1995-1998: Establishing Amazon.com
Jeff Bezos founded Amazon in July 1995 with a mission to “use the Internet to transform book buying into the fastest, easiest and most enjoyable shopping experience possible.”i Initially a pure online book retailer with a selection of 1 million titles, Amazon quickly increased its selection to 2.5 million titles to become the “Earth’s Biggest Bookstore,” a claim that Amazon would use to differentiate from its brick and mortar competitors.ii
From its outset, Amazon relied on a distinctive procurement strategy: hold modest inventories and rely on wholesalers – primarily Ingram Book Company and Baker & Taylor – to build its online book catalogue and source its vast selection. For example, in its early years, Amazon offered 2.5 million titles, yet stocked only 2,000 titles (comprising about 5% of its orders) in its own warehouse – a small (50,000 square-foot) facility in Seattle.iii The rest of its titles were sourced on an as-needed basis only after receipt of a customer order. When Amazon received a customer order for a title that was not in its own stock, it would submit a purchase order to a wholesaler. The wholesaler would typically fill Amazon orders quickly, with shipments arriving at Amazon’s distribution center within two to three days. As volume increased, Amazon opened direct accounts with publishers to obtain better purchasing discounts. (Amazon would typically receive a 48% discount off a book’s cover price when buying direct from publishers vs. a 41% discount from wholesalersiv.) However, publishers were not as operationally efficient as wholesalers and could take weeks to fill Amazon’s orders.v Once the necessary titles were received in Amazon’s warehouse either from wholesalers or publishers, Amazon employees would pick and pack the order and ship it to the customer. This process enabled Amazon to fulfill the vast majority of customer orders within four to seven business days while keeping inventory turns high – 70...
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