1. What are Amazon’s primary sources of competitive advantage? Analyze how they built their competitive capabilities over the years.
The following can be considered to be the primary sources of Amazon’s competitive advantage:
• Use of Internet: Amazon uses the internet as the sole method for selling goods to its consumers. Amazon’s competitors, such as Barnes and Noble, and Borders use brick and mortar as their main distribution channel. This method of using many store fronts is extremely costly. Thus, Amazon’s competitors are at a disadvantage because their costs are significantly higher than Amazon’s costs, allowing Amazon to sell the same goods at a lower price. • Amazon Uses Web-based Model to Personalize Service: Amazon attempted to use personalization to “build the right store for every customer.” Each customer had a Web page personalized based on his or her recent purchases. This is the equivalent of having a unique storefront for each customer in hopes of drawing in as many return customers as possible. • Distinctive Procurement Strategy: Initially, a very modest inventory in its warehouses and a heavy reliance on the wholesalers(Ingram and Baker & Taylor) helped Amazon to have a very rapid inventory turn (70 in 1996) and hence it had the growth in revenue needed for a company to grow in its initial growth stage. Once the volumes increased, the company established direct relations with Publishers to obtain better discounts but at the same time, it kept in mind the inefficiencies of the operations.
The following is the analysis of their competitive capabilities’ growth over the years:
1995 – 1998: Amazon Established:
• Responsiveness- Infrastructure and Systems: Amazon was responsive to the increased demand and sales offered by e-commerce. They increased the capacity of the existing Distribution Center (DC) and also established a DC in Delaware to closely associate with East coast customers and suppliers and to not be completely at the mercy of Ingram. • Emphasis on technological support using software: A heavy focus of software in back-end logistics helped the company gain an efficient supply chain.
1999: Building Additional Fulfillment Infrastructure:
• Aggressive in Competition: Amazon’s goal to be an e-tailing leader through “Get Big Fast” policy was based on increasing revenue per customer policy. It was a chain linked process. In order to increase revenue per customer, it rapidly increased its product line and in order to support that they had adapted their supply chain and distribution network which offered a competitive edge in the long run. • “Deliver at any cost”- Customer First-Cost, Multi-order & Lead Time Efficiency: The three factors are the goal of all supply chains. Amazon had a wide range of products which varied in size, nation-wide vs. regional products, seasonal products etc. Maintaining a full array of products at each DC helped Amazon to achieve cost efficiency and reduced lead times but required the firm to maintain inventory at each DC. • Use of Advanced Technology: The use of “pick-to-light” and pick list systems only helped the company’s workers to efficiently pick up products and hence reduce errors in their delivery and hence was a cost saving factor. The grouping of multi-order and single-order items in different pick lists helped them increase the number of packets packed each day.
2000-2002: Optimizing customer fulfillment network:
Jeff Wilkes modifications for gaining competitive advantage:
• Streamlined US DC processes: Six Sigma DMAIC (define, measure, analyze, improve and control). This helped them reduce inventory-record inaccuracy by 50 % and acted as a tool to reduce variations and defects which were ignored earlier. • Reducing Inventory costs: Methods like reducing “Split Shipments”, predicting demand using softwares, Integrating...