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Amazon Global Supply Chain
Article · May 2017
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Gianmarco Persiani
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Domenico Di Rito Gioacchino Spinellis Salvatore Fisicaro Ornella Messina
27516@novasbe.pt 27568@novasbe.pt 27537@novasbe.pt 27583@novasbe.pt
ID 3044 ID 2968 ID 2999 ID 2981

Gianmarco Persiani Alessandro Piccinelli

27506@novasbe.pt 27576@novasbe.pt
ID 3033 ID 2974

Case study analysis

Global Supply Chain Management 2016-‐2017 1
Contents
1 Assumptions
2 End-to-End Supply Chain
3 Mapped Activity Analysis
4 Value Chain & Competitor Analysis
5 Business Canvas Model
6 Supply Chain Strategies
7 Aspects of Supply Chain Management

2
Assumptions
AmazonFresh
Ø  Grocery industry market in U.S ($675 billion and esDmated growth of 13,58%)

Ø  Unlikely long-‐term viability of home deliveries for grocery (hassles of distribuDng
food products, the service level pressures of retail, and the low margins of
grocery)

Ø  Warehouses with specific technology for the grocery industry and located in
strategic posiDons
Ø  Dependency from delivery companies such as UPS and FedEX ($5 billion shipping
costs 2015)

Ø  Omni-‐channel strategy leveraging on Amazonfresh
Ø  Major compeDtor for the analysis: Walmart

Ø  AmazonFresh data are esDmated as 8,13% of Amazon’s financial results based on
the total weight of the grocery industry
Ø  Walmart grocery’s data are esDmated as the 55% of Walmart’s financial results
based on the total weight of the grocery industry

Contents
1 Assumptions

4
End-to-end Supply-chain
Amazon uses MulD-‐Tier Inventory model where informa(on flow takes place from Der-‐1 (Amazon DistribuDon Centre) to Der-‐3 (vendors,
manufacturers etc.) and physical flow takes place from Tier-‐3 to Tier-‐1.
GENERAL SUPPLY CHAIN MAP

Ø  SUPPLIERS
They are divided in three categories:
2 •  Vendor/supplier
•  Publisher/Manufacturer(Vendor central)
•  Third party (Seller Central)
Ø  UPSTREAM WAREHOUSES
The products are sourced from both
wholesaler’s DC and in partner inventories
through IT systems
1 Ø  DOWNSTREAM WAREHOUSE
Amazon operates a variety of fulfilment and
distribuDon centres including small& large
3 sortable, large non-‐sortable, specialty
fulfilment centres, 3PL outsourced faciliDes
and Amazon Fresh&Pantry faciliDes.
Ø  CUSTOMERS
4 All items are ordered and then packed and
shipped to the final client passing through
sortaDon centres.
IDENTIFICATION OF MAJOR SUPPLY CHAIN’S PROBLEMS FOR THE GROCERY INDUSTRY
1 STRATEGIC PROCUREMENT 2 WAREHOUSE 3 MAKE OR BUY TRANSPORT 4 PURE ONLINE RETAILER
•  Strong partnerships with MANAGEMENT&LOCATION •  More variability and more •  L a c k o f p h y s i c a l
suppliers and supply chain •  New capacity and cost challenges costs in the grocery delivery stores and the
providers will be vital to including expenses for picking model compared to the challenge of a future
m a t c h h i g h s h o p p e r addiDonal online orders, acquiring p a c k a g e d e l i v e r y o n e mulD-‐channel retail
expectaDons addiDonal D C s pace a nd p rocessing (AmazonFresh) 5
peak seasoning demand
End-to-end Supply-chain Annex 1
1 STRATEGIC PROCUREMENT
Current situa(on Recommenda(ons
•  AmazonFresh allows shopping online and on mobile •  AmazonFresh is not Amazon customers’ only opDon for
apps offering doorstep delivery of a limited selecDon of grocery and household items:
groceries.
Ø  Prime Pantry service: for packaged goods
•  Assortment: between 10,000 and 30,000 items, Ø  Prime Now service: available in a number of major metros
including 400+ produce items, 500+ meat and seafood across the U.S, it partners with some local grocery stores
items, 1,300+ beverage items and 4,000+ health and to offer a more limited selecDon of perishables
beauty items.

•  Since 2007 slow expansion in U.S. market: beyond
Seafle, today it is available in ciDes in New York, New
Jersey, ConnecDcut, Massachusefs, Pennsylvania,
Delaware, Maryland, New Hampshire, West Virginia,
Illinois; and in areas of Northern California. Ø  Sort other two opDons out and use the partnerships with
local groceries in strategic urban areas to offer grocery
pickup sites (like Morrison’s partnership in U.K.) rather
than building new locaDons around the country allowing
•  But where compe(tors have largely partnered with local to achieve procurement and to explore new markets
grocers, Amazon instead has been invesDng firstly in more easily.
refrigerated warehouses and inventory. That has slowed
its ability to expand at a quicker pace, but it could assure Ø  Agreements to sell its own brand of grocery items (Happy
long-‐term growth. Belly including nuts, tea, and oil, Wickedly Prime snacks 6
and treats, and Mama Bear baby products).

2 WAREHOUSE MANAGEMENT &

LOCATION

•  Network of ambient and cold storage grocery: •  Double strategy:

DistribuDon centres across the U.S service both Amazon
Pantry and AmazonFresh customers’ orders (2 California, 1 Ø  The Vendor Flex program applied to online grocery
Illinois, 1 Massachusefs, 3 New Jersey, 1 New York, 2 Texas, industry: Amazon goes directly into tradiDonal grocery
2 Virginia, 1 Washington) distributor's warehouse or facility to manage their
logisDcs and online retailing. Amazon could translate
a)  Items are randomly stocked on purpose and scanned by its vast warehouse-‐management exper(se into the
Amazon’s workers world of grocery fulfillment and have a bigger
b)  IT system know their locaDon and workers are kept warehouse footprint, enabling it to ship more goods
informed by a handheld device. faster and cheaper (hindering the advantage of
c)  When the order comes in, computers calculate the Walmart due to a bigger physical store-‐presence and
fastest route for all of the items to be picked up. impacDng posiDvely also on procurement)

Ø  Leasing warehouse space (refrigerated and freezer
space) within high-‐density urban areas to host grocery
•  Improvement of the necessary background in food safety and food for one-‐hour deliveries. IT will also be central
and handling, including for refrigerated and frozen items to Amazon’s ability to track and trace product being
•  More fulfilment centres and delivery and sorta(on shipped to the stores to avoid stock-‐outs.
sta(ons & more SKU’s (Stock Keeping Unit) to fulfill the
endless assortment 7
3 MAKE OR BUY TRANSPORTATION

•  Regional transporta(on infrastructure by adding smaller
Ø  Reduce dependency from the delivery companies by
distribu(on centers to handle "last-‐mile" logisDcs.
leveraging the AmazonFresh grocery delivery trucks
•  Thousands of products are delivered same day the order
Ø  Create the Amazon’s new distribu(on arm, Amazon
is placed or the day a_er (own delivery trucks, cargo
LogisDcs, becoming a logisDcs company in its own right
planes, (ny drones that will take stuff directly to
and compeDng with companies such as UPS and Royal
customers’ doorstep)
Mail.

Ø  Amazon needs its own logisDcs operaDon to further
increase Sunday and Same Day deliveries, supporDng its
ambiDous Prime membership plans.
Ø  The move will save $3 billion a year globally and £122
million in the UK alone.
•  But sDll needs of cold-‐chain delivery infrastructure and
shipping standards (keep food cold, manage large orders
and schedule them within Dght delivery windows).
•  UPS, USPS and FedEx do not -‐ for now at least -‐ have the
capability to deliver groceries generally
8
4 PURE ONLINE RETAILER

Ø  Grocery stores: increase density of delivery to save
•  Market acrac(veness:
money on shipping costs and to make (mely deliveries

a)  Size of the grocery category—around $675 billion in
Ø  Moreover Bipar(san Marketplace Fairness Act: sales
the US alone taxes on online purchases could destroy the compeDDve
advantage based on the lack of physical stores.
b)  Online grocery’s market share of overall grocery sales
(around 2% in the US)
•  Omni-‐channel retailer strategy:
c)  In 2016, 34% of online shoppers are expected to buy Ø  Needs of cross-‐channel coordina(on: brick and mortar
groceries over the Internet, up from 21% in 2015 stores to turn online grocery delivery into a viable
(AlphaWise survey from Morgan Stanley Research )
business. AmazonFresh becomes ecosystem of channels
centered on food and groceries
d)  U.S. households visit average more than one-‐and-‐a-‐

half grocery store a week (Food MarkeDng InsDtute).
Ø  2 possible store concept:
Total $5,500 a year, more than double the $2,500 •  Click and collect
Amazon Prime members and 10 Dmes what
•  Convenience stores & discount supermarket
nonmembers spend (Morgan Stanley).
Ø  Customer proximity: key factor in determining opDmal
locaDons -‐> densely populated urban areas

•  No long-‐term viability of home deliveries for grocery: Ø  AmazonFresh-‐branded van: Challenge of managing the
High costs passed on the clients. physical replenishment of product to the stores 9
COST-‐TIME-‐QUALITY FRAMEWORK: ALL RECOMMENDATIONS

TIME:
Ø  Lead Dme reducDon for procurement through
partnerships with local groceries food producers
Ø  Leasing warehouse space close urban areas reduces

delivery Dme
Ø  Increased delivery Dme leveraging the AmazonFresh

grocery delivery trucks

COSTS:
Ø  Leasing opDon allows to avoid costs of infrastructure and
increase mobility
Cost –Time –Quality Framework: Ø  Costs saving due to no fees by shipping couriers
•Indicates benefits of introduced recommendaDons for the
major problems of the Amazon’s supply chain in the grocery Ø  Grocery stores reduce the costs of home deliveries
industry in terms of Dme, costs and quality
•Major problems are strategic procurement, warehouse
management & locaDon, make or buy transportaDon QUALITY:
decisions and lack of omni-‐channel strategy Ø  Higher quality through collaboraDon
Overall increased efficiency of the supply chain 10

Contents
1 Assumptions
2
2 End-to-End
End-to-End Supply
Supply Chain
Chain

11
Supply-chain activity analysis

Demand forecast •  Orders are processed and prepared for •  Orders are prepared for same-‐day delivery or
the delivery in the same day before 10 for “free store pickup” in the shop before the
and processing am;. Aver 10 am orders are prepared for “cut-‐off Dme”;
orders next day shipping;
•  No possibility to add-‐drop products but
possibility to modify the order re-‐starDng
from the beginning;
•  Algorithm to predict the demand;
Procurement/
•  Restaurants and neighbouring shops; •  Food producers that have to pay a fee for the
Suppliers •  No-‐long term agreement; products stocked on Walmart shelves;
•  Partnership with HomeGrocer;
Warehouses and •  Investments in refrigerated warehouses and

inventory; •  Vendor-‐managed inventory model;
Inventory •  DisintermediaDng the grocery store, their •  Just in Dme inventory;
margins will always be befer than what a 3rd •  Cross-‐docking method;
party can offer;
•  Own warehouses
•  Own warehouses where products are stocked;
Logistics •  Dependency from third party logisDc •  Partnership with Uber and Lyv;
companies; •  Two hour delivery window;
•  Two hour delivery window •  Walmart grocery trucks;
12
Supply-chain activity analysis Annex 1
Ac(vity Involved Involved Cycle (me Cycle (me PROCESSING ORDERS:

The two companies process
par(es par(es the orders in the same day
when orders are sent before
“cut-‐off Dme”. The only
difference is in the forecast
o f d e m a n d w h e r e
Processing Amazon Walmart UnDl 10 AM UnDl “cut-‐off” A m a z o n F r e s h i s m o r e
orders Same day Same day efficient than Walmart
because Amazon has an
Aver 10 AM Aver “cut-‐off” algorithm that allows to
Next day Next day f o r e c a s t t h e d e m a n d
accurately.
Procurement/ AmazonFresh; Walmart; “Just in Dme” “Just in Dme”
suppliers Suppliers Suppliers LOGISTICS:
A m a z o n F r e s h d e l i v e r s i t s
Warehouse and Amazon Fresh Walmart P r o d u c t s a r e Products are stocked products through third parDes. It,
inventory stocked for 3,58 for 3,66 days, on should develop an own system
days, on average average with own trucks, improve the
technology of drones that can
Logis(cs Amazon; third Walmart; third reduce the delivery Dme at 30
partners partners 0-‐2 hours 0-‐2 hours minutes without increasing the
s e r v i c e c o s t s . F i n a l l y , i f
AmazonFresh deliveries to more
WAREHOUSE AND INVENTORY: PROCUREMENT/SUPPLIERS: people with the same address,
AmazonFresh and Walmart have own warehouses. with a single shipment, the
Amazon does not have long-‐term agreements
Amazon has an averaged storage Dme of 3,58 days and shipment costs reduce. To reach
and should develop partnership with strategic
this value is lower than Walmart and determines lower this goal it can offer discounts for
suppliers to avoid “out of stock”. In the on-‐line
costs of inventory. Nevertheless, AmazonFresh has less delivery in certain areas or Dme.
channel some products are “out-‐of stock” but
warehouses than Walmart so it has to increase this there are not informaDon about the date they
number to ensure availability of products and to will be available again. 13
compete on a larger scale
STRATEGIC PURCHASING
The forecasted growth of grocery industry could strengthen the posiDon of Walmart at the expense of AmazonFresh. The
market will be more compeDDve, also other players would enter and the possibility to find the “right” suppliers will be lower. In
this situaDon AmazonFresh, to compete with others, needs to develop a strategic purchase process. Purchasing is strategic
because food is perishable and the quality’s is more important than other products. The availability of products is tricky
because of the difficulDes in the demand forecast, especially for seasonality products. The creaDons of partnership with the
suppliers help to share informaDon and create more accurate forecasts avoiding “out-‐of-‐stock” products.
•  VerDcal integraDon with suppliers who

offer high demanding products; •  ExposiDon to suppliers’
•  Developing a private label to reduce the problems
bargain power of supplier; •  High risks for the private
•  Create partnership with local suppliers to labels
•  C o s t s f o r t h e
have fresh products close to customers,
this choice reduces the costs that development of private
suppliers ask AmazonFresh for the label
products because they have less costs of
delivery;
•  ReducDon of lead Dme of the process
WHAT AMAZONFRESH SHOULD DO?

The grocery industry is highly compeDDve with an esDmated growth rate of 13,58%. The e-‐commerce channel will present a
growth of 112% (AmazonFresh). AmazonFresh, to compete in this market, has to ensure good products, in the right quanDty,
available for the customers. AmazonFresh will increase its presence in the industry also through physical stores and also in this
new channel the purchasing process is important. Finally, the need to develop a private label comes from the compeDDon with
Walmart or other players that have already this resource. 14
INVENTORY MANAGEMENT AND WAREHOUSES
AmazonFresh on-‐line grocery’s demand will increase of 112%. Amazon needs higher products’ stocks available for the final
market located in geographical areas strategic for the delivery . For these reasons AmazonFresh is invesDng in refrigerated
warehouses and inventories.
Threats
•  Integrate inventory system to •  D i ffi c u l D e s i n t h e
reduce variable costs construcDon of warehouses
•  Develop informaDve systems to l o c a t e d i n s t r a t e g i c
avoid “out-‐of-‐stocks” geographic areas
•  UX design and tech design need •  High costs to maintain and
to be improved implement these structures


The actual structure of AmazonFresh is not suitable with the forecasted demand. An efficient inventory system should be
based on: fullstock/lowstock/soldout. For example if the stock level of one product goes down below a certain level that
product should be signed as “Low stock” and checked 48 hours later and not sell these items on the website if they are
lowstock. Amazon should invest in the development of technologies that automaDcally mark products as “high of low stocks”
and start or stop the sale. These systems are more effecDve if warehouses are owned by Amazon. Eventually Amazon should
lease warehouses in “food dedicated areas” in US has he has just done in UK.
15
LOGISTICS
AmazonFresh offers a service of quickly delivery, in a window of two hours. The logisDc challenge is to increase the speed of
delivery, maintain or reduce the costs and at the same Dme ensure the quality of food that need to be shipped at controlled
temperature.
•  Development of drones for short-‐distance delivery with a

delivery Dme of 30 minutes;
•  Own trucks to ensure delivery 7 days per week; •  Increasing structure costs
•  Develop a new stand alone business that represents a viable •  Push general merchandise
alternaDves to Amazon’s core shipping model delivery heavily
•  jusDfy its own "last-‐mile" logisDcs fleets in major urban centres,
puzng Amazon trucks in high-‐density neighbours on a daily
basis, and potenDally changing the economics of same-‐day
deliver

Amazon should develop an own transport system to ensure delivery 7 days per week and reduce the dependence from third
parDes because delivery service is strategic for grocery industry and especially for AmazonFresh. It can also introduce innovaDons
like drones that can deliver food in 30 minutes becoming comparable with the shopping experience in a physical stores. Amazon
can also introduce an innovaDve “promoDon” to reduce the cost of the single delivery: people can obtain discount if they
schedule the delivery at certain Dme because there are more scheduled deliveries in a certain area of the city. With this iniDaDve,
AmazonFresh can reduce the costs for delivery because with one shipment can supply more final customers.
16
SWOT ANALYSIS
• Wide and variety of •  The subscripDon

range. AmazonFresh service price
started with an iniDal •  Wafer-‐thin margins
range of 130.000 SKU •  TransportaDon costs
• Low price reputaDon
• Speed delivery Has a low weight on
• FuncDonally website Amazon’s business but high
• Customer experience STRENGTHS WEAKNESSES growth possibiliDes.
• High size company

To compete with other
players on the market they
have to:

OPPORTUNITIES THREATS •  Create an efficient
•  Geographic system of partnership;
expansion thanks to
•  Invest in inventory and
knowledge of
different markets •  CompeDtors growth warehouses;
•  Technological •  Well established •  Invest in transportaDon
grocery stores may systems
supermarket start similar
•  Growing up market programs
demand
17
Contents
1 Assumptions
2
2 End-to-End
End-to-End Supply
Supply Chain
Chain
33 Mapped
Mapped Activity
Activity Analysis
Analysis

18
Amazon’s value-chain and competitor analysis

Future
Primary ac(vi(es Support ac(vi(es
Infrastructure 29,53% 34,7% Current

0,56 Shareholder
Human Resource Management 1,63% 2,92%
•  Suffer from small •  An increasing of
Resource & Development 11,72% 7,48% margin transla(ng
into small return taxes will decrease
Procurement •  P o t e n ( a l
Margin
0,00% 5,38% margin
shareholders could
not be acracted by •  ROE will increase
42,74% 4,23% 4,69% 4,91% low profitability
Inbound Outbound MKT, Sales Internal organiza(on

Opera(ons
logis(cs logis(cs & Services 3,37 The use of ar(ficial
•  Strong focus on R&D
17,38% 19,4% 9,3% 0,07% intelligence will make
•  Complexity its algorithms smarter
for future purchases
•  High expenses
approaching more to

the consumer
•  Shipping more goods faster and cheaper
Digital supply chain will
•  Closer to the consumer reduce complexity and
•  Lower procurement expenses cost structure
•  Ways to cut further into offline sales
Markets
• Physical stores will give to rivals a chance to quickly •  China, India and
•  Really compe((ve
match Amazon's best ideas. Africa offer markets,
industry which have s(ll not
• New technology systems to install and maintain,
been captured yet.
more employees to hire and keeping inventory •  Quality and concerns
•  The expecta(ons of
stocked.
t h e m a r k e t w i l l
• Walmart will further ease the firm’s transi(on into expand rapidly
this omni-‐channel model. 19
AmazonFresh’s value-chain and competitor analysis Annex 1
Amazon 2015 Assump(ons Walmart 2015
Net sales $8,699.59 §  Outbound logisDcs ≈ shipping Net sales $267,108.05
costs
Cost of sales $5,825.23 §  Procurement ≈ 5% Cost of sales $200,797.30
§  8,13% of Amazon’s revenues
Gross profit $2,874.36 come from Grocery market Gross profit $66,310.75
§  Infrastructure≈ 35%
Net income $48.45 Net income $8,999.65
Margin 0.56% Margin 3.37%
Amazon % Conclusion Walmart %
Margin 0.56 §  AmazonFresh spends 56.57% Margin 3.37

Infrastructure 29.53 ($4,976,200.00) of its revenues Infrastructure 34.7
HMR 1.63 in primary acDviDes, while
HMR 2.92
R&D 11.72 Walmart spends only 41.15%
($123,270,370.00)
R&D 7.48
Procurement 0.00 Procurement 5.38
§  Walmart earns $3.37 cents in
Inbound logis(cs 42.74 profit for every dollar it collects, Inbound logis(cs 17.38
Opera(ons 4.23 instead of Amazon which is able Opera(ons 19.4
Outbound logis(cs 4.69 to earn only $0.56 cents in profit Outbound logis(cs 9.3
MKT, Sales&services 4.91 for each dollar invested MKT, Sales&services 0.0720
Pros Cons
•  New strategy (Vendor •  Opera(ng in the daylight
F l e x ) g i v e s of physical stores will give
AmazonFresh a bigger tradi(onal retail rivals a
warehouse footprint, chance to quickly match
enabling it to ship more Amazon's best ideas.
g o o d s f a s t e r a n d •  The different range of
cheaper store formats planned,
•  O p ( m a l s h i p p i n g physical retail loca(ons,
loca(ons allow to finish technology systems to
and allocate the final install and maintain, more
product close to the employees to hire and, of
consumer course, keeping inventory
•  A lot of collabora(ons stocked.
and low number of •  Walmart’s scale and price
suppliers mean lower c o m p e ( ( v e n e s s w i l l
procurement expenses further ease the firm’s
•  Ways to cut further into transi(on into this omni-‐
offline sales channel model.
21
Current Future
SHAREHOLDERS
SHAREHOLDERS SC op#miza#on
•  Suffer from small margin translaDng •  An increasing of taxes will decrease
into small return margin (1,2,3,4)

I. Strategic modular Sourcing / •  ROE will increase (1,2,3,4)
•  PotenDal shareholders could not be
purchasing
afracted by low profitability
II. Improving Downstream inventory

management
INTERNAL ORGANIZATION INTERNAL ORGANIZATION
•  Strong focus on R&D •  The use of arDficial intelligence will
make its algorithms smarter for
•  Complexity III. Supply Chain Integra(on future purchases approaching more
•  High expenses to the consumer (1,4)
•  Digital supply chain will reduce

complexity and cost structure
(1,3,4)
IV. Lead (me reduc(on
MARKETS MARKETS
•  Really compeDDve industry (intense •  China, India and Africa offer
compeDDon) markets, which have sDll not been
captured yet (1,2,3,4)
•  Quality and freshness concerns •  The expectaDon of the market will
expand rapidly (an increase of 113%
of grocery online and 14% grocery
market)(1,2,3,4)
22
Contents
1 Assumptions
33 Mapped
Mapped Activity
Activity Analysis
Analysis
23
AmazonFresh business Canvas model future implications
Key Partners: Key Ac(vi(es Value Customer Customer AmazonFresh Value

Ø  Food suppliers Ø  Inventory Proposi(ons: Rela(onships: Segments: Proposi(on
(restaurants, Management Ø  Wide selecDon of Ø  Amazon Prime Ø  Consumers
other retailers) Ø  R&D on digital food with low Ø  AddiDonal interested in Present: offer of a wide
Ø  Currently, third-‐ soluDons for prices and fast services for final short shopping selecDon of food with low
part logisDcs shopping and reliable consumers (user-‐ Dmes prices and fast and reliable
provider (UPS, Us experience delivery generated delivery through online
Postal Service, Ø  Outsourcing of reviews and Ø  Concerning channel
FedEx) delivery acDviDes Ø  New shopping recommendaDon Gourmet
Future: more than a pure
experience based s) products,
physical products retailer and
on reducDon of Ø  Product Ads for consumers
Ø  In future: less Dme and use of sellers interested in delivery service, but a unique
dependency new medium-‐high shopping customer
from 3PL Key Resources: technologies
Channels: quality of experience thanks to
because Amazon Ø  Advanced IT and Ø  Own web site
products adopDon of in-‐store
robots
is invesDng in a Ø  Offer of high technologies that permit a
Ø  Warehouses with Ø  In future: Brick
own distribuDon quality products easy shopping and a reduced
fleet computerised and mortar
for gourmet shopping Dme
Ø  In future: and atomized stores: New kind
category and
superior supplier systems of supermarket Major differences to
fresh products
Ø  In future: based on digital
network with
Physical stores as
through
and automated
Walmart
food AmazonFresh
distribuDon processes Ø  Currently, lack of a
manufacturers
centres and (Amazon Go) established supplier
digital network with food
infrastructure of
manufacturers, own
Amazon Go’s
stores distribuDon fleet and
copious physical stores
Ø  In future, more focused on
Cost structure: Revenue Model: providing a superior
Ø  InformaDon technologies, warehouse, sortaDon Ø  Sales of food, grocery and fresh products customer experience and
centres, transportaDon costs (through 3PL) Ø  SubscripDon fees for membership programs: Dme savings at lowest
Ø  In future: physical stores and own distribuDon fleet Amazon prime, Amazon Fresh prices 24
Value-proposition AmazonFresh Annex 1
Flexibility of supply chain, through Electronic Data, Adop(on of in-‐store digital technologies:
Interchange with supply chain members, permit to
promptly respond to environment and demand Ø  InteracDon technologies
changes
Enhanced speedness of delivery through automaDc Ø  Shelf technologies
IT order management systems
Streamlined processes in order to make the Ø  Mobile payments technologies
operaDons lean and agile

Reduced lead )me Reduced shopping )me

Saving )me for costumers

25
Walmart value-proposition – business canvas model Annex 2
Key Partners: Key Ac(vi(es: Value Proposi(ons: Customer Customer

Ø  Partnership Ø  Inventory Management Ø  Wide variety of food Rela(onships: Segments:
with food Ø  Own distribuDon system for both products offered at low Ø  Customer Ø  Consumers
manufacturer channels prices retenDon: interested in a
s. Walmart Ø  Product orders for each store and each Ø  “Every Day Low Prices”, Membership with high array of
represents vendor are aggregated and sent to Walmart intends to offer Sam’s Club; products offered
the biggest vendors, consolidaDon of orders is used daily level of low prices Membership cards; at low prices
client for to take advantage of scale economies without conceding high Self-‐service kiosks Ø  Customer of Sam’s
many of and lower transportaDon costs seasonal discounts club that are
them. Ø  Efficient Order management acDvity Ø  MulDple stores format in interested in food
thanks to Retail Link, a tool that help to order to provide the
schedule the order-‐related acDviDes products,
consumers different kind
Ø  CollecDng data in order to forecast purchasing in large
of advantages. quanDDes
demand
Ø  Providing the possibility
Key Resources: of checking prices live Channels:
Ø  DistribuDon Centers that perform 2 helping people to take Ø  Physical stores,
funcDons: warehouses, in order to store buying decision quickly short channel
products near retail store; secondly and gezng befer choice discount,
serve as a cross-‐docking faciliDes where supercenter and
products flow through stores without neighbourhood
being warehoused market and Sam’s
Ø  Inforem: system that automaDcally club
determines order quanDDes for suppliers Ø  Online, own
to replenish Wal-‐Mart website
Ø  Established relaDonships with suppliers Walmart.com and
thanks to consolidated presence in the
Samsclub.com
market
Cost structure: Revenue Model:
Ø  High fixed costs due to high numbers of physical stores, Ø  Retail sales concerning food & grocery products through physical
distribuDon costs related to an own fleet of delivery stores and online shopping
Ø  Sales from Sam’s Club stores and site
Ø  Fee subscripDon from Sam’s Club membership 26
Differences between AmazonFresh and Walmart value-
proposition Annex 3
Amazon Walmart
More focused on providing a superior customer More focused on offering low prices to its consumers
experience and Dme savings and money savings
Use of technologies also inside warehouses in order Leveraging of high volumes managed in order to take
to reduce delivery Dmes advantage of scale economies permizng to offer low
prices to consumers
DistribuDon acDviDes implemented by Third Party Own distribuDon system
LogisDc Providers
Developing of a physical store network Expanding on online food shopping and delivery
Ongoing network building with food suppliers Established supplier network and relaDonships that in
turn permits to negoDate low prices with them
Consumers primarily interested in speed of shopping Consumers primarily interested in low prices and
and consumers interested in fresh or gourmet wide array of products
products
27
Contents
1 Assumptions
33 Mapped
Mapped Activity
Activity Analysis
Analysis
28
Comparison of Supply-chain-strategies between AmazonFresh
and Walmart
AmazonFresh Walmart
Logis(cs Ø  Concerning long-‐life food products Ø  Concerning physical stores, Walmart
postponement/ AmazonFresh centralizes it and ships decentralizes shipping directly to
specula(on aver the orders (postponement) distribuDon centres near supermarkets
Ø  Concerning short-‐life food products, Ø  Concerning online pla|orm, Walmart
as the AmazonFresh’s ones, it centralizes and, aver having received
decentralizes and ships directly near the orders, ships the products
urban centres before the orders
Purchasing Medium quanDDes of stock High quanDDes of stock
Procurement Ongoing development of network. Established network.

Purchasing from other retailer, Purchasing directly from food
restaurants and food producers. manufacturer
Logis(cs Third Party LogisDc Providers and ongoing Own distribuDon fleet and other providers;
development of own distribuDon assets
Manufacturing No Manufacturing acDviDes but ongoing No Manufacturing acDviDes but only
development of own private label labelling of products with own brands
Supplier Management Extensive exchange of informaDon Use of long-‐term contracts in order to
through IT systems in order to coordinate reduce transacDon costs
the acDviDes
Customer Service Amazon Prime, Amazon Fresh Sam’s Club
29
Logistic speculation vs. Logistic postponement Annex 1
Generic P/S strategies

Some important Postponement & Specula(on
decision determinants Logis(cs specula(on Logis(c postponement
Introduc(on/ Maturity/
Stage
Growth Decline
Lyfe cycle
Volume Low/Medium Medium/High
Produc(on
Cost/service strategy Service Cost

Product Product type Standard Customized

characteris(cs Product Range Narrow Wide
Value Profile Ini(al stages Final stages
Value
Monetary density Low High
Rela(ve delivery (me Short Long
Market demand Delivery frequency High Medium/Low
Uncertainty of demand Low High
Economies of scale Small Large
Manufacturing & Logis(cs
Special capabili(es No Yes
We decided to consider only the logisDc side of Amazon’s supply chain strategy, given that the enterprise doesn’t
manage the manufacturing acDvity. So we analysed if Amazon implements a speculaDon or a postponement
AmazonFresh logisDc
strategy. From the chart it seems to be that the enterprise chooses to follow a speculaDon logisDc
strategy. This results, actually, is influenced by the characterisDcs of the product managed, overall we are
referring to the fresh products offered through AmazonFresh. The freshness of that kind of products requires the
decentralizaDon of them, in order to make them near urban centres also before receiving orders from
customers. 30
AmazonFresh between agility and learness Annex 2
Time

Commercial SURVIVE THRIVE
effecDveness

Commercial DIE QUICKLY DIE SLOWLY
ineffecDveness
Cost Quality of

OperaDonal OperaDonal Learness service
inefficient efficient
Commercial effecDveness in grocery industry Walmart and AmazonFresh offer a high quality
is based on the customer service, quality of of service but Walmart, offering the possibility
food and compeDDve prices. AmazonFresh to add-‐and-‐drop products also aver the order’s
offers a wide range of products at compeDDve confirm, creates more value for the final
prices for the industry. Walmart has a level of customers.
effecDveness higher than AmazonFresh
because offers more convenient promoDons. In relaDon to costs and Dme AmazonFresh and
Walmart have similar structures. They offer the
Walmart is more efficient than AmazonFresh same delivery Dme and their lead Dme are
in terms of operaDons thanks to its more or less equal. In terms of cost structure
purchasing process (higher number of AmazonFresh, at the moment, has less fixed
suppliers), warehouses’ number (36 vs 12) costs (less warehouses, no costs for own
and delivery process. However AmazonFresh delivery process) than Walmart but these costs
is not inefficient but presents an higher will increase due to AmazonFresh’s investments
number of improving areas than Walmart. 31
in these operaDons.

Lead-time AmazonFresh Annex 3
High demand for

Long lead (me LEAN HYBRID products variety AGILITY
Low demand for

Short lead (me KANBAN AGILE LEARNESS
products variety
Predictable Unpredictable Low demand for High demand for

demand demand produc(on variability produc(on variability
The customers ask for an huge variety of

AmazonFresh faces an almost unpredictable products and on the on-‐line channel
demand especially for seasonality products. It has AmazonFresh has a wider selecDon of
also short lead Dme due to the characterisDcs of products than Walmart. Walmart instead
the products: fresh ones need to be stocked for has more products in the physical stores.
short Dme and delivered quickly. For these reasons they are improving their
WalMart presents the same strategy but in terms weaknesses that are the compeDtor’s
of demand forecast it has an IT system less strong points. Finally, they both support an
accurate than AmazonFresh and, for this reasons, high demand for variety.
its demand it is unpredictable. The demand forecast for the grocery
industry is not easy and for these reasons
they have high volaDlity of demand and
consequently for producDon. 32
Contents
1 Assumptions
33 Mapped
Mapped Activity
Activity Analysis
Analysis
33
Efficiency obtained by the GSC of AmazonFresh and anticipated
problems
EFFICIENCY-‐ DOING THINGS RIGHT
Current situa(on Goal

•  Forecast demand: Efficient; Amazon forecast demand process is efficient
•  Procurement: Local market, but the other acDviDes could be improved
restaurant and food producers to:
but the number of suppliers is •  Reduce lead Dme of the process offering a
low. The low number service similar to the shop purchasing
increases risks; experience;
•  Warehouses: lower number •  Increase collaboraDon with suppliers to
than Walmart (12 vs 36); avoid “out-‐of-‐stock products”;
•  Days inventory: 3,56; •  Increase informaDon sharing with
•  Logis(c: third parDes; suppliers;
An(cipated problems
•  Suppliers bofleneck due to low safety
stocks;
•  Quality issues with reduced lead Dme
•  No out-‐of-‐stock products;
•  Dependence from third logisDc
companies;
34
•  ReducDon of customer service;
Effectiveness obtained by the GSC of AmazonFresh and
anticipated problems
EFFECTIVENESS-‐DOING THE RIGHT THING
The most important characterisDcs for •  New sourcing strategies

effecDveness evaluaDon are: through partnership;
•  Owned transport system to
•  Planning: AmazonFresh has a limited reduce much more the delivery
presence on the market; Dme;
•  Quality: Products are controlled in •  Increase the presence on the
the warehouses before the shipping; market with new plans (brick-‐
•  Sourcing: AmazonFresh sourcing and-‐mortar, physical stores);
process is not effecDve because it •  Increase its presence in new
does not ensure permanent products’ markets developing new plans;
availability; An(cipated problems
•  Time delivery: AmazonFresh has a
challenging Dme delivery; •  DifficulDes in the choice of right
strategic partners;
•  Control of criDcal aspects: quality
control, reliability, dependence on
small number of sources;
35
Productivity obtained by the GSC of AmazonFresh and
•  Output/Input 1,49 •  OpDmizaDon of input:

AmazonFresh vs 1,33 procurement;
Walmart; •  OpDmizaDon of output:
•  AmazonFresh is •  Focus on customer;
more producDve experience and real Dme
than Walmart but its pricing;
business is smaller;
An(cipated problems
•  CriDcal aspects: quality,

control, dependence on one
source;
•  Long-‐term orientaDons to
build strong sustainable
credibility;
36
Flexibility obtained by the GSC of AmazonFresh and anticipated
problems
3 A’s supply chain model •  Partnership with new suppliers

(increasing agility);
Agility: The relaDonship between •  IncenDves among the partners
AmazonFresh and suppliers doesn’t allow to within the supply chain for befer
saDsfy customers’ needs in the short Dme overall performance (increasing
(micro flexibility) because of the number and alignment);
suppliers’ structure are not adequate for •  Opening of physical shops or
unexpected quanDty’s changes; development of brick-‐and-‐mortar
service (increasing adoptability);
Adoptability: AmazonFresh is working to •  Developing mulD-‐channel strategy
adjust its structure to the market (macro (increasing adoptability);
flexibility);
An(cipated problems
Alignment: Low level of alignment with
suppliers; •  Lack of relaDonship with suppliers;
•  Low presence on the market;
37
Customer service approach obtained by the GSC of
AmazonFresh and anticipated problems

Ø  Different membership programs in order to
Ø  The company is strongly oriented
make stronger their bond with customers:
towards customer needs and requests.
Amazon Fresh, Amazon Prime;
Consequently elements such as customer
Ø  The enterprise shows an outstanding
loyalty and customer retenDon are
customers afenDon offering them compelling
values through its products and services;
essenDal in Amazon’s business model
Ø  Customer services translates themselves in
facilitated way of interacDon: user-‐friendly
website; An(cipated problems
Ø  Amazon’s high level of customer service is also
clear considering all the informaDon, reviews Ø  Investment in new technologies could
and recommendaDons system offered on the reveal itself very expensive
website; Ø  Customer educaDon process is needed in
Ø  Furthermore, considering the physical stores, order to effecDvely transfer value to
the customer can take advantage of reduced consumers
shopping Dmes thanks to mobile payments Ø  Expenses related to awareness creaDon
and other in-‐store technologies; and consolidaDon for Amazon Go and
AmazonFresh
38
Total quality management obtained by the GSC of AmazonFresh
and anticipated problems
AmazonFresh total quality management fundamentals

An(cipated problems
Administra(ve •  ImplicaDon of goals oriented administraDve
and tacDcs;
managerial •  Decisive and determined managers; •  Lack of reviews and evaluates
Controls •  Honest and efficient administraDon; employee saDsfacDon
Customer •  Assure delivered product quality; •  Involvement of suppliers in quality
compliance •  Public saDsfacDon; management suppliers;
•  ConstrucDve and destrucDve potenDal •  Publishing and communicaDon of all
feedbacks;
of their societal impacts, or the
i m p r o v e m e n t o f t h e i r
Task •  Determined administraDon in order to assure
management existed and predicDve task; communicaDon, are important
•  Conductance of capacity building for the steps towards gaining overall
efficient and progressive task oriented quality improvement;
processing;
•  Naturally, products’ control is
Quality •  Upgrade service quality; strategic and directly related to
enhancement •  Safety assurance and return facility;
meet certain guidelines before
•  Upgraded website technology features;
reaching shipping phase;
Transporta(on •  Upgrades product distribuDve measures;
and product •  Quick and efficient product delivery;
distribu(on •  Make efforts to lower their shipping Dme;
39
Digital supply-chain approach obtained by the GSC of
Ø  Demand forecast is driven by collecDng Ø  Streamline processes and reduce human
and analysing data and informaDon intervenDon in order to shorten lead
Dmes.
from sales and customer needs
Ø  Widespread adopDon of new
technologies and robots inside An(cipated problems
warehouses and sortaDon centers
Ø  Tracking system in order to oversee Ø  High costs related to robots investments
products’ physical flows and IT systems
Ø  Necessity to conDnuously update
technology systems
Ø  Training and educaDon acDviDes on
technology systems for supplier in order
to maximise the coordinaDon with them
40
Inventory management approach obtained by the GSC of
Inventory Management Approach Goal

Ø  Employing a variety of data collecDon tools to make
sure purchased goods move through warehouses as
quickly as possible
Ø  On Dme deliveries thanks to barcode scanner logs,
sorDng items based on type and Dme of day for
shipment
Ø  hybrid data gathering methodology ensures that
Amazon can keep up with its shipments
Supply chain’s current situaDon Ø  No accidental errors: similar items are separated
An(cipated problems
Ø  Low lead Dmes
Ø  Good forecasts in demand Ø  High seasonality (i.e. Christmas, Easter, etc.)
Ø  Inventories ↑
Ø  High perishable -‐> need of fast deliveries
Current situa(on
It needs of a becer

Future Appath
inventory management
41
Working capital resultant by the GSC of AmazonFresh and
Working capital Goal

•  Increase current raDo to 1,5;
Working capital 2,575,000$ •  I n s o u r c i n g o f o p e r a D o n s
Current ra(o 1.08 management;
•  ConsolidaDon of supplier base;
•  Increase of commodiDes lead
•Current assets •Current liabili(es
Dmes through collaboraDve
Inventory 28% P ayables 60%
Receivables 18% E xpenses 31% relaDonships to supplier;
Cash 44% Unearned
r evenue
9 % •  Increasing inventory level;
SecuriDes 10%
An(cipated problems
•  Higher dependency on key
s u p p l i e r s a n d T h i r d P a r t y
Current raDo indicates that AmazonFresh is Manufacturers;
able to pay off its obligaDons but slightly •  S t o c k -‐ o u t s c a n l e a d t o
deteriorated from 2014 to 2015 while producDon delay;
Walmart current raDo is less the 1 (around •  Higher efforts to ensure quality
0.96) control;
42
Outsourcing/Insourcing obtained by the GSC of AmazonFresh
and anticipated problems
OUTSOURCING INSOURCING Goal

+ Increases speed and the + Costumer focus
quality of delivery Ø  Increase IT technologies to
+ Risk sharing + Product knowledge i m p r o v e I n v e n t o r y
Management;
-‐ Quality issue and turnaround -‐ No opDmizes resource
Dme uDlizaDon Ø  Reduce redundant inventory
-‐ Hidden cost -‐ No economies of scale Ø  Low inventory turnover;
Ø  Holding products that are high in
Primary acDviDes Support acDviDes
Infrastructure 29,53% demand;

An(cipated problems
Human Resource Management 1,63%
Resource & Development 11,72%

Ø  Right products in the right
Procurement 0,00% quanDty to the right place at
Margin
the right Dme;
42,74% 4,23% 4,69% 4,91%
Ø  AutomaDng and streamlining
Inbound Outbound MKT, Sales
logis(cs
Opera(ons
logis(cs
your operaDons;
& Services
0,56
43
Number of Suppliers and Relations obtained by
the GSC of Amazon and anticipated problems
Current situaDon Goals
Ø  Strengthen partnerships with third-‐
party sellers and manufacturers
Ø  The vast majority of Amazon’s
through Marketplace
suppliers are based in the United

States, followed by the United
Ø  The GSC of Amazon allow suppliers to
Kingdom and Japan, but the site offers
plan for the growth and to develop
products from companies from
experDse about a different concept of
around the world.
supply chain. On the other side,

Amazon receives important data about
Ø  3 categories of suppliers: General
customers.
Vendor/supplier and Partners that can
be Publisher/Manufacturer or Third
party The former, also called first-‐ AnDcipated problems
party sellers, use Vendor Central web
interface to sell in bulk to Amazon and
the registraDon is by invitaDon only. Ø  Independents now sell 44% of all items
The lafer use Seller Central web on Amazon worldwide and their sales
interface to manage and view their are growing faster than those of the
orders and anyone can sell. host site. Although Amazon could
increase its revenues from service fees,
the company could help its compeDtors
to become bigger.
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Amazon Global Supply Chain

Article · May 2017

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Gianmarco Persiani Alessandro Piccinelli

Case study analysis

2 End-to-End Supply Chain

3 Mapped Activity Analysis

4 Value Chain & Competitor Analysis

5 Business Canvas Model

6 Supply Chain Strategies

7 Aspects of Supply Chain Management

Ø Major compeDtor for the analysis: Walmart

2 End-to-End Supply Chain

3 Mapped Activity Analysis

4 Value Chain & Competitor Analysis

5 Business Canvas Model

6 Supply Chain Strategies

7 Aspects of Supply Chain Management

GENERAL SUPPLY CHAIN MAP

Current situa(on Recommenda(ons

2 WAREHOUSE MANAGEMENT &

• Network of ambient and cold storage grocery: • Double strategy:

3 MAKE OR BUY TRANSPORTATION

Current situa(on Recommenda(ons

4 PURE ONLINE RETAILER

Current situa(on Recommenda(ons

COST-­‐TIME-­‐QUALITY FRAMEWORK: ALL RECOMMENDATIONS

Ø Leasing warehouse space close urban areas reduces

Ø Increased delivery Dme leveraging the AmazonFresh

Overall increased eﬃciency of the supply chain 10

3 Mapped Activity Analysis

4 Value Chain & Competitor Analysis

5 Business Canvas Model

6 Supply Chain Strategies

7 Aspects of Supply Chain Management

Warehouses and • Investments in refrigerated warehouses and

Ac(vity Involved Involved Cycle (me Cycle (me PROCESSING ORDERS:

• VerDcal integraDon with suppliers who

WHAT AMAZONFRESH SHOULD DO?

INVENTORY MANAGEMENT AND WAREHOUSES

WHAT AMAZONFRESH SHOULD DO?

• Development of drones for short-­‐distance delivery with a

WHAT AMAZONFRESH SHOULD DO?

• Wide and variety of • The subscripDon

4 Value Chain & Competitor Analysis

5 Business Canvas Model

6 Supply Chain Strategies

7 Aspects of Supply Chain Management

Infrastructure 29,53% 34,7% Current

Inbound Outbound MKT, Sales Internal organiza(on

Amazon 2015 Assump(ons Walmart 2015

Margin 0.56% Margin 3.37%

Amazon % Conclusion Walmart %

Margin 0.56 § AmazonFresh spends 56.57% Margin 3.37

into small return margin (1,2,3,4)

II. Improving Downstream inventory

2 End-to-End Supply Chain

4 Value Chain & Competitor Analysis

5 Business Canvas Model

6 Supply Chain Strategies

Ø  Major compeDtor for the analysis: Walmart

•  Network of ambient and cold storage grocery: •  Double strategy:

COST-‐TIME-‐QUALITY FRAMEWORK: ALL RECOMMENDATIONS

Ø  Leasing warehouse space close urban areas reduces

Ø  Increased delivery Dme leveraging the AmazonFresh

Warehouses and •  Investments in refrigerated warehouses and

•  VerDcal integraDon with suppliers who

•  Development of drones for short-‐distance delivery with a

• Wide and variety of •  The subscripDon

Margin 0.56 §  AmazonFresh spends 56.57% Margin 3.37

EFFICIENCY-‐ DOING THINGS RIGHT

EFFECTIVENESS-‐DOING THE RIGHT THING

The most important characterisDcs for •  New sourcing strategies

•  Output/Input 1,49 •  OpDmizaDon of input:

•  CriDcal aspects: quality,

3 A’s supply chain model •  Partnership with new suppliers