1. Why is Amazon building more warehouses as it grows?

How many
warehouses should it have and where should they be located?

Amazon is one of innovative and world largest of online retailers, selling over
forty categories of good, from books to electronics to groceries to jewelry and to auto
parts. The company is also an E-commerce and internet technology platform, a
fulfillment and logistics platform, a search technology, an internet advertising platform
and even internet startup incubator. The tech giant is the largest internet retailer in the
world measured by revenue and market capitalization, and second largest after
Alibaba Group in terms of total sales.
With the growth of Amazon worldwide and became the most popular online
retailer among consumers, it has to be innovative in term of its supply chain process
in order to build customers loyalty and attract new customers in future. To meet
customer needs, Amazon has improved its supply chain process from focusing on
cost and meeting the schedule to customer-centric supply chain whereby customer
expectations such as diversify goods and company respond time became Amazon
priority. Thus, Amazon has built more than 120 giant warehouses worldwide with
45,000 warehouses utilised automated system to enable Amazon to manage
warehouses activities efficient and effectively. The warehouses owned by Amazon are
strategically located, moving closer and closer to major metropolitan areas and urban
areas. To get closer to consumers, Amazon has increased the number of distribution
centers whereby Amazon has opened more than 2 dozen Prime Now hubs throughout
cities to support the delivery system and if regulatory approval is obtained, it could be
deliver rapidly using drones in one day.
Besides warehouses, Amazon also concern with regard to its transportation
because it one of the vital factors that contribute to increase respond time and deliver
faster. The close collaboration between warehouses and logistics division will make it
possible to deliver goods in one hour or on the same day without depending on third
party logistics. With the warehouse expansion, it allows Amazon to react and deliver
goods to customer according to time promises. It is clear that if the number of
1
warehouses increases, the response time decreases and if the number of warehouses
decrease, the response time increase accordingly.
Currently, Amazon warehouse is known as fulfillment center. The fulfillment
center is not only store products like warehouse but also serve as distribution centers
where associates pick, pack, and ship orders quickly and efficiently. Amazon operates
over 175 fulfillment centers worldwide in more than 150 million square feet of space,
the majority fulfillment centers are located across North America, Canada, Mexico and
Europe. The number of warehouses required is depend on few factors as follows:
a. Scale economy. When the main purchase power reach a certain
extent, company will intuitively build a warehouse to cover the sales in the
region.
b. Strategically arrangement. Take future development into
consideration.
c. Convenient communications. With a better communicating location,
it could cooperate with the delivery company more efficiently and lower the
delivery cost.
d. Renting cost. After considering reasons above, the renting cost
should come in now. Cost is always one of the reasons for choosing the
location.

2. Should Amazon stock every product it sells?

No, it should not stock every product it sells. It only have to stock those products
which are in higher demand. Since Amazon tends to have many facilities thus they
also have high inventory levels and costs. Thus they should not store all products they
sell. Amazon should use both Push and Pull process in order to minimize their level of
inventory costs. In fact with a Pull process cycle, Amazon will only place the order from
their supplier when the customers place theirs. This process should not be used a lot
since it could decrease Amazon response time to deliver the product but it should be
used at a point where it could minimize inventory without impeding that much on
response time. On another hand, Amazon should use push process more in order to
forecast the demand accurately and to get in its inventory exactly what is needed in
order to not have overstock products which will increases inventory costs. Amazon
keep it products as follows:
2
 a. Standard inventory. Amazon keep physical inventory of the
popular and higher demand product it sells as standard inventory in order to
fulfill those customers’ needs in a certain short time.
b. ‘Just In Time’ inventory. Amazon does not stock unpopular and
low demand products. When Amazon receives orders which are not in stock, it
cooperates with the supplier to meet the unexpected demand. Furthermore, it
can save lots of space to reduce the space in warehouses.

3. What advantage can bricks-and-mortar players derive from setting up an

online channel? How should they use the two channels to gain maximum
advantage?

There are times that a person is unable to physically go to a store to buy items.
The convenience of shopping at home benefits both the consumer and the company.
The company would not suffer in profit, if a customer is unable to leave home or is
stuck at work. Providing customers with the option online keeps the customer
shopping and the stores profiting. Provide customers with easy payment options online
and at a brick-and-mortar, shop offers shoppers the flexibility to shop. No matter if you
shop from home or in the store, you have the option of a using credit, debit cards, or
a cheque for payment. There are not many people who carry cash, so having this
option is a great convenience. Convenience and flexibility in shopping is the key to a
happy customer. Now days, individuals can purchase goods online where shoppers
can choose their items online and have their goods shipped to the house. While
customer purchasing goods online, the system gather and consolidate customer
information in customer database that will enable company to analyse customer
passion and needs for future planning. On the other hand, Brick-and-Mortar shopping
allows consumers to feel, touch, and try on items before purchasing.

The advantages of setting up an online channel are as follows:

a. Providing another promotion and marketing channel
b. Customers can shop and pay for the goods at their convenience
and comfort and get it delivered to their offices or door steps anytime. It
will reduce cost on customers’ survey and time.
c. Increasing consumers.
3
 d. Have more demographic and geographic coverage for their
marketing campaigns at lower budgets since advertising online is less
expensive and needs fewer (financial and labor) resources than does
physical marketing.
e. Have targeted, customised marketing campaigns for different
segments of customers.
f. Advancement in Internet and software technology, making it
cheaply available to even the smallest business so they can compete
more effectively with larger competitors.

The maximum advantages obtain from both channels are as follows:

a. Through online channel, they can collect more detailed
information about customers so that they can update customer database.
With that, they can build up the optimal marketing and supply chain
strategy in future.
b. Providing two channels to customers makes it more convenient
and also fit their own needs. At the same time, it could also save
unnecessary cost to the company.
c. It will drive demand for popular or less popular products, using a
recommender system on their online portals based on the customer’s
browsing history and eventually the company able to identify how many
products to be stocked in inventory.

4. What advantages and disadvantages does the online channel enjoy in the
sale of shoes and nappies relative to a retail store?

The advantages of online channel are as follows:

a. Online shopping saves time. Customers do not have to
stand in queues in cash counters to pay for the products that have been
purchased by them. They can shop from their home or work place and
do not have to spend time traveling. The customers can also look for the
products that are required by them by entering the key words or using
search engines.

4
 b. Comparisons. Companies display the whole range of
products offered by them to attract customers with different tastes and
needs. This enables the customers to choose from a variety of models
after comparing the finish, features and price of the products on display.
Sometimes, price comparisons are also available online.
c. Convenience of online shopping. Customers can
purchase items from the comfort of their own homes or work place.
Shopping is made easier and convenient for the customer through
internet. It is also easy to cancel the transactions.
d. Lower facility cost. Company do not have to rent or built
number of giant warehouses because some of the products is store by
supplier. Only higher demand products are keep in inventory. Thus, it
will lower it cost from rent other warehouses.
e. Online tracking. Online consumers can track the order status
and delivery status tracking of shipping is also available.

The disadvantages of online channel are as follows:

a. Delay in delivery. Long duration and lack of proper inventory
management result in delays in shipment. Though the duration of
selecting, buying and paying for an online product may not take more
than 15 minutes; the delivery of the product to customer’ s doorstep
takes about 1-3 weeks and sometimes it is not deliver within time
promises. This frustrates the customer and prevents them from shopping
online.
b. Frauds in online shopping. Sometimes, there is
disappearance of shopping site itself. In addition to above, the online
payments are not much secured. So, it is essential for e-marketers and
retailers to pay attention to this issue to boost the growth of e-commerce.
The rate of cyber crimes has been increasing and customers’ credit card
details and bank details have been misused which raise privacy issues.
c. Extra cost bear by consumer. Online stores advertising
free products will sometimes increase the cost of shipping so that
they profit from the purchase. For example, shoppers may get

5
 three free items, but paying extra in shipping or handling charges
is higher than what would normally be charged and likely covers
the cost of the three items plus shipping.

5. For what product does the online channel offer the greater advantage
relative to retail stores? What characterizes these products?

Online channel offer the greater advantage for those products having large
product varieties. For example, Netflix offers a much large selection of movies than
any video rental store, offering the same selection at a store would require a huge
location with correspondingly large amount of inventory. Although Netflix is a new
technology offered to online consumers but it has varieties of movies across the world.
Having such products sold online also would help save inventory costs. Some
examples of these products are electronics, books, clothing, office supplies and
household goods. Basically the product could be divided into two categories as
follows:
a. Virtual goods. Such as software, stocks, tickets etc.
b. Physical goods. Foreign products where by the product that buyers
and sellers are hard to find each other.

The characteristics of these products are as follows:

a. The feature or quality of goods can be easily showed from the limited
pictures or information on the internet.
b. Its traditional channel can be easily replaced by e-commerce channel.
Thus it will reduce cost for example display and stock and rent of stores cost
can be eliminated
c. The searching cost in traditional channel is much higher than e-
commerce.