2.1.1 Amazon’s Value Chain Analysis
184.108.40.206 Primary Activities
220.127.116.11.1 Inbound Logistics
Amazon has the advantage of avoiding the overhead and carrying large amounts of inventory because it orders the books from the distributors. They provide money and contracts to prospective authors and decide how many copies of a book to print. Typically a first run printing for a book varies from 5, 000 to 50, 000 copies. However, best-selling authors’ first run printings are generally set at around 300, 000 copies. Amazon.com receives products from its distributors, partners, manufacturers, and publishers. Receiving is typically at the pallet or case level. In some cases, Amazon.com receives mixed cases that include many SKUs. Product is received and routed for putaway to a location type based on its SKU activity profile. Items are received and routed directly to prime storage locations or sent to reserve storage. Item types are also taken into account at receiving. If an item is "sortable", it comes in a mixed case with other items and needs to be sorted into unique SKUs before putaway. "Full Case" items arrive as a case of homogeneous products and can be putaway as such. "Non-conveyable" products are too large or awkward to flow smoothly on automated conveyors and thus are routed to unique locations (Zeppieri, 2004). Amazon.com distribution centers are segmented into reserve storage locations and forward pick storage locations. Amazon.com refers to forward pick storage as prime storage. Pickers select product from prime storage locations to fulfill orders. Replenishments are performed from reserve storage to prime storage. Amongst the prime locations, there are library bins, case flow bins, and pallet bins. Library bins are similar to bookshelves and contain unique bins that each can store a small number of items. Case flow bins are locations where cases of smaller moving, faster items are stored. Cases are replenished from the back of the shelves, and flow based on gravity to the front of the shelf where pickers can select the product. Pallet bins are traditional pallet storage locations that are typically associated with warehouse environments. At Amazon.com, products are assigned to these locations according to "days of cover" and "velocity to bin type" mapping. Days of cover is a term to explain the amount of inventory to store in prime inventory to meet inventory demands over a specified number of days. A min/max replenishment system is employed where products are replenished from reserve when inventory drops below the min days of cover level. The min days of cover serves as safety stock and the max days of cover includes the cycle stock of a given product. Items are assigned to a particular prime area bin type based on forecasted velocity. SKU velocity is how much cubic volume moves through the distribution center over a specified time period. Velocity is calculated by taking the actual or forecasted demand and multiplying it by the cubic dimensions of the product. SKUs with a cubic volume of 0-1000m 3 are assigned to library bins. SKUs with a volume of 1000-2000m 3 are assigned to case flow bins. Items with a demand over 2000m3 are stored in pallet storage. The matching of SKU to bin type is a balance of space utilization criteria, replenishment costs, and picking efficiencies. For example, a set of highly demanded products may be picked more efficiently from library bins than case storage due to less picker travel. However, if demand requires multiple daily replenishments to the library bins, then case storage may be a better overall storage option based on reducing overall operational costs. 18.104.22.168.2 Operations
In 1995, Amazon.com sold its first book, which shipped from Jeff Bezos' garage in Seattle. In 2006, Amazon.com sells a lot more than books and has sites serving seven countries, with 21 fulfillment...