Answer this question:
What are the major (cu
ent, future or both) operations and process management related problems and challenges that this organization is facing?
OPER/109
IBS Center for Management Research
Amazon.com: Developing Same-Day Delivery Capabilities
This case was written by Syed Abdul Samad, under the direction of Debapratim Purkayastha, IBS
Hyderabad. It was compiled from published sources, and is intended to be used as a basis for
class discussion rather than to illustrate either effective or ineffective handling of a management
situation.
She
ee Evans
Collection Management
Level 4. Thomas Che
y Building
The University of Melbourne, Victoria 3010
Australia
Licensed to print 30 copies, 26 May, 2017.
License valid upto 25 August, 2017.
2013, IBS Center for Management Research. All rights reserved.
To order copies, call XXXXXXXXXXor write to IBS Center for Management Research (ICMR), IFHE Campus, Donthanapally,
Sankarapally Road, Hyderabad XXXXXXXXXX, Telangana, India or email: XXXXXXXXXX
www.icmrindia.org
1
OPER/109
Amazon.com: Developing Same-Day
Delivery Capabilities
“It’s hard to overstate how thoroughly this [Amazon's] move will shake up the retail industry …
Amazon is investing billions to make next-day delivery standard, and same-day delivery an option
for lots of customers. If it can pull that off, the company will permanently alter how we shop. To
put it more bluntly: Physical retailers will be hosed.”
1
– Farhad Manjoo, Slate
a
, in July 2012
In August 2012, Amazon.com, the world‘s biggest
2
online retailer, announced that it would
introduce same-day delivery of its orders as a service option to its customers and make next-day
delivery standard service. This move came in response to the regulatory changes in some states of
the US that required consumers to pay sales tax, which in turn would strip it off its price
advantage. In order to stay ahead of the competition, Amazon decided to cut its shipping time.
In 2005, the company had introduced free two-day shipping and discounted one-day shipping rates
in the US on eligible purchases for a flat annual fee under a service known as ‗Amazon Prime‘.
The same services were introduced in Japan, the UK, and Germany in 2007, in France in 2008, and
in Canada in 2013. Apart from ‗Amazon Prime‘ services, in 2009, the company had introduced
same-day delivery in 10 big cities which were close to Amazon warehouses and only on certain
items ordered in the morning (before 7 A.M). In 2012, it decided to roll out the same-day model
for all.
However, analysts were skeptical about the success of this extended model due to the logistic
hurdles that the company would have in the process, the large scale of operations needed, the extra
costs involved for the company, and face reluctance to usage by consumers. Some argued that if
successful, this model would become a nightmare for small retailers and would threaten their very
survival. While speculations about the success and failure of Amazon‘s same-day delivery model
of Amazon were just one side of the coin, the competition that the model would face with the entry
of other big and small players like Walmart
, Postmates
c
, Instacart
d
, eBay
e
, etc., in the same arena,
was the other.
a
Slate is a US-based English language online cu
ent affairs and culture magazine created in 1996.
Walmart Stores, Inc. is an American multinational retail corporation that runs chains of large discount
department stores and warehouse stores. The company is the world‘s third largest public corporation,
according to the Fortune Global 500 list in 2012.
c
Postmates, headquartered in San Francisco, is a same day u
an logistics & delivery platform. It enables
anyone to ship any product within a city in less than one hour.
d
Instacart is an independent software company that links customers with local personal shoppers. It offers
1 hour delivery time within the city. It focuses on basics and groceries and the service is available in San
Francisco, Mountain View, and Palo Alto, California.
e
eBay Inc. (stylized as ebay) is an American multinational internet consumer-to-consumer corporation,
headquartered in San Jose, California. It was founded in 1995.
Amazon.com: Developing Same-Day Delivery Capabilities
2
GLOBAL E-COMMERCE INDUSTRY
E-commerce, the buying and selling of products and services over the internet and other networks,
had evolved through several phases since the internet was born in 1973. The internet was seen by
many as the realm of techno-savvy people. However, when the World Wide Web (www) and
HTML were conceived in 1989, it made the sharing of unlimited data possible in a user-friendly
way. By 1993, entrepreneurs and consumers had come to realize the vast potential of the internet
for retailing, publishing, and entertainment. In the economic boom that followed, thousands of new
internet-based businesses were established and stock markets soared. But with the collapse of
NASDAQ in 2000, the industry entered a dreary phase. However, by 2003, the sector had
ecovered and e-commerce firms began to prosper. Businesses found that the internet created
wider opportunities, increased operational efficiencies, and derived profits. Consumers also began
to increasingly get used to online purchasing. The convenience of fast internet access (wired or
unwired) at lower prices, improved infrastructure and laws, evolved consumer preferences, and
decreased costs of mobile internet devices fuelled the rapid growth of e-commerce.
With the rapid increase in the number of online shoppers, the global internet retail sales (business
to consumer sales) grew to over $1 trillion in 2012 (by 21.1% over 2011), with the US holding the
top spot with $364 billion (Refer to Exhibit I for global e-commerce statistics).
3
Japan took
second place with sales of $127 billion, followed by the UK ($124 billion), and China ($110
illion). Interactive Media in Retail Group (IMRG), a UK online retail trade organization,
estimated that Global B2C e-commerce sales would pass the 1 trillion euro ($1.25 trillion) mark by
2013.
4
eMarkete
f
estimated that e-commerce would grow 18.3% in 2013 and that the Asia-Pacific
would grab the number one position with a growth of 30%.
5
As developed markets were getting saturated, retailers were looking for new paths for global
expansion and online trade had become an easy and a low-risk solution for them to expand
globally and test new markets. AT Kearney
g
studied the top 30 countries of the 2012 Global Retail
Development Index (GRDI) and prepared the E-Commerce Index, which revealed the top
countries where online growth would be the highest. According to the index, AT Kearney assessed
that China, Brazil, and Russia would be the top three countries with a strong growth in the online
etailing sector in the near future (Refer to Exhibit II for The 2012 E-Commerce Index).
AMAZON.COM
Amazon.com, Inc. (Amazon) headquartered in Seattle, Washington, US, was the world‘s largest
online retailer. It started as an online book store but later diversified its offerings to DVDs, CDs,
MP3 downloads, software, video games, electronics, apparel, furniture, food, toys, and jewelry. It
allowed manufacturers and sellers to sell their products through its websites. It further offered its
own consumer electronic products like the Amazon Kindle e-book reader and the Kindle Fire
tablet computer. It was also a major provider of cloud computing services. By December 2012, the
company had separate retail websites for the US, Canada, the UK, France, Germany, Italy, Spain,
Brazil, Japan, and China with international shipping facility to a few other countries. The company
had two segments – North America and International (Refer to Exhibit III for Amazon’s
Segment-wise Sales). The North America segment included sales from www.amazon.com and
www.amazon.ca. The International segment earned from retail sales through all other international
websites (Refer to Exhibit IV for a List of Amazon’s Websites). By the end of December 2012,
the company was operating world-wide with 88,400 employees and had revenue of US$
61.09 billion, operating income of US$ 676 million, and a net loss of US$ 39 million
6
during the
year (Refer to Exhibit V for Amazon’s Consolidated Financial Data).
f
eMarketer is a provider of information on digital marketing trends, media, and commerce.
g
AT Kearney is a global management consulting firm.
Amazon.com: Developing Same-Day Delivery Capabilities
3
In July 1994, Jeff Bezos (Bezos) founded Cada
a.com in his garage in Bellevue, Washington. It
started as an online book store which sold across the US and 45 other countries. The company had a
virtual warehouse of unlimited book titles compared to the limited titles available in
ick and mortar
stores. In 1995, the company was renamed Amazon.com after the Amazon River, one of the largest
ivers in the world. In May 1996, it was reincorporated in Delaware. It issued its initial public
offering in May 1997, which was traded in the NASDAQ stock exchange. In the initial years,
Amazon showed slow growth, which
ought in complaints from stockholders and even raised
doubts about the company‘s survival in the long term. However, the dot-com bu
le burst in 2000
and many e-companies went out of business. Amazon survived and went on to become a huge player
as an online retailer and proved to