, based in Seattle, Washington, is the world’s largest online retailer (13). Jeff
Bezos founded Amazon in the 1990’s, originally selling only books (12). Amazon started
selling products of every variety soon after. Today Amazon sells its own e-readers, tablets,
and smartphones, as well as providing cloud computer services and digital music and book
downloads (12). Amazon operates in North America, Western Europe, Brazil, Japan, India,
and China, with plans to expand into Southeast Asia and Eastern Europe (12).

Lines of Business
The company itself defines its lines of business in terms of product sales, service sales, AWS
(Amazon Web Services, cloud computing), fulfillment, publishing, digital content
subscriptions, advertising, and co-branded credit cards. Amazon's lines of businesses can be
defined as 1) online retail, 2) internet services, and 3) the Kindle ecosystem.

Online Retail

The online retail line of business includes those products sold by Amazon as a traditional
retailer, most commonly as a low-cost retailer. Amazon claims to have "Earth's Biggest
Selection" of products available through its family of websites, sold at the lowest cost at a
small profit. The company started as an online book seller, rapidly expanding into music and
movies, and ultimately into electronics and household goods.

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But Amazon doesn't stock everything that is sold through its website. Another part of its retail
strategy is to serve as the channel for other retailers to sell their products and taking a cut of
every purchase. Amazon maintains its status as a destination website, but does not have to
maintain inventory on slower-selling products. This strategy has made Amazon a leading
long-tail retailer, expanding its available selection without a corresponding increase in
overhead costs.

Extending this long tail retail model further, Amazon introduced the sale of used products
through its seller marketplace. Originally developed to compete with eBay, the seller
marketplace provides another retail revenue stream for the company without the need to stock
products in its warehouses. Advertising and shipping are handled exclusively by sellers, with
Amazon taking a cut of every sale simply for providing the channel.

Internet Services

Amazon's internet services cannot easily be discussed as a standalone line of business because
it is deeply intertwined with both its retail business and the Kindle ecosystem. From the
consumer perspective, Amazon has begun to provide services like Amazon Prime, which
provides free two-day shipping on retail purchases, on-demand video streaming, and free
access to the Kindle library, all for an annual fee. Amazon Prime overlays the subscription
and all you can eat business models with the retail model to provide additional customer
value.

Unknown to most Amazon customers, however, are the other internet services provided by
Amazon, referred to as AWS (Amazon Web Services). Originally developed as a side
business, Amazon decided to lease out its own server space to other companies and
individuals. While not a core part of the company's strategy, Amazon found itself managing a
large number of servers and internet services, and it was a fairly small effort to manage those
services for others.

Kindle Ecosystem

Amazon has expanded its business into manufacturing and distributing the family of Kindle
tablets. Originally designed as an electronic book reader (supplementing its online book seller
business), the Kindle has become a fully functional tablet and media device. With the Kindle,
Amazon serves as both manufacturer and traditional retailer (and also wholesaler by selling
the device through other retailers).

While the company does not admit as much, it is assumed that the Kindle devices are sold at a
loss, which would more correctly put this line of business into the razors & blades category of
business model. By selling the hardware at a loss, Amazon is betting that customers will
purchase enough electronic books, games, and videos to justify the initial loss.

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Business model

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Amazon Customer Service

Amazon is a B2C business which fulfills orders placed by individual customers who purchase
orders placed by individual customers who purchase through the online platform. Amazon’s
target consumer is a well-educated shopper who has access to the internet and furthermore
puts high emphasis on selection, convenience and price. Customer service plays a major role
for CEO Jeff Bezos who argues that competitors play a secondary role for the company.
Customers and their feedback are the priority and guidelines for Amazon. Amazon’s business
strategy has an influence on various departments and furthermore on its supply chain and
distribution network.

When a product gets sold online which cannot be downloaded, e-businesses have a longer
lead-time. This means that order fulfillment takes longer because of involved delivery time.

In terms of product variety, Amazon has an advantage over traditional retailers as e-

businesses are generally able to offer a larger choice of products and services. Amazon is
further able to react faster to changing customer demand which allows the company to
forecast its figures more accurately. Following improved forecasts and therefore more
accurate view of customer demand, a better match between supply and demand is possible
and feasible which is a further step towards the elimination of excessive supply. Furthermore,
better search options as well as customer awareness of competitive assortments increase the
need for companies to increase product variety and availability.

As a result of successful programming and strategic developments, Amazon is able to create a

“personalized buying experience” which aims at having similar effects as offered at physical
retail stores. Amazon achieves this by displaying and suggesting items which are related to
recent purchases by the customer or browsing results.

The most beneficial advantage for e-businesses is their product’s time to the market. As
Amazon introduces its products by making them available online, the introduction of new
items or services happens much faster than for the retailers that use physical channels.

Returnability is also crucial for e-businesses and Amazon performs very well.

In terms of customer service, Amazon performs especially well due to its unique product
variety and availability, its personalized customer experience and a short time to market.

Pricing adjustment strategy

Pricing is one of the main success factors in the retailing industry and price wars are typical
for this industry sector. Pricing has been extremely competitive since the first day of
operation. The company had to develop various differing pricing strategies which appeal to
numerous potential clients with dissimilar needs and requirements. The pricing menu which
was developed by Amazon allows the company to target a large variety of consumers which
furthermore have differing levels of desired responsiveness.

Moreover this pricing approach is very flexible in its nature. This means that it is able to
provide responsiveness to consumers who require it whilst remaining at a low-cots level to

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improve the company efficiency. Amazon is especially successful in changing and adjusting
its pricing and demand strategies in response to seasonality. Amazon therefore regularly
offers “off-peak discounting”, implying that specific discounts are given on shipping and
products themselves when orders are made in advance. By this way, demand from the peak
season gets partially transferred to the off-peak season, easing operations and demand
management of the company. By applying these pricing policies, Amazon manages to
increase its internal efficiency without harming responsiveness.

Supply Chain Strategy

Amazon’s unique supply chain is centered on its complex system of warehouses, known as
Fulfillment Centers (FC’s). Amazon has 8 sorting facilities (will have 15 by the end of 2014)
that sort packages by zip code, allowing for same day delivery through collaboration with
USPS (part of Amazon’s new SCM strategy). Amazon uses smaller replenishment facilities to
distribute inbound products to the larger fulfillment centers (11). Amazon also has separate
returns processing facilities, although it is not clear how many of these Amazon actually has.

Physical delivery has spawned a worldwide logistics infrastructure. In 1997, Amazon

operated a 93,000-square-foot fulfillment center in Seattle and a 202,000-square-foot center in
Delaware. UPS and FedEx picked up orders and handled the rest. Amazon’s fulfillment
centers today exceed 1 million square feet. Amazon is rapidly growing worldwide, while
increasing control of its own logistics.

Amazon now manages 115 million square feet of distribution facilities worldwide, including
211 centers in the U.S. and 147 centers abroad. Amazon is pushing fulfillment centers closer

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to customers, investing in automation and adding specialized facilities that distribute bulk
manufacturer shipments to fulfillment centers, sort fulfilled orders for delivery, and handle
returns.

Prior to 2013, Amazon located U.S. fulfillment centers to avoid collecting state sales taxes.
Changing Internet sales tax laws have caused Amazon to abandon that strategy in favor of
being able to offer same-day delivery to most U.S. customers.

In November 2013, Amazon unveiled Saturday and Sunday deliveries via the U.S. Postal
Service. This required “sortation centers,” roughly a quarter the size of fulfillment centers, to
sort packages by zip code. Amazon began rapidly adding sortation centers. In addition to
weekend delivery, sortation centers reduce shipping costs and increase speed. They play a key
role in next-day and same-day delivery, shifting control of “last-mile” delivery from parcel
companies to Amazon.

To accomplish same-day, last-mile strategies Amazon considered acquiring Postmates, an

Uber-like, on-demand courier service that operates in over 100 cities. Instead, it created
Amazon Flex, which uses “gig economy” workers, who choose their own shifts and use a
mobile app to deliver packages.

Amazon has invested heavily in automation to reduce the challenge of adding more than
100,000 seasonal workers each fall. Drones—Prime Air—could replace Flex drivers for
lightweight items, pending FAA approval. For customers who don’t want plastic tubs dropped
at their doorstep, there’s Amazon Locker, self-service storage lockers with an ATM-type
panel for access codes, typically located in convenience stores.

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Amazon’s original logistics strategy for the placement of fulfillment centers was based on tax
considerations, rather than geographic proximity to its customers. Historically in many states,
sales taxes only had to be paid for goods sold in brick-and-mortar retail stores. These states
included Ohio, Kentucky, Tennessee, and Indiana (not high population states). Distribution
centers and warehouses were never classified as retail stores, so goods sold by Amazon and
shipped from their FC’s were not taxed (11). Customers not having to pay sales taxes gave
Amazon a significant competitive advantage over its retail store competitors, such as Target,
Walmart, and Best Buy. Amazon figured out that the cost of shipping products from low cost
states without sales taxes gave them more of an advantage than having fulfillment centers
closer to customers at a higher cost.

The problem for Amazon is that state governments have caught on to this strategy, and now
16 states have internet sales tax legislation, and several other states have legislation pending.
Amazon’s new supply chain and distribution strategy is going to be based more on same-day
turnaround for most major cities. (11). Having same-day turnaround will negate the one major
advantage that physical retail chains have, which is the ability for customers to purchase and
receive a product in the same day.

Another advantage Amazon has with their supply chain strategy involves distributing
products for other retailers and sellers. Amazon actually handles and ships goods from their
fulfillment centers for major retailers such as Target and Eddie Bauer, among others. Amazon
gets a cut of the revenue from these retailers, whereas they would not receive anything if these
retailers handled their own online sales exclusively. This also applies to the “Amazon
Marketplace”, where individuals can sell their own products, such as used books and movies,
with Amazon handling the transaction and getting a cut of the revenue (13).

Currently Amazon operates a variety of fulfillment and distribution centers in the US, Europe
and Asia (and 3PL outsourced facilities).
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 - Different kind of items fulfillment centers (small sortable, large sortable, large non-
sortable) according to the size of the item, depending on whether the item can fit into
one box/shipments or whether the item can or not be placed onto a conveyor belt for
automated sortation.
- Inbound cross Docks (XD) centers receive and consolidate products from vendors and
then ship these products to other fulfillment centers within the Amazon network.
- Customer returns centers process all Amazon customers returns.
- Specialty sites fulfills specialty items sold by Amazon such as textbooks , jewelry,
clothing and shoes;
- Amazon fresh facilities service perishable and frozen merchandise;
- Amazon pantry facilities service dry grocery merchandise;
- Regional Sortstation Centers (since 2014) are generally used to sort packages for a
geographical region whereby the packages have originated from one or more
fulfillment centers within the Amazon network. Sortation centers sort packages by zip
code and then send smaller packages to USPS (US Postal Service)for low cost
delivery; or packages are shipped to delivery stations which handle the last mile
delivery through the use of local couriers; the purpose of these facilities is to sort
packages by zip code to pallets that are then delivered to the post office responsible for
each zip code for smaller packages; these buildings are key enablers to steering
shipping volume away from UPS and FedEx so that packages can be delivered by
USPS and local couriers. Amazon then gets control over the outbound transportation
of packages (and its outbound shipping costs) within its own distribution network.
Sortation Centers also ship packages to Amazon’s delivery stations which represent
the final node in the supply chain.
- Delivery Stations (since 2013) are mid-sized facilities which represent the last leg of
the delivery network. These facilities are positioned close to large metropolitan cities
and quite often near airports. Customer packages travel from the fulfillment centers to
the regional sort centers and finally end up at the local delivery station where all
packages are sorted by zip code and then dispatched directly to the customer via
delivery service providers (local couriers)
- Prime Now Hubs (since 2014) are smaller facilities that stock a limited line of
products that are in high demand (ex: bestseller books) such that customer orders in
high population metropolitan cities can be delivered within 1 or 2 hours of order
placement (sometimes as little as 60 minutes).

Amazon has built out a vast distribution network of fulfillment centers positioned close to
large metropolitan cities. The new amazon distribution strategy calls for the fastest level of
order turnaround time (same day or next day) for all major cities within the US. The goal is to
enable same-day delivery as an option for at least half of its customers. Since the onset of the
e-commerce era, this goal has been a dream but the high cost of establishing the required
distribution infrastructure has been a barrier towards achieving this goal. Currently Amazon
operates Fulfillment Centers in Canada, Mexico, Brazil, the UK, France, Germany, Spain,
Poland, Czech Republic, China, Japan and India. In Europe, the emergence of smaller
delivery stations and Prime Now Hubs is enabling rapid delivery capability. Amazon has
operated an extensive network of third party delivery stations in the UK since 2013 and the
success of this program led to the expansion of the concept in the US. In late 2015, the
company rolled out 15 Prime Now Hubs in Germany and in 2016 in Japan.

Amazon’s aggressive supply chain strategies are not without risks. Amazon is expanding
rapidly, with plans for 17 new FC’s and sortation centers planned for North America and 13

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new FC’s and sortation centers planned for outside North America in 2014-2015 (11). This
rapid expansion puts a major strain on Amazon’s operations capabilities. How will Amazon
integrate these new FC’s into their established network? What happens if there are delays at
the new sortation facilities? How will Amazon respond given their new goal of same-day
turnaround for orders? Will their third-party shippers be able to keep up with their expansion
and same-day turnaround goals?

The other major risk for Amazon’s supply chain is forecasting demand. In order for Amazon
to meet customer expectations, they need to predict what items will be demanded each time of
year. If Amazon does not keep the correct items in the right quantities in stock, their customer
is only one click away from a competing site. What steps will Amazon take to make sure that
their forecasts are accurate?

Extract from 2015 Amazon Annual Report

If We Do Not Successfully Optimize and Operate Our Fulfillment Network and Data
Centers, Our Business Could Be Harmed
If we do not adequately predict customer demand or otherwise optimize and operate our
fulfillment network and data centers successfully, it could result in excess or insufficient
fulfillment or data center capacity, or result in increased costs, impairment charges, or both,
or harm our business in other ways. As we continue to add fulfillment and data center
capability or add new businesses with different requirements, our fulfillment and data center
networks become increasingly complex and operating them becomes more challenging. There
can be no assurance that we will be able to operate our networks effectively.
In addition, a failure to optimize inventory in our fulfillment network will increase our net
shipping cost by requiring long-zone or partial shipments. Orders from several of our websites
are fulfilled primarily from a single location, and we have only a limited ability to reroute
orders to third parties for drop-shipping. We and our co-sourcers may be unable to adequately
staff our fulfillment network and customer service centers. If the other businesses on whose
behalf we perform inventory fulfillment services deliver product to our fulfillment centers in
excess of forecasts, we may be unable to secure sufficient storage space and may be unable to
optimize our fulfillment network.
We rely on a limited number of shipping companies to deliver inventory to us and completed
orders to our customers. If we are not able to negotiate acceptable terms with these companies
or they experience performance problems or other difficulties, it could negatively impact our
operating results and customer experience. In addition, our ability to receive inbound
inventory efficiently and ship completed orders to customers also may be negatively affected
by inclement weather, fire, flood, power loss, earthquakes, labor disputes, acts of war or
terrorism, acts of God, and similar factors. Third parties either drop-ship or otherwise fulfill
an increasing portion of our customers’ orders, and we are increasingly reliant on the
reliability, quality, and future procurement of their services. Under some of our commercial
agreements, we maintain the inventory of other companies, thereby increasing the complexity
of tracking inventory and operating our fulfillment network. Our failure to properly handle
such inventory or the inability of these other companies to accurately forecast product demand
would result in unexpected costs and other harm to our business and reputation.

Inventory Management of Amazon

When it comes to inventory management no company does it quite like Amazon. Having
millions of different products, while still ensuring a timely and precise delivery, is far from

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easy. Yet still, Amazon does this every day, practically every second, and it all begins with
their immense inventory management.

The reality of the situation is when you have that many items, how do you store the items?
How do you find them amongst the thousands of others? And how do you keep track of your
inventory? The answer is barcodes. Yes, barcodes have been around forever it seems like but
these barcodes go much further than the simple scan to tell you the price. Each time an item is
taken away from inventory, its barcode is scanned. This then tells the computer system to take
one away from the inventory for this item, where the item is at, what order it is for, and when
it needs to be shipped; thus keeping track of the inventory up to the second. The bar code is
used several more times along the process in Amazon, but for the sake of just the inventory
count, having a barcode proves very useful just for this one step. In fact, many companies
today go by this system in their own way because of its usefulness.

However, with thousands of products it becomes difficult to manage the amounts of inventory
needed for each item. One cannot simply assume there are hundreds of units in stock for each
item because this would prove to be far too costly. There would not be nearly enough space in
the warehouses for the excess inventory, and there would also be an excessive amount of
money wasted on having an inventory that may never be sold. So how does Amazon have the
optimal amount of inventory for every one of their thousands of products? They do this by
observing the trends of the buyers, knowing the season, knowing the area, and many other
small details that Amazon must know and research.

Amazon first learned the importance of inventory management in 1999 when the founder
decided to try and stock the warehouses with everything he thought the consumers might buy
that holiday season. Though this proved well for customer service, the company itself did not
do well. By 2001, seven years after its launch, Amazon was almost 3 billion dollars in the
hole. This was when Amazon really started to focus on the importance of the inventory
management and the distribution of the inventory. Remarkably, it was reported that in the 4th
quarter of 2001 Amazon accumulated a net profit of 5 million all due to their revamped
inventory techniques. Of which that included outsourcing some of its routine activities, and
revamping the warehouse design and inventory methods, one of these methods being the
chaotic storage method. In this method there is no order to where things are kept in the

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inventory, just a simply grid of items all with a unique code relating to the isle, section, and
shelf the item is on. What this does is it helps to keep things from having to be reorganized
constantly because of new items or larger quantities of items. In essence, there is no actual
order to need to be organized.

Now, inventory management is key with even more products on the market, even more
warehouses, and even more people ordering every day. It is actually said that every 105
seconds a truck leaves an Amazon warehouse somewhere, totaling out to over than 800 trucks
of orders shipped out a day. In the most recently reported info on Amazon and other
companies, Amazon ranked 27th globally in their inventory turnover ratio with a number of
8.74, beating out companies such as Target or Wal-Mart, who’s numbers were far smaller at
5.74 and 7.86. What this means it that Amazon has been able to bring in more products and
sell more products that both Wal-Mart and Target. Because of their success in inventory
management, Amazon strives to continue their excellence in this area by even stating it in
their annual report,

“If we do not adequately predict customer demand or otherwise optimize and operate our
fulfillment centers successfully, it could result in excess or insufficient inventory or fulfillment
capacity, result in increased costs, impairment charges, or both, or harm our business in
other ways. A failure to optimize inventory will increase our net shipping cost by requiring
long-zone or partial shipmen

It is easy to see how import inventory management can be for a company like Amazon. They
strive for perfect inventory management every day and it is one of the many reasons why they
are such a massive and successful company today.

Extract from 2015 Amazon Annual Report, We Face Significant Inventory Risk

In addition to risks described elsewhere in this Item 1A relating to fulfillment network

and inventory optimization by us and third parties, we are exposed to significant inventory
risks that may adversely affect our operating results as a result of seasonality, new product
launches, rapid changes in product cycles and pricing, defective merchandise, changes in
consumer demand and consumer spending patterns, changes in consumer tastes with respect
to our products, and other factors. We endeavor to accurately predict these trends and avoid
overstocking or understocking products we manufacture and/or sell. Demand for products,
however, can change significantly between the time inventory or components are ordered and
the date of sale. In addition, when we begin selling or manufacturing a new product, it may be
difficult to establish vendor relationships, determine appropriate product or component
selection, and accurately forecast demand. The acquisition of certain types of inventory or
components may require significant lead-time and prepayment and they may not be
returnable. We carry a broad selection and significant inventory levels of certain products,
such as consumer electronics, and we may be unable to sell products in sufficient quantities or
during the relevant selling seasons. Any one of the inventory risk factors set forth above may
adversely affect our operating results.

Logistics behind Amazon

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Logistics is the movement and storage of materials to meet the customers need and
organizational objectives. Some may agree Amazon is the king of retail, some may not,
but this empire takes logistics to a whole new level. With features of free 2 day delivery and
possibly same day delivery in the near future. Soon enough we won’t even have to leave the
house.

Currently Amazons largest fulfillment center is 1.2 million Sq ft.,which is just shy of 24
football fields, including the end zones. Why so big some may ask? Amazon has over 27
million different products for sale. With so many different products of on hand, Amazon
needs the storage capacity to store each item for its customer. To ensure the product reaches
the customers in a timely manner Amazon uses a method called:

Pick and Pack

This is the method of selecting items currently in the warehouse and prepping them for
shipping. These workers travel through the fulfillment centers to individual isles of
merchandise to pick and pack the item ordered. Whether it is a red light flashing or the hand
held computer telling the picker which row to go to. Following the pick comes the pack, once
the package is found the worker travels to the crate line “packer” station, which at this point
the packer will scan the item and be told which box to use to efficiently ship the item. After
the package is boxed it is sent down a conveyor belt where it will be labeled and sent to a
courier service to deliver the package on time. This all happens the second we click purchase
on Amazon.com.

This had me thinking and wondering how many boxes does Amazon ship per day? I happened
to find an equation to help:

I took the revenue of 2013 which was $74.45 billion, multiplied it by the percentage of
physical goods shipped: estimated 85% physical goods (others being e-Books, Amazon Web
Services, third-party-fulfilled products,etc.) I then divided this by the average order cost:
estimated $50 in 2013, multiplied by how many boxes each order uses, estimated at 1 box per
order. I then divided all this by 360 days in the year.

$74.45*.85/$50*1/360 = 3,515,694 packages per day

The strategy behind getting these products delivered to the customer in a timely fashion is by
the wide variety of courier services Amazon uses. Although USPS and UPS seem to be the
most commonly used, Amazon has a few others:

 DHL Worldwide Express

 A1 Courier Services- Same day delivery service
 ABF Freight System, Inc. – Trucking freight for delivery to fulfillment centers
 Airbourne Express
 Dynamex
 Eagle
 Enroute
 Fedex
 Menlo Worldwide/UPS Supply Chain Solutions

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Amazon is currently testing its own source of courier service, Amazon Fresh. Its currently
only be used on the west coast of the United States. By Amazon delivering its own packages
via truck it would tremendously lower shipping costs, stop delayed packages and more
importantly create same day delivery. Who would ever want to leave the house?

With 170 million items of physical products in the virtual stores, the back end of order
processing and fulfillment is a bit complicated. Anyway, a simplified version of the order-to-
cash process are illustrated as below.

Upon receipt of the orders, Amazon assign the orders to an appropriate DC with the lowest
outbound logistics cost. In Amazon’s warehouse, there are 5 types of storage areas. Library
Prime Storage is the area dedicated for book/magazine. Case Flow Prime Storage is for the
products with a broken case and high demand. Pallet Prime Storage is for the products with a
full case and high demand. Random Storage is for the smaller items with a moderate demand
and Reserve Storage will be used for the low demand/irregular shaped products.
Amazon uses a propitiatory warehouse management system to make the putaway decision and
order picking decision. After the orders are picked and packed, Amazon ships the orders using
common carriers so they can obtain the economy of scale. Orders will arrive at UPS facility
near a delivery point and UPS will perform the last mile delivery to customers.
Amazon is known to use Sales and Operations Planning (S&OP) to handle the sales forecast.
Anyway, this must be S&OP process at product family/category level.

Nevertheless, Amazon’s main issue remains the misbalance between its inbound and
outbound transportation costs. The company receives very large truckloads of items in the
inbound side. On the outbound side, Amazon only ships out small packages which typically
contain few items. This therefore stands for high cots attached to transportation – also as
many Amazons’ shipping is free of charge for customers. In the transportation sector,
Amazon has various partnerships and cooperations with international logistics providers and

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parcel couriers, including UPS, FedEx and DHL. But according to the CFO of Amazon, the
transportation providers are not advanced and fast enough in order to fulfill Amazon’s
expectations and needs. Therefore Amazon decided to introduce Amazon Logistics to the
market.

Since 2015, Amazon has been planning on launching its own-account logistics network in
order to get the opportunity to rely less on third-party logistics providers. The purpose of this
network is to supplement partners, not to replace them.

Primarly, Amazon developed this network to gain the ability to react faster when third parties
are not able to fulfill the company’s need. These developments are not surprising as the
company has already made use of its own trucks to move items out of its warehouse in recent
years in order to decrease its rising outbound external transportation costs. Further more,
Amazon has recently leased airplanes which will mainly operate ine the US in order to fasten
deliveries.

Information and technology

Another unique strategic approach which amazon has recently patented in 2014 that could
further minimize delivery and lead time is its anticipatory shipping.

Amazon is planning on sending items to consumers before an actual order has been received.
Amazon tries to successfully predict customer demand based on previously placed orders,
consumers’ products searches, registered wish lists, shopping-cart contents, return and time
spent scrolling through a certain product category on the website. These pre-ordered packages
may be stored at specifically allocated storages or on trucks until an actual order takes place.

Without the constant development and change in the field of information technology,
successful e-business would not be able to continuously and sustainably improve their
operations. By using computer systems, Amazon is able to handle big data, more precisely
massive data sets including page traffic, time spent on the website, demographics, social
information and timing as well as share significant demand and supply information with every
party along its supply chain.

This is why Bezos has decided to invests heavily into IT developments from the beginning of
the company’s operations. In recent years, Amazon has implemented services and systems in
the fields of website management, search, customer interaction, recommendation, transaction
processing and fulfillment.

All these services require high investments and an extremely well-developed technological
infrastructure. Amazon currently owns the largest quantity of online retailing technologies.
Amazon’s Inventory and order management, especially the Marketplace, is supported by the
Appath cloud software.

Amazon uses its competitive advantage in IT in order to further differentiate itself from its
competitors. Amazon Web Service is a software programmed to offer storage and computing
services to corporate customers. For a fee, corporate customers may get limited access to
Amazon’s IT, which also creates a new revenue stream for Amazon.

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Amazon secret plan (Bloomberg, Feb. 2016)

In recent weeks, speculation has mounted that Amazon.com Inc. plans to launch a global
shipping and logistics operation that will compete with United Parcel Service Inc. and FedEx
Corp.

Asked about reports that the company was leasing planes and had registered an ocean freight
booking business, Chief Financial Officer Brian Olsavsky downplayed Amazon’s ambitions
last month in an earnings call. He said the company was simply looking to supplement its
delivery partners -- not replace them -- during peak periods like the Christmas shopping
season

Amazon documents reviewed by Bloomberg News reveal a far bolder plan.

A 2013 report to Amazon’s senior management team proposed an aggressive global

expansion of the company’s Fulfillment By Amazon service, which provides storage, packing
and shipping for independent merchants selling products on the company’s website. The
report envisioned a global delivery network that controls the flow of goods from factories in
China and India to customer doorsteps in Atlanta, New York and London. The project, called
Dragon Boat, is proceeding, according to a person familiar with the initiative, who asked not
to be identified because the information isn’t public.

Swelling Industry

The ambitious strategy promises to turn FedEx and UPS into Amazon rivals, but also will pit
the Seattle giant against Chinese counterpart Alibaba Group Holding Ltd. Both companies are
vying for dominance of the rapidly growing cross-border e-commerce market, which by 2020
is expected to swell into a $1 trillion industry serving 900 million shoppers, according to a
June report from Accenture and AliResearch, Alibaba’s research arm.

Amazon’s plan would culminate with the launch of a new venture called “Global Supply
Chain by Amazon,” as soon as this year, the documents said. The new business will locate
Amazon at the center of a logistics industry that involves not just shippers like FedEx and
UPS but also legions of middlemen who handle cargo and paperwork associated with
transnational trade. Amazon wants to bypass these brokers, amassing inventory from
thousands of merchants around the world and then buying space on trucks, planes and ships at
reduced rates. Merchants will be able to book cargo space online or via mobile devices,
creating what Amazon described as a “one click-ship for seamless international trade and
shipping.”

‘Ease and Transparency’

“Sellers will no longer book with DHL, UPS or Fedex but will book directly with Amazon,”
the 2013 report said. “The ease and transparency of this disintermediation will be
revolutionary and sellers will flock to FBA given the competitive pricing.”

Amazon will partner with third-party carriers to build the global enterprise and then gradually
squeeze them out once the business reaches sufficient volume and Amazon learns enough to
run it on its own, the documents said.

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If the logistics business takes hold, financial services could follow, with Amazon giving loans
to merchants, processing international payments and consulting its network of sellers on
customs and tax matters.

The strategy echoes the company’s move into cloud services, which it developed internally
and gradually expanded into a commercial enterprise that’s now Amazon’s fastest-growing
and most profitable division. Amazon never made big proclamations about its cloud
operations in the early days and instead marketed directly to software developers. Companies
like Hewlett Packard, Dell and Microsoft largely ignored the threat and are now playing
catch-up.

“This is classic Amazon fashion,” said Colin Sebastian, an analyst at Robert W. Baird & Co.,
who says a global logistics operation could become a $400 billion business for Amazon.
“They take baby steps along a long path, which allows some companies that could be
disrupted to remain in a sense of denial. Amazon rarely takes one big step forward that shocks
the market.”

Amazon laid out its logistics strategy in 2013 after predicting an uptick in the flow of
merchandise from Amazon sellers in one country to buyers in another. In the initial document
-- a proposal to Amazon’s senior executive team for planning purposes -- the company
described a “revolutionary system that will automate the entire international supply chain and
eliminate much of the legacy waste associated with document handling and freight booking.”

The new business will rely on networks of merchants in manufacturing nations like China and
consolidate their inventory in shipping hubs. The large volume of goods means Amazon can
buy cargo space at lower wholesale rates and win over small merchants by passing on the
savings. By automating the shipping paperwork, Amazon can further reduce costs and make
the process more convenient for merchants.

With a few finger taps on their smartphones, merchants in China will summon Amazon trucks
to pick up products from their factories and warehouses, the documents said. Once the
shipments reach their destination ports, they will be plugged directly into Amazon’s
distribution networks for speedy home delivery.

Merchants in China and India are keen to reach online shoppers in the U.S. and Europe --and
operation Dragon Boat will help close the gap between them. In the proposal, Amazon said
the new logistics business would open cross-border commerce to smaller merchants who
otherwise wouldn’t bother with it. That in turn would make many more products available to
Amazon shoppers around the world.

Three years after Amazon proposed its grand vision for a global logistics business, there are
signs the plan is nearing fruition. Last month, a San Francisco logistics company called
Flexport posted a blog noting that Amazon’s Chinese subsidiary registered in the U.S. as a
Non-Vessel Operating Common Carrier, enabling it to provide ocean freight services to other
companies in the $350 billion ocean freight industry. And in December, Amazon was said to
be considering leasing 20 Boeing Co. 767 freighter jets to control more of its delivery and
cost, according to a person familiar with the plans.

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