Part A: Choose either question 1 or 2 and answer ONLY one[50 to 150 words]
Develop a side-by-side comparison of Amazon's supply chain vs. traditional retailers.
Using data and numbers from the case, discuss the advantages and disadvantages of Amazon's structure in its supply chain.
Part B: Based on your answer to one of the questions above, think about which other significant challenges Amazon faces as its enters the year 2023 where fuel costs will keep rising, economies will stagnate, and inflation will make the cost of sales go up. Make one specific recommendation to improve Amazon's supply chain.[<100>
Amazon’s Supply Chain After Three Decades of Operations In July 2022, Amazon.com (Amazon) reported an increase of 7% in Q2 2022 net sales, compared to the second quarter of 2021. While their operating costs increased by 12% between the same two periods. This led for Amazon to report a net loss of $2.0 billion for the second quarter of 2022. This was the second quarter in a row of posting a net loss, after having enjoyed years of making a profit on every quarter. (Amazon.com, 2022). Amazon (2022) attributed the decrease on operating profit and net cash to “inflationary pressures in fuel, energy, and transportation costs” and committed to investors to “improv[e] the productivity of [their] fulfillment network”. Despite these negative results, Amazon’s market capitalization closed at $1,081.5 Bn U.S. dollars by June 30,2022 (Yahoo Finance, n.d.). Making Amazon the fifth largest company by Market Cap in the world. This position came with some criticism. Retailers like Walmart and Best Buy were taking giants steps on improving their online shopping presence. Governmental regulators in the U.S.A. and the E.U. were not pleased with the empire Amazon had built. And were investigating monopoly practices (Weise & McCabe, 2022) with a potential outcome for the company being broken up in pieces (Espinoza, 2022). Given that Andy Jassy, Amazon’s CEO appointed in July 2021, was the previous executive of Amazon Web Services (AWS) and given that the transportation and fuel costs were expected to keep rising, a question that remain in the market was: whether Jassy would stir the company towards tech, and re- think their role as a supply chain leader? Retailers in the U.S. The total sales in the retail industry in the U.S. amounted to US$6.6 trillion for the calendar year 2021 (US Census Bureau, 2022) of which e-commerce represented $975 billion (U.S. Department of Commerce, 2022). This means that 15% of retail purchases are taking place through an online channel. In ten years, the proportion of sales done online had tripled. In 2011, online sales accounted for 5% of the total retail value (U.S. Department of Commerce, 2012). Forecasts predicted that 30% of retail sales would be conducted online by 2027 (Miglani & Kodali, 2022). At the global level, retail sales were expected to amount to US$31.3 trillion dollars by 2025, (emarketer.com via Statista, 2022), where 23% would be conducted online (emarkerter via Statista, 2022). According to Forbes, Amazon was the world's largest retailer, followed by Walmart, Alibaba and CVS (Debter, 2022). Walmart had generated 152.9 billion of U.S. dollars for quarter two of 2022, a growth of 8.4% compared to the same period a year ago. Like Amazon’s, Walmart saw an increase in their operating cost of 9.2%. Nonetheless, Walmart posted a positive net income of 6.9 billion dollars - down from $7.4bn in Q2 202- and they attributed the decrease to profitability to a change in product mix and markdowns (Walmart, 2022). Walmart did not report being affected by fuel and transportation surge in prices. Amazon’s Supply Chain: First Decade In 1994, Jeff Bezos founded amazon.com selling only books through the internet. That same year, Bezos invested in two warehouses, which he called fulfillment centers, one in Seattle and the second one in Delaware. These were no small buildings. Delaware’s fulfillment center was 18,000+ square meters, about two and half soccer stadiums. The entire warehouse was devoted to store all sorts of printed books. Which amazon would ship to their online customers by using the U.S. Postal Service (USPS), taking between one and seven days to arrive. Amazon’s home page in 1995 By 1999, Amazon had opened five more fulfillment centers including two in Germany, and one in the United Kingdom. The company had expanded their product offering to sell music CD’s, movie DVD’s, video games cartridges and toys (Charan & Yang, 2019). Amazon Becomes Logistics Company through 3rd-Party Sellers FBA: Second Decade Between 2002 and 2005, Amazon diversified in multiple directions. In 2002 they entered the tech industry by launching Amazon Web Services, a cloud-based platform providing storage networks and databases services (EComCrew, 2022). In 2004, Amazon acquired joyo.com, the largest online retailers of books, music, and videos in China (Amazon, 2004). And in 2005, Amazon launched its now popular Amazon Prime service (Amazon, 2012). Back in the day, memberships were relegated to gyms and Blockbuster. And even though consumers did not ask for the Amazon Prime subscription, eight million Americans had signed up for it during the first five years (InstaMed, n.d.). In 2006, Amazon’s biggest innovation -yet- in their supply chain, would be the FBA. Also known as “Fulfilment by Amazon”. Originally, third-party sellers needed to manage their own inventory and to ship directly to customers. This meant that Amazon couldn’t achieve economies of scale with their own fulfillment centers. And Amazon was incurring in extra costs as they would reimburse third-party sellers with standard shipping and packaging fees. With the launch of FBA, third-party sellers could outsource the inventory, picking shipping and customer service to Amazon (see exhibit 1). The launch of FBA, together with their incursion in the tech space, transformed Amazon in a conglomerate. Amazon wasn’t only an online retailer anymore competing with Walmart and Alibaba. Amazon was now competing with Google and Microsoft for cloud-services. And competing against UPS, FedEx, and DHL in the management of supply chain, inventory, and warehousing. 2013’s Christmas Crisis: the Turning Point Despite the launch of FBA, Amazon was still using companies like UPS to complete the last-mile delivery. This means that while Amazon would use their fulfillment centers to consolidate their own inventory with inventory from their third-party sellers, often Amazon was not the one going to the customer’s house to drop the package. The popularity of Amazon Prime’s service and the convenience of shopping online across had grown rapidly by Americans. For the Christmas of 2013, Amazon and other retailers had outsourced the delivery of 7.75 million packages through UPS’s air network on the Monday before Christmas (Finley, 2013). But the installed capacity of UPS couldn’t handle such volume, and the company couldn’t delivery the packages on time (CNBC, 2013). Amazon’s customers had started to report earlier in December that their packages were delayed. Nonetheless, Amazon trusted UPS would be able to deliver all packages and continued to promote their free standard shipping. Promising the packages would arrive before on time for Christmas. Complaints from customers about absent packages under their Christmas trees were widespread (Bishop, 2013). A UPS’ spokeswoman said “We are terribly sorry” to CNN (2013). Although Amazon never disclosed how many packages were delayed or never delivered by UPS, Amazon had to offer $20 gift cards to disgruntled customers (Harris & Gelles, 2013). This was the final event that prompted Bezos to invest further in Amazon’s delivery infrastructure. The goal was to ditch companies like UPS and FedEx. And instead, be Amazon themselves the ones doing the last-mile delivery. This strategy had a secret internal name: Operation Dragon Boat (Dalin-Kaptzan, n.d.). By 2016, Amazon had formed a new business unit called Global Supply Chain by Amazon that promoted Amazon as a global logistics provider. Amazon was to purchase in bulk space in on airplanes, trucks, and ships. Thus, bypass brokers and 3PL companies to reduce logistics costs. In addition, sellers not using FBA would no longer book with DHL, FedEx, or UPS, but with Amazon. Even if Amazon had to use those companies the sellers did not have a choice now. Hence this would push more of them to switch to cheaper and easier FBA system. In addition, Amazon was to increase its transportation assets, by owning trucks, shipping containers and airplanes. While this massive supply chain transformation took place, Amazon partnered with the U.S. Portal Service -which was typically associated with the delivery of snail mail- to have them deliver Amazon’s packages. The USPS agreed to start making Sunday’s deliveries (Duryee, 2014). Amazon’s Supply Chain: Third Decade After 30 years of supply chain innovation, Amazon had managed to decrease the time it took them to get an item from fulfillment center into the right truck to shipment. From 18 hours, on average, in early 2000’s, to under two hours in 2021 (Amazon, 2021). Amazon achieved record times in items delivery by expanding their geographic coverage through a network consisting of sortation centers, fulfillment centers, Prime Hubs, outbound sortation centers, and delivery stations. By the close of the calendar year 2021, Amazon had 253 fulfillment centers, 110 sortation centers, and 467 delivery stations in North America, with an additional 157 fulfillment centers, 58 sortation centers, and 588 delivery stations across the globe. Amazon’s delivery network grew to 260,000 drivers worldwide, owning 100 Amazon Air cargo aircrafts (Amazon, 2021). Products being delivered in the US market would follow, typically, this flow: product arrived from overseas into an Amazon’s sortation center. To then be transferred to the closest fulfillment center to the final consumer destination. Whereas products sources by domestic U.S. suppliers would ship directly to a fulfillment center. Once in the fulfillment centers, which acted as a consolidation warehouse, the product ‘s last mile journey would be delivered by one of these three channels: a) FedEx or UPS, or b) USPS with a pre-sorting mechanism first: packages would be sent to an outbound sortation center. Here, packages would be loaded together with other packages destined for a similar ZIP code. This would make the use of the postal service much more efficient, as USPS would go and collect a bunch load of packages that could be delivered together with the regular snail mail. c) Amazon owned delivery. Again, using an outbound sortation center, packages would be delivered to an Amazon Hub -where customers would