ACE Challenge IN Transportation Introduction Milo Thatch, a Senior Operations Manager at Amazon, watched the city of Ashtan from

m his 24th floor office as the day light receded and the city started lighting up to welcome the Friday evening. He knew it was going to be a long night for him at the office. Milo had spent the last 4 months at Ashtan and other prime cities of Yudonia, and was nearing the first major milestone of the project he had been assigned to. Amazon, having established itself as the worlds largest online retailer with presence across countries such as the US, UK, Canada, Japan and China, had now shifted its international expansion focus towards developing nations where it foresaw huge growth opportunities. The Republic of Yudonia was a key market in Amazons internationa l expansion strategy. A team comprising leaders across business areas such as technology, retail and operations had been put together to drive the launch of Amazon in Yudonia. Milo was a key member of this team and had been charged with the responsibility of building the outbound transportation (transportation from the Fulfillment Center to the end-customer) operations for Yudonia. Having closely studied the Yudonian market for 4 months, it was now time for Milo to propose his plan to the Senior Vice President (Operations) in a week from now (October, 2012). He walked back to his desk, opened a fresh document on his laptop and typed the title Outbound Transportation Strategy for Yudonia. The Yudonian Economy With a GDP of about US $ 2 T, Yudonia is the 7th largest country in terms of GDP, with a YOY growth of 7%. Considered to be a major developing economy, this countrys growth has been boosted by free market principles and liberal trade policies that have enabled it to become one of the largest economies in terms of FDI. With the middle class population progressively increasing over the last 2 decades and the disposable income of this population being on a constant rise, Yudonia has become one of the worlds largest consumer markets for goods and services. Also, over the last decade, the number of internet users has sharply increased and it stands at 150 million as of 2012. Courier Industry in Yudonia The courier industry in Yudonia can be broadly classified into 2 categories national carriers and local couriers. The national carriers are well established companies with presence across all prime cities in Yudonia. The local couriers run operations that are focused on a particular geographic region and are generally less expensive than the national carriers. However, from the point of view of technology capabilities and operational excellence, the local couriers do not match up to the national players. The primary national carriers are Agile Express, Brisk Logistics, Swift Express and Yudonian Postal Service (YPS). Each of these carriers differs significantly in their capabilities, coverage and pricing. Exhibit 1 provides a summary of these differences. The local couriers are typically priced between US $ 0.15 and US $ 0.2 per 0.5 kg. While their on-time delivery performance averages around 90% and they have the flexibility to handle increase in volumes in their region, they lack the technology capability to provide real-time shipment tracking. Amazon Volume Forecast for Yudonia In order to evaluate the business opportunity that Yudonia presents, Amazon has carried out a demand forecasting exercise, the summary of which is presented in Exhibit 2. Amazon.com Confidential Page 1 This case and the numbers published in this case are not representative of any Amazon businesses within India or in any other region where Amazon has offices or operations.

ACE Challenge IN Transportation It is expected that a major portion of the Yudonian demand will come from 4 of its prime cities Ashtan, Bregna, Caprica and Diaspar. Exhibit 3 provides the expected city-wise percentage split in demand and the number of zip codes per city/per group of cities. Customer Delivery Experience A primary consideration for Milo in deciding the outbound transportation strategy is customer delivery experience. Given Amazons vision of being the earths most customer-centric company, outbound transportation elements such as on-time delivery, real-time package tracking and a professional uniform delivery experience are paramount to the company. From the study he has made of the Yudonian courier industry, Milo has observed that only Agile Express, Brisk Logistics and Swift Express can meet the required Amazon customer experience bar in some cities (their performance is not consistent across all cities). Also, the price of pay-by-voucher PBV deliveries (in which customers purchase Amazon vouchers from a physical store and use them for payment during delivery) across all carriers is an additional fee of US $ 1.5 per delivery. It is estimated that 25% of Amazon orders in Yudonia will be PBV. Furthermore, at demand peaks, Milo is concerned about the capacity provided by the 3P carriers being able to meet Amazons total volume in 2-3 years from now. While Amazon has traditionally used 3rd party carriers for its outbound transportation needs, Milo is tempted to explore the option of building Amazons own delivery network in Yudonia to overcome the limitations of 3rd party carriers. The delivery network in a given city will consist of delivery hubs where packages to be serviced by that delivery hub are received, sorted and sent out for last-mile delivery to the customer door-step. While this option would provide the required control over customer delivery experience, the cost implications of this proposition should justify its implementation. Exhibit 4 summarizes the data collected by Milo to evaluate this option. Conclusion Milo is closing considering all the information he has collected over the last 4 months, contemplating the strategy that he should employ for outbound transportation in Yudonia, keeping in mind customer experience and cost effectiveness, while taking a long term view of the situation. Question Taking into account all the information provided, detail out the Outbound Transportation Strategy for Yudonia, providing a strong data-based justification for the approach proposed.

Amazon.com Confidential Page 2 This case and the numbers published in this case are not representative of any Amazon businesses within India or in any other region where Amazon has offices or operations.

ACE Challenge IN Transportation Exhibit 1 Agile Express Coverage * (in zip codes) Price per 0.5 kg ** USP Volume handled per year (in millions) On-time delivery performance *** Tracking capability Brisk Logistics 2,000 $ 0.35 Swift Express YPS 15,000 $ 0.25 Covers the whole of Yudonia 200 80% Available depending on region, not real time

2,000 1,500 $ 0.50 $ 0.30 Highly Consistent reliable; has Best surface and economic own fleet of carrier carrier aircrafts 100 20 15 99% 90% 85% Yes, but not real time Yes, but not real time Yes, but not real time

* Total number of zip codes in Yudonia is 15,000 ** Price given is in US dollars for non PBV packages *** On 70% of delayed shipments, Amazon incurs a cost of $ 0.50 for customer refunds. Exhibit 2 2013 2014 2015 2016 2017 2018 2019 2020 Total no. of units sold (in millions) 15.27 30.71 55.29 88.23 132.47 192.74 273.35 377.33 Average no. of units per package 1.5 1.5 1.6 1.6 1.7 1.7 1.8 1.8 Weight per package profiling - Less than 500 Grams 55% 55% 56% 56% 56% 56% 56% 56% - Between 500Gms - 1 Kg 22% 21% 20% 20% 20% 20% 20% 20% - Between 1Kg - 2 Kg 16% 16% 16% 16% 16% 16% 16% 16% - Between 2Kg - 3 Kg 3% 3% 3% 3% 3% 3% 3% 3% - 6.5 Kg 5% 5% 5% 6% 6% 6% 6% 6% Exhibit 3 City/Group of cities Ashtan Bregna Caprica Diaspar Next top 10 cities by demand Rest of Yudonia

% Demand 15% 15% 10% 10% 35% 15%

No. of zip codes 120 105 95 125 1,450 13,105

Available carriers Agile Express, Brisk Logistics, Swift Express, YPS, Local couriers Agile Express, Brisk Logistics, Swift Express, YPS, Local couriers Agile Express, Brisk Logistics, Swift Express, YPS, Local couriers Agile Express, Brisk Logistics, Swift Express, YPS, Local couriers Agile Express, Brisk Logistics, Swift Express (partial coverage), YPS, Local couriers YPS, Local couriers

Amazon.com Confidential Page 3 This case and the numbers published in this case are not representative of any Amazon businesses within India or in any other region where Amazon has offices or operations.

ACE Challenge IN Transportation Exhibit 4 Top 4 Cities Capital expenditure for setup of each hub $ 100,000 Lease rentals per square foot for delivery $1 hubs per month * No. of delivery hubs needed per city 5 Salary of Delivery Associates per month $500 Overhead Expenses per month per hub $6,500 Expected no. of deliveries per associate 20 per day Distance travelled per delivery 1 km Fuel Cost per liter ** $1 * The average carpet area per hub is 2500 square feet ** The mileage per vehicle is 40 km per liter Next 10 cities $ 100,000 $0.85 3 $500 $6,500 20 1.5 km $1 Rest of Yudonia $ 100,000 $0.70 1 $500 $6,500 20 2.5 km $1

Amazon.com Confidential Page 4 This case and the numbers published in this case are not representative of any Amazon businesses within India or in any other region where Amazon has offices or operations.