Introduction

Overview of the supply chain of Amazon

Operating as Amazon, Amazon.com, Inc., is online based company founded on July 5, 1994 and incorporated on May 28, 1996 and has its headquarters in Seattle, Washington. The electronic commerce and cloud computing business operates in a wide range of services and products (Van Hoek 2001). The company is a leader in Internet retail business dealing in merchandise and content that it gets from the vendors to resell and manufacturing and selling electronic devices. Being an online retailer, the company has a very efficient supply chain (Mahadevan 2000). The company is posited to have a strategic fit with the strategy for maintaining its competitiveness. The retailer always strives to be a retailer of choice, a strategy that is blended with multi-tier inventory management, capitalization on the use of information technology, and superior transport system (Cheater 2016). The figure below shows the simplified supply chain of Amazon. However, the company’s supply chain is global, processing and delivering products and services to the global clientele.

(Cheater 2016).

Definition of Sustainability and the Supply Chain of Amazon

The concept of sustainability is not one that is easy to define. However, researchers have sought to provide a working definition of the concept (Toman 2006). The concept refers to the current generation’s use of the resources in such a way that does not jeopardize the potential of the future generations to meet their own needs (Halldórsson, Kotzab and Skjøtt-Larsen 2009). Therefore, in whatever area that the concept is applied, it is critical for the current resources to be used in a sustainable manner and ensure availability for future generations. In supply chain, sustainability is considered a holistic view of the processes within the supply chain (Seuring and Müller 2008). It relates to the use of the techniques and technologies for addressing the supply chain’s environmental, social and legal elements and the related economic aspects (Stevenson and Hojati 2007). Throughout the lifecycle of the product, it is critical for the company to manage the environmental, social and economic effects of the activities (Vurro, Russo and Perrini 2009). Supply chain sustainability should be aimed at creating, protecting and growing long-term value.

While Amazon has always been a forward looking company in its operations, it has faced major challenges in relation to a number of sustainable metrics (Lee 2004). Recycling and packaging are among the areas where the company has faced criticism in relation to the sustainability of the supply chain (Chopra 2003). One of the strategic processes for the company has been the recycling of its electronic products and others to prevent excessive wastage of the resources (Hesse 2002). Recycling has not always been done in the most sustainable manner. The company has also faced criticism because of the packaging and the delivery of its products (Bozich and Yates, Rohm and Haas Company 2004). Among the issues associated with sustainability of the supply chain has been transportation. Transport is the main contributor of environmental damage and if not well managed it can be a major issue in the sustainable supply chain.

Key Success Factors

For the supply chain of Amazon, there are success factors that should be considered in the efforts to make the supply chain more sustainable. The success factors are faster delivery of products and automation of the supply chain (Lee and Whang 2000). Among the measures of sustainability is lowering the level of pollution emanating from the transportation of the products by the company. By reducing the time required to transport the products, there is reduction in the level of emissions by the means of transport (Cohen and Roussel 2005).  Automation of the supply chain is also another means for enhancing the operations.

Supply chain risks

Use of the Fishbone analysis model can play an important role in understanding the risks (causes) and the effect they have on the operations the supply chain (see figure below for the model).

FISHBONE (ISHIKAWA) DIAGRAM

From the model, the risks can come in the form of equipment, including the suppliers, employees and the consumers; methods, including the methods of processing and delivering  the supplies; equipment, including technology and logistics; and the environment. For the supply chain of Amazon, the supply chain risks can either be internal or external to the company. Identification of the risks is the beginning step in mitigating them (Rao and Goldsby 2009). The external risks are not within the control of the supply chain manager and they include: unpredictable demand, interruptions of flow due to supply issues, environmental issues, economic risks, and physical plant risks (Chopra and Sodhi 2004). The internal risks occur within the company and within the control of the management. They include manufacturing issues, planning and control challenges, cultural risks and logistic issues (Chopra and Sodhi 2004).

Project Plan – Parcel Packaging

Strategic Approach

One of the sustainability issues that are evident in Amazon is the increased volume of the products being delivered because of packaging. The packaging of Amazon uses a lot of packaging in their parcels (their own Design Boxes) for the smallest things the boxes is always bigger in proportion to cover the actual product. The materials used for packaging are also unsustainably used by the company, increasing the cost of supply chain, which is in turn borne by the customers (Damji 2003). It is not necessary for the company to continue using that kind of packaging while there are alternatives that could ensure use of fewer materials and at a less cost for the company and the customer.

There are two solutions to the problem of unsustainable packaging by Amazon. The problem could be addressed by using smaller boxes closer to the parcel sizes of each delivered product at the time. The solution is tenable given the fact that it will save on the packaging material. For example, it would be highly beneficial to all the stakeholders if the packaging material used for one package could be used for two (Damji 2003). Another solution to the problem is the use of more eco-friendly and fully recyclable materials to minimize the waste, reduce cost and to protect the environment.

Option Appraisal – Value Index

The formula for the Value Index is:

For Amazon to consider this Solution (Recommendation) on Parcel Packaging, the following 4 dimensions will be taken into account:

1. Cost – How much will the recommendation cost in comparison to current situation?
2. Benefit – Is the benefit from the recommendation greater than the current situation?
3. Risk – What is the overall risks from executing the recommendation?
4. Sustainability – How Sustainable is the recommendation and what’s the effects?

On a scale from 1(low) to 4(good),

Dimension	Importance	Current Situation	Solution
Cost	4	2	4
Benefit	2	1	3
Risk	1	2	3
Sustainability	3	2	4

Calculations:

• Current Situation: (4×2) + (2×1) + (1×2) + (3×2) = 18

 

• Solution: (4×4) + (2×3) + (1×3) + (3×4) = 37

The company will involve use of resources (cost) to implement the solution, but the benefits, compared to the current situation, will outweigh the costs. So, the Solution (Recommendation) is scoring higher (37) than the Current Situation (18). Thus it makes sense for Amazon to move forward with the Parcel Packaging recommendation. From the analysis, it is evident that the solution will be feasible based on the cost-benefit analysis. The risks involved in the solution are also lower than the no change situation. The solution is also a highly sustainable one, leading to the recommendation for adoption.

  Budgeting

1. Parcel Packaging	Man Day Assuming 250£ pre Man Day	Purchase	Money
1.1Design the new Packaging
Hire a design Agency	5	N/A	1.250£
Come up with a design	40	N/A	10.000£
Create a sample product	50	N/A	12.500£
Test product	10	N/A	2.500£
Sign Off	2	N/A	500£
1.2New Eco Materials		Assuming 6£ per Unit
Research new Eco Materials	80	N/A	20.000£
Test on durability and strengths	30	N/A	75.000£
Purchase new Eco Material	6	75.000.000	450.001.500£
Quality Check	60	N/A	15.000£
Logistic of the material	90	N/A	22.500£
1.3Manufacturing		Cost of each Plan
New machine for creating boxes	500	56.000.000£	56.125.000£
Advanced Robots for monitoring	20	4.500.000£	4.505.000£
Replacement parts plan	N/A	2.300.000£	2.300.000£
Staff Training	800	N/A	200.000£
Building Expansion	200	21.850.000£	29.000.000£
Total Budget:	542.290.750£

 

• Project Timeline
• Risk Register

Risk	Likelihood	Severity	Countermeasures
Agency hired not following up Amazon exact needs.	Low	High	Have Amazon’s R&D staff monitoring the whole process.
Failure in Product Testing.	Medium	Low	Have multiple testing samples.
Delay in the final packaging designs.	Low	Low	Setting strict deadlines in advance to avoid delays.
Time-consuming process of finding new Eco-Material.	High	Medium	Having assigned the best performing staff of R&D for this task.
Complications while testing on durability and strengths of the new Eco-Material.	Medium	Low	Having an alternative sample from another Eco-Material.
Quality Check Failure.	Medium	High	Having samples checked before the full purchase of the new material.
Delays in the material logistics.	Low	High	Immediately outsource logistics methods to transport the new material to DCs.
Complications in installation of the new machine.	Low	Medium	Hire qualified engineers with experience to avoid installation issues.
Failure in monitoring robots.	Low	High	Having qualified staff monitoring the robots activities at all times.
Difficulties in Staff Training.	Medium	Low	Quarterly, examine the staff to see effectiveness and knowledge in practice.
Delays in the constructions for the building expansion.	Medium	Low	Having an open contract with the constructors, in order to be able to bring in a new constructing team to finish the expansion within the deadlines.

 

 

Project Plan – Outsourcing Transportation

Strategic Approach

The logistics especially in relation to the transportation that the company uses for the delivery of the products is another area that requires to be improved. Amazon does not have any specialized delivery services especially to the international customers. The company uses any available delivery company at each final destination of the parcels. Hence, the efficiency of the delivery of the products is left in the hands of the delivery companies (Monczka, Handfield, Giunipero and Patterson, 2015). Most of the companies deliver goods from many other companies which mean that the loads are vast. They are also not as fast as would be desirable to the company’s clientele. Some clients are not satisfied with the amount of time it takes for the company to deliver the products. Also, the longer it takes, the greater the environmental, social and economic costs to the stakeholders.

As recommendation Amazon could outsource the transportation and delivery services. This can be achieved by closing a long term deal with already existing and well established companies around the world that uses eco-friendly electrical vehicles specializing in transportations and delivery (e.g. UPS, DHL, and FedEx). The move will allow for the company to enjoy effective, efficient and sustainable transport arrangements. When this is the case, the delivery company does not have to wait for goods from other supplies before delivering to Amazon’s clients. Use of electrical vehicles will allow for greater sustainability (Ritala, Golnam and Wegmann 2014). Cost efficiency will be possible when there is a long term deal with those delivering companies and the internal prices for Amazon will be fixed and low for the company and the customers.

 

Option Appraisal – Value Index

The formula for the Value Index is:

For Amazon to consider this Solution (Recommendation) of Outsourcing Transportation, the following 4 dimensions will be taken into account:

1. Cost – How much will the recommendation cost in comparison to current situation?
2. Benefit – Is the benefit from the recommendation greater than the current situation?
3. Risk – What is the overall risks from executing the recommendation?
4. Sustainability – How Sustainable is the recommendation and what’s the effects?

On a scale from 1(low) to 4(good),

Dimension	Importance	Current Situation	Solution
Cost	4	3	3
Benefit	1	2	3
Risk	3	1	3
Sustainability	2	2	4

 

Calculations:

• Current Situation: (4×3) + (1×2) + (3×1) + (2×2) = 19
• Solution: (4×3) + (1×3) + (3×3) + (2×4) = 32

So, the Solution (Recommendation) is scoring higher (32) than the Current Situation. Thus it makes sense for Amazon to move forward with the Outsourcing Transportation recommendation.

 Budgeting

 

2. Outsourcing Transportation	Man Day Assuming 820£ pre Man Day	Investment Capital	Money
2.1 Selection of Service Providers
Request quotes from providers	4	N/A	3.280£
Select most favourable	60	N/A	49.200£
Negotiate prices and perks	80	N/A	65.600£
Final decisions globally	30	N/A	24.600£
Sign Off	6	N/A	4.920£
2.2 Evaluate Delivery Services
Trial Period	650	N/A	533.000£
Testing delivery methods	40	N/A	32.800£
Service Quality Check	20	N/A	16.400£
Test on cost efficiency	8	N/A	6.560£
Final Operational Test	12	N/A	9.840£
2.3 Monitoring Process		Cost of Technology
Develop advance software	3.000	39.500.000£	41.960.000£
Test monitoring software	240	N/A	196.800£
Fix software glitches	600	N/A	492.000£
Amazon’s Staff Training	990	N/A	811.800£
Advanced robots backup support	90	43.690.000£	43.763.800£
Total Budget:	87.970.600£

 

• Project Timeline
• Risk Register

Risk	Likelihood	Severity	Countermeasures
Requested quotes from all the providers not coming in all together.	High	Low	Give a deadline to all providers for coming up with the requested quotes.
Some of the quotes form all the different providers could be matching.	Low	Low	The selection of the most favourable quote for Amazon should be based on which provider holds the strongest position regionally.
Service providers not willing to negotiate prices and perks further.	Medium	Medium	Having assigned for the task the best performing negotiators from the Law Dept. to make sure they drive the prices and perks to desirable levels.
Delays on Sign Offs due to different bureaucracy levels globally.	Medium	High	Outsource the legal services for the Sign Offs with the best regional Law Firms to avoid delays.
Delays with the new delivering service.	Low	High	Set strict delivering polices on the contracts with the providers.
Difficulties with testing quality of the providers’ services.	Medium	High	In the trial period, run a realist check in Amazons DC in cooperation with the service providers to evaluate their service quality.
Complication with expenditure and cost efficiency at the start.	Medium	Medium	Due to the setting up and legal fees at start the expenditure could be inefficient. After should return to expected levels but monitored at all times by an assigned Amazon team.
Detain the Final Operational Tests.	Low	Medium	Set deadlines to providers and monitor the whole process from the start of the trial period, to avoid potential detains.
Intricacy in software development.	Low	Medium	Hire qualified IT staff with experience in software development.
Failure in software testing.	Medium	High	IT team will Investigate defaults and decode the errors in the system.
Complexity with fixing software glitches.	Medium	Medium	For the process of fixing the potential software glitches, multiple IT team will be assigned for faster and multidimensional approach to the issue.
Difficulties to train Amazon’s Staff.	Low	High	Introduce new training methods to approach the staff better accessibility.
Robots fail to provide Backup support.	Low	High	Having excess Robots stand by for replacement.

 

Personal Reflective Analysis

The choice of Amazon as the company to carry out the research is informed by the increasing popularity of the company in the era of electronic business. The company is a model of the new business model which makes it an interesting case study. The use of online business model is important because of the ease of doing business. However, the company has sustainable issues that should be understood and addressed to make the business model more effective, efficient and sustainable. I find it interesting that the company is still facing a challenge in terms of packaging and transportation. These are logistical issues that if addressed will allow the company to work even better and to make sure that the customers are well served. The customers will have better services if the issues are addressed. It is important that as a customer, when I order something from the company I receive it within the shortest time possible and at the least cost possible. It is also important for the company to make sure that the goods are delivered using the most sustainable transport system. The supply chain of the company should operate at the most sustainable manner throughout the life of the product.

 

Reference List

Bozich, F.A. and Yates, P.D., Rohm and Haas Company, 2004. Integrated system for designing product packaging. U.S. Patent 6,748,285.

Cheater, A. 2016. Amazon’s Supply Chain Innovation Delivers Results. Retrieved from https://blog.kinaxis.com/2016/04/17617/

Chopra, S., 2003. Designing the distribution network in a supply chain. Transportation Research Part E: Logistics and Transportation Review, 39(2), pp.123-140.

Chopra, S. and Sodhi, M.S., 2004. Managing risk to avoid supply-chain breakdown. MIT Sloan management review, 46(1), p.53.

Cohen, S. and Roussel, J., 2005. Strategic supply chain management: The 5 disciplines for top performance. McGraw Hill Professional.

Damji, S., 2003. Process for determining optimal packaging and shipping of goods. U.S. Patent Application 10/418,708.

Halldórsson, Á., Kotzab, H. and Skjøtt-Larsen, T., 2009. Supply chain management on the crossroad to sustainability: a blessing or a curse?. Logistics Research, 1(2), pp.83-94.

Hesse, M., 2002. Shipping news: the implications of electronic commerce for logistics and freight transport. Resources, conservation and recycling, 36(3), pp.211-240.

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Lee, H.L., 2004. The triple-A supply chain. Harvard business review, 82(10), pp.102-113.

Mahadevan, B., 2000. Business models for Internet-based e-commerce: An anatomy. California management review, 42(4), pp.55-69.

Monczka, R.M., Handfield, R.B., Giunipero, L.C. and Patterson, J.L., 2015. Purchasing and supply chain management. Cengage Learning.

Rao, S. and Goldsby, T.J., 2009. Supply chain risks: a review and typology. The International Journal of Logistics Management, 20(1), pp.97-123.

Ritala, P., Golnam, A. and Wegmann, A., 2014. Coopetition-based business models: The case of Amazon. com. Industrial Marketing Management, 43(2), pp.236-249.

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