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Amazon Supply Chain Packet
Supply Chain Management (SCMN 7776)
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zyxwvutsrqp zyx zyxwvutsrqpon W AMAZON: SUPPLY CHAIN MANAGEMENT Ken Mark wrote this case under the supervision of Professor P. Fraser Johnson solely to provide material for class discussion. The authors do not intend to illustrate either effective or ineffective handling of a managerial situation. The authors may have disguised certain names and other identifying information to protect confidentiality. This publication may not be transmitted, photocopied, digitized or otherwise reproduced in any form or by any means without the permission of the copyright holder. Reproduction of this material is not covered under authorization by any reproduction rights organization. To order copies or request permission to reproduce materials, contact Ivey Publishing, Ivey Business School, Western University, London, Ontario, Canada, N6G 0N1; (t) 519.661; (e) cases@ivey; iveycases. Copyright © 2018, Ivey Business School Foundation Version: 2020-11- On January 31, 2018, the market capitalization of Amazon Inc. (Amazon) hit $702 billion, the highest level ever. 2 When its fourth-quarter results were released on February 1, 2018, Amazon showed a 30-per-cent increase in revenues, to $60 billion for the quarter, and net income for the quarter had increased by 150 per cent, to $1 billion. 3 From its start as a venture looking to build “earth’s largest bookstore” in 1994, Amazon was now one of the most valuable companies in the world, and founder Jeff Bezos was the richest person on earth. In 2018, Amazon had an online store that sold its own products and listed products for sale by more than two million third-party sellers. 4 Since its founding, Amazon had added more than 30 store categories, ranging from electronics to furniture, selling millions of different products and making an estimated 1. billion domestic customer shipments in 2017. 5 Amazon Web Services, the company’s on-demand cloud- computing service, generated $17 billion in sales in 2017. Amazon Prime Video had become a leader in video-streaming services, with original-content series and movies that rivalled the offerings of Netflix. Its Echo devices, powered by the artificial-intelligence assistant Alexa, had more than 30,000 skills and could be used to control smart-home devices. The popular Kindle e-reader boosted sales of Amazon e- books. Amazon had increased its number of brick-and-mortar stores with the acquisition of Whole Foods Market (Whole Foods) in 2017. It had also opened AmazonFresh and Amazon Go grocery stores, as well as Amazon bookstores. With total shipping costs that exceeded $21 billion in the most recent fiscal year, 6 the company was taking steps to gain greater control of its supply chain—a strategy that could eventually put Amazon in direct competition with United Parcel Service of America Inc. (UPS) and Federal Express Corporation (FedEx). In recent years, it had expanded into ocean freight forwarding, opened an air cargo hub, built a truck fleet, and established a parcel delivery network. 7 The company offered its third-party sellers fulfillment services called Fulfillment by Amazon (FBA), which provided transportation, warehousing, picking, packing, shipping, customer service, and returns for products sold through its website. The company’s latest initiative, Shipping with Amazon, was a new service for any business offering package delivery to customers, regardless of whether they sold products on the Amazon site. 8 From a standing start, Amazon—with 566,000 employees (referred to as “Amazonians”)—had become more valuable than Walmart Inc. (Walmart), the world’s largest retailer. However, given the broad variety and volume of products Amazon was selling through a range of formats, a key challenge for the
zyxwvutsrqp zyxwvuts Page 2 9B18D company’s founder and chief executive officer, Jeff Bezos, was how to structure Amazon’s supply chain to support the company’s strategy and growth objectives. What supply chain capabilities would Amazon need as its business model continued to evolve? THE RETAIL INDUSTRY Total U. retail sales were estimated at $5 trillion in 2017, 1 of which e-commerce represented approximately $450 billion. 9 U. e-commerce sales were forecast to reach $640 billion by 2020. 10 Globally, retail sales were projected to reach $27 trillion in 2020, 11 and e-commerce’s share was expected to increase from 10 per cent in 2017 to 15 per cent in 2020. 12 Amazon was the world’s largest online retailer and a competitor to traditional retailers, such as Walmart and Target Corporation (Target) (see Exhibits 1 and 2). By comparison, Walmart had generated an estimated $11 billion from e-commerce sales in the fiscal year ending January 2018, representing a 44- per-cent increase over the previous year. 13 Walmart had been working to catch up to Amazon; it had purchased the online retailer Jet for $3 billion in August 2016 to augment its Walmart site. 14 As an indication of Amazon’s lead in the e-commerce space, Target had generated $706 million in e- commerce sales for the second quarter of 2017, an annualized run rate of $2 billion. 15 Traditional Retail Supply Chain The standard supply chain for retailers such as Walmart, Target, and Tesco PLC (Tesco) was driven by the orders retail buyers placed with suppliers, who coordinated the delivery of goods for sale. A significant portion of general merchandise was manufactured in Asia, and in 2016, U. retailers imported $479 billion of goods from China. 16 Deciding what to place on shelves was a significant task for a store that could have more than 100, different items. Category buyers were responsible for selecting and pricing merchandise. Large retailers had approximately 40 categories, including housewares, toys, and fashion. A buyer normally set the assortment plan from quarter to quarter, accounting for changes in customer demand due to seasonal events such as Christmas, Easter, and back-to-school sale periods. In order to clear out inventory to make room for new product for the next season, retailers used a variety of approaches, including price discounts or markdowns, selling product to discount stores such as Nordstrom Rack, or returning goods to suppliers. It was estimated that end-of-season markdowns and discounting cost U. fashion retailers an average of 30 per cent of revenues. 17 Since the 1990s, retailers had partially offloaded the responsibility for category management to category captains—key supplier partners with the capabilities to analyze, review, and plan the assortment recommendations for product categories such as toothpaste, shaving products, and cough and cold medication. At Walmart, for example, there were 40,000 suppliers; this included just 200 strategic suppliers, such as large consumer packaged goods firms Procter & Gamble Company and General Mills Inc. 18 Retailers provided suppliers with access to sales, inventory, and other data in real time, using online information portals such as Walmart’s Retail Link network. Analysts working for suppliers downloaded and reviewed this data and then brought their recommendations to category buyers, who had the final say over approving these assortment recommendations, called “planograms.” 1 U. retail trade statistics were broadly based and included retail stores, food services, and automobile dealership sectors.
Page 4 zyxwvutsrqp9B18D the $700 spent by non-members. In April 2018, Amazon announced that it was increasing the annual price of its Prime membership by 20 per cent, to $119, citing rising costs and expanded services, such as an expanded library of streaming music and videos. 24 In 2017, Amazon had generated about $9 billion in revenues from subscription services, which included fees from Prime members. 25 Amazon also branched out beyond online retail, starting Amazon Web Services (AWS)—a data services firm that originally provided information on Internet traffic patterns—in 2006. In 2018, AWS provided more than 90 cloud-computing services, including networking, storage, analytics, mobile, and tools for machine learning, artificial intelligence, and the Internet of Things. Its most popular services included Amazon Elastic Compute Cloud and Amazon Simple Storage Service. 26 Amazon also started testing physical store concepts such as AmazonFresh grocery stores in 2007 and bookstores in 2015. It made a more significant commitment to brick-and-mortar retail when it purchased Whole Foods for $13 billion on June 16, 2017, signalling that it had serious intentions of capturing a greater share of the $800-billion-per-year U. grocery market. Although online sales accounted for an estimated 3 per cent of the U. grocery market in 2017, this segment was expected to increase dramatically in the next five years. Amazon’s total grocery sales in 2017 were an estimated $2 billion. 27 When the Whole Foods deal was announced, Amazon’s market capitalization jumped by $15 billion. 28 Amazon had succeeded because, according to Amazon’s chief technology officer, Werner Vogels, it had relied on several key building blocks and the “flywheel effect”—the concept that core technology pieces, once assembled, could drive other positive effects and innovations—to maintain its technological edge over rivals (see Exhibit 3). As Vogels commented during BoxWorks, a tech show, “We may be a retailer, but we are a tech company at heart. When Jeff started Amazon, he didn’t start it to open [a] book shop. He was fascinated by the Internet. We are missionaries. It’s why we do innovation, to make life better for our customers.” 29 This innovation was illustrated in the development of important Amazon products and services over the years (see Exhibit 4). THE DEVELOPMENT OF AMAZON’S SUPPLY CHAIN Amazon’s distribution network started with the building in 1994 of two warehouses, which Amazon called fulfillment centres, in Seattle and Delaware. The Seattle fulfillment centre was 8,640 square metres (93,000 square feet) and resembled other retailers’ fulfillment centres with manual receiving, warehousing, picking, packaging, and shipping operations. Boxes were packed, taped, and weighed, and then they were shipped by either U. Postal Service (USPS) or UPS, arriving at the customer’s location within one to seven days. 30 The Delaware fulfillment centre was larger—18,766 square metres (202, square feet). In 1999, the company opened five more fulfillment centres as well as its first European fulfillment centres—two in Germany (Regensburg and Bad Hersfeld) and one in Marston Gate, United Kingdom. Six years passed before Amazon opened more fulfillment centres, in 2005. In 2006, Amazon created FBA, a service that managed the fulfillment process for its third-party sellers. Third-party sellers could manage their own inventory and ship directly to Amazon customers (for which they would be reimbursed the standard shipping and packaging fees), or they could outsource inventory storage, picking, shipping, customer service, and returns to Amazon through FBA (see Exhibit 5). In 2013, it was reported that Amazon had launched an umbrella project, code named “Dragon Boat,” to expand its fulfillment capabilities. This initiative aimed to create a global delivery network to facilitate the movement of goods from China and India to Amazon DCs in the United States and the United Kingdom. 31
Page 5 zyxwvutsrqp9B18D The volume of Amazon orders overwhelmed UPS and other carriers during the 2013 Christmas holiday season. Late deliveries of customer orders reportedly cost Amazon millions of dollars in refunds and motivated management to embark on plans to build its own last-mile delivery network. 32 In 2016, Amazon created a venture named “Global Supply Chain by Amazon” that featured Amazon as a global logistics provider, targeting all services, including trucking, freight forwarding, and customer delivery. According to Amazon, it would be a “revolutionary system that will automate the entire international supply chain and eliminate much of the legacy waste associated with document handling and freight booking.” 33 This initiative would see Amazon purchase space, in bulk, on airplanes, trucks, and ships, allowing it to bypass brokers and thereby reduce logistics costs. Amazon added that sellers would no longer book with DHL, UPS, or FedEx, but would book directly with Amazon. The ease and transparency of this disintermediation would be revolutionary, and sellers would flock to FBA, given the competitive pricing. 34 Whole Foods sourced products from local, regional, and national producers. It had three seafood processing and distribution facilities, a specialty coffee and tea procurement and roasting operation, and 11 regional DCs that focused primarily on distributing perishables to stores across the United States, Canada, and the United Kingdom. In addition, Whole Foods had three regional commissary kitchens and four bake-house facilities, all of which distributed products to its stores. Other products were typically procured through a combination of specialty wholesalers and direct distributors. United Natural Foods Incorporated (UNFI) was the company’s largest third-party supplier, accounting for approximately 32 per cent of its total purchases in 2016. 35 To make Whole Foods more attractive to customers, Amazon reduced prices in 2017 on a selection of best-selling grocery staples. 36 With an estimated 62 per cent of Whole Foods customers—about eight million people—maintaining Amazon Prime memberships, there were cross-selling opportunities as well. Amazon had plans to sell electronic goods at Whole Foods and offer special in-store discounts to its Prime members. 37 Amazon also planned to use Whole Foods’ 400-plus stores as pickup locations for groceries and to handle returns. 38 The chain’s stores and supply chain provided Amazon with access to the refrigerated distribution system its existing network lacked, which it could use to supply home delivery of groceries. Meanwhile, the Whole Foods supply chain would benefit from being part of Amazon, with its greater purchasing power and opportunities to achieve cost efficiencies. 39 In February 2018, Amazon announced it would start delivering Whole Foods groceries via its Prime Now hubs in four markets. Amazon’s supply chain had evolved over time (see Exhibit 6), and Prime Now was Amazon’s fastest delivery option, with one- and two-hour delivery service. 40 AMAZON’S SUPPLY CHAIN IN 2018 Traditional retailers purchased goods from manufacturers in bulk and took receipt, in full container loads, at their DCs. In contrast, Amazon’s strategy was to control the shipment of goods across the entire supply chain, including procurement, shipment to DCs, and final customer delivery. As of November 2017, Amazon had 573 million products for sale on its website in what seemed like an unlimited number of categories and subcategories. 41 The category on Amazon with the most sales in 2017—more than $8 billion—was the company’s consumer electronics division, which included Fire tablets, laptops, headphones, and other computer components. Home and kitchen, publishing (including books), and sports and outdoors were other top-grossing categories. 42
Page 7 zyxwvutsrqp9B18D suppliers often shipped goods directly to fulfillment centres. From the fulfillment centres, product followed one of three channels. First, it could be shipped to FedEx or UPS, who handled customer delivery. A second option was for it to be sent as part of a truckload of packages to an outbound sortation centre, where packages would be sorted and loaded together with other packages destined for a similar ZIP code; these shipments would go to the USPS, and letter carriers would deliver them to customers. A third option was for shipments to go from outbound sortation centres to an Amazon delivery station or hub, where local couriers or Amazon Flex drivers would deliver the packages to customers. 48 In October 2017, Amazon introduced Amazon Key, a smart lock system. One feature of this system was the ability to allow Amazon couriers access to customers’ homes to place packages inside. 49 Fulfillment Centres Amazon’s fulfillment centres were warehouses where product was stored, picked, and shipped. Individual fulfillment centres focused on specific types of product, such as small sortable, large sortable, large non- sortable, specialty apparel and footwear, specialty small parts, and returns. Small sortable fulfillment centres handled items smaller than a typical box in length, which could be placed in totes and ferried around on conveyor belts. These items included books, small electronics, and watches. Large sortable fulfillment centres looked after products that were too large to fit in typical 18-inch boxes and that could not be sorted easily. 50 For example, the Arizona PHX3 facility was dedicated to apparel and footwear; the California LGB4 facility was for large items such as sports equipment, patio furniture, and pet food; Indiana IND5 was for large non-sortable items and for hazardous materials (hazmat) merchandise; and Illinois MDW4 was for apparel, shoes, watches, and jewellery. 51 In an effort to control logistics costs, Amazon invested heavily in warehouse automation. It acquired Kiva Systems in 2012 and later re-named it Amazon Robotics. This division designed and installed warehouse automation systems exclusively for Amazon. Amazon Robotics automated fulfillment centres with the latest technology, such as autonomous robots and associated systems, control software, and devices that incorporated innovative tools such as computer vision, depth sensing, and object recognition. 52 Fresh Food Distribution Centres Amazon had a separate set of DCs for fresh food and cold storage grocery. These facilities had refrigeration and infrastructure to handle perishable soft foods. Amazon had retained the Whole Foods DCs to focus on serving physical stores and to augment Amazon’s online perishables orders. 53 Prime Now Hubs Through its Prime subscription service, Amazon offered special items for rapid shipment to Prime members in select markets. Prime Now Hubs were smaller buildings—about 1,765–4,645 square metres (19,000–50,000 square feet)—located in or near urban centres. They warehoused a small subset of the fastest-moving items that were available to Prime subscribers—about 15,000 stock-keeping units. Delivery for these items was made as little as 60 minutes after customers placed their online orders. 54
Page 8 zyxwvutsrqp9B18D Outbound Sortation Centres Goods ready for shipment from fulfillment centres were also sent to outbound sortation centres (OSCs). Unlike in a traditional order-fulfillment process, where packaged orders went straight to the shipper for sorting and shipping, Amazon OSCs received, sorted, and packaged orders before delivering them to the shippers. Amazon coined the term “sortation centre” in 2014 when it opened its first such centre in Kent, Washington. 55 According to Amazon, “Our sortation centers are at the intersection of our passion between our transportation and logistics networks and help us provide our Prime members with their orders in two days or less.” 56 Outbound sortation centres allowed Amazon to have greater control over the outbound transportation of packages. By identifying opportunities to rely on low-cost carriers, such as the USPS, local couriers, and independent Amazon Flex drivers, OSCs aimed to divert volume away from UPS and FedEx. In 2017, 3 per cent of FedEx’s revenues came from Amazon, compared to 7 per cent at UPS. 57 Amazon Flex Amazon Flex was a program that started in February 2016. Similar to Uber, but for package delivery, it enabled contract drivers to make $18 to $25 dollars per hour delivering Amazon packages within select metropolitan areas. The first four cities to use Amazon Flex were Seattle, Las Vegas, Phoenix, and Dallas. Drivers signed up through a mobile application (app), similar to that provided by Uber. Amazon was looking to save costs by using Flex drivers instead of dedicated local couriers, which could charge 35 per cent of the total shipping cost to deliver goods in the last mile. 58 Delivery Stations Instead of being directed to OSCs, product from fulfillment centres could go to delivery stations. Amazon’s delivery station network (DSN) facilities were similar to OSCs, but with key differentiating features. First, they were smaller—5,574–9,290 square metres (60,000–100,000 square feet)—and they were nested within larger metropolitan centres. Second, DSNs focused on last-mile and rapid outbound shipments within a tightly confined urban region. Third, DSNs relied heavily on contractors, such as independent Amazon Flex drivers, to deliver packages. 59 Transportation Amazon started building its truck fleet in 2015 to take increased control over shipments to and between its fulfillment centres and sortation centres. 60 In July 2017, Amazon was also leasing 40 cargo planes as part of its logistics network. 61 In January 2017, Amazon relied on its freight forwarding arm, set up in Beijing in October 2016, to arrange the transportation of goods from China to North America. 62 Amazon shipping costs included the costs of sortation and delivery centres and transportation costs; these were $4 billion in 2011, $5 billion in 2012, $6 billion in 2013, $8 billion in 2014, $11 billion in 2015, $16 billion in 2016, and $21 billion in 2017. 63 Total fulfillment expenses included shipping costs (see Exhibit 8). Management expected that shipping costs would increase as more consumers became Prime members and accepted two-day shipping offers. To offset these shipping costs, the company was working to optimize delivery operations by investing in new technologies and negotiating better prices with suppliers as volumes increased.
EXHIBIT 1: KEY FINANCIAL INFORMATION FOR AMAZON, WALMART, AND TARGET* Operating income Note: *Amazon’s fiscal year end was December 31. Walmart’s and Target’s fiscal year end was approximately 30 days later, but in the following calendar year. For example, Walmart’s fiscal year end was January 31, 2018, and Amazon’s 2017 fiscal year end was December 31, 2017, AWS = Amazon Web Services. Source: Amazon Inc., Walmart Inc., and Target Corporation, “Key Financial Information, 2014–2018,” Mergent,
- Page 10 zyxwvutsrqp9B18D
- Amazon (Fiscal year end Dec 31) (IN US$ MILLIONS)
- Net sales 88,988 107,006 135,987 177,
- Product sales 70,080 79,268 94,665 118,
- Service sales 18,908 27,738 41,322 59,
- Cost of sales 62,752 71,651 88,265 111, - AWS 478 1,507 3,108 4, Product sales (280) 726 1,078 (225)
- Fulfilment expenses 10,766 13,410 17,619 25,
- Net income (loss) (241) 596 2,371 3,
- Total shareholders' equity 10,741 13,384 19,285 27,
- Accounts receivable, net 5,612 6,423 8,339 13,
- Accounts payable 16,459 20,397 25,309 34,
- Inventories 8,299 10,243 11,461 16,
- Total assets 54,505 65,444 83,402 131,
- Walmart (Fiscal year end Jan 31)
- Net sales 482,229 478,614 481,317 495,
- Cost of sales 365,086 360,984 361,256 373,
- Operating income 27,147 24,105 22,764 20,
- Net income (loss) 16,363 14,694 13,643 9,
- Total shareholders' equity 85,937 83,611 80,535 80,
- Accounts receivable, net 6,778 5,624 5,835 5,
- Accounts payable 38,410 38,487 41,433 46,
- Inventories 45,141 44,469 43,046 43,
- Total assets 203,706 199,581 198,825 204,
- Target (Fiscal year end February 3)
- Net sales 72,618 73,785 69,495 71,
- Cost of sales 51,278 51,997 48,872 51,
- Operating income 4,535 5,530 4,969 4,
- Net income (loss) 2,449 3,321 2,669 2,
- Total shareholders' equity 13,997 12,957 10,953 11,
- Accounts receivable, net
- Accounts payable 7,759 7,418 7,252 8,
- Inventories 8,790 8,601 8,309 8,
- Total assets 41,404 40,262 37,431 38,
zyxwvutsrqp zyxwvutsrq Page 11 9B18D EXHIBIT 2: AMAZON OPERATING INCOME BY BUSINESS SEGMENT (IN US$ MILLIONS) Amazon (Fiscal year end Dec 31) 2014 2015 2016 2017 Net sales: North America 50,834 63,708 79,785 106, International 33,510 35,418 43,983 54, AWS 4,644 7,880 12,219 17, Total Net Sales 88,988 107,006 135,987 177, Operating income: North America 360 1,425 2,361 2, International (640) (699) (1,283) (3,062) AWS 478 1,507 3,108 4, Total Operating Income 198 2,233 4,186 4, Note: AWS = Amazon Web Services Source: Amazon Inc. 2017 Annual Report, 37, April 18, 2018, accessed June 15, 2018, phx- ir.net/phoenix?c=97664&p=irol-reportsannual. EXHIBIT 3: AMAZON’S AND WALMART’S PRODUCTIVITY MODELS* Note: *A flywheel was a mechanical device specifically designed to efficiently store rotational energy. Flywheels resisted changes in rotational speed by their moment of inertia. The term “flywheel effect” came from Jim Collins’s book, Good to Great, and was used by Bezos to describe the firm’s business model; Jim Collins, “The Flywheel Effect,” excerpted from Good to Great, Jim Collins, accessed June 15, 2018, jimcollins/article_topics/articles/the-flywheel-effect.html; entrepreneurs-journey/24146/flywheel-virtuous-cycle/. Source: Adapted by the case authors from Robert Sabath and Richard Sherman, “Want to Innovate Your Supply Chain? Break the Rules,” Supply Chain 247, April 21, 2013, accessed June 15, 2018, supplychain247/article/want_to_innovate_your_supply_chain_break_the_rules/HP.
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Page 13 9B18D EXHIBIT 5: FULFILLMENT BY AMAZON FEES (IN US$) Fulfillment and Monthly Storage Fees Fulfillment Fees/per unit Standard Size Oversize Includes picking and packing your orders, shipping and handling, customer service, and product returns Small (1 lb. or less): $2. Large (1 lb. or less): $3. Large (1 lb. to 2 lb.): $4. Large (over 2 lb.): $4.
- $0/lb. above first 2 lb. Small: $8.
- $0/lb. above first 2 lb. Large: $9.
- $0/lb. above first 2 lb. Large: $73.
- $0/lb. above first 90 lb. Special oversized: $137.
- $0/lb. above first 90 lb. Add $0/unit for clothing items Monthly Inventory Storage/per cubic foot Standard Size Oversize Charged for all units stored in an Amazon fulfillment centre based on calendar month and your daily average volume January–September: $0 per cubic foot January–September: $0 per cubic foot October–December: $2 per cubic foot October–December: $2 per cubic foot Note: lb. = pound Source: “Fees and Rate Structure,” Amazon Services, accessed May 2, 2018, services.amazon/fulfillment-by-amazon/pricing.htm/ref=asus_fba_snav_p.
zyxwvutsrqp zyxwvutsrq Page 14 9B18D EXHIBIT 6: AMAZON—SUPPLY CHAIN EVOLUTION
- 1995 – E-commerce sales start.
- 1995 – Distribution centres (DCs) created; DCs allow for bulk product to be received, warehoused, sorted, picked, and shipped, individually, to customers.
- 1997 – Amazon starts to rely on external warehouses to supplement its DCs.
- 2000 – Amazon creates a marketplace for third-party sellers.
- 2006 – Fulfillment by Amazon begins, allowing third-party sellers to have Amazon fulfill orders for customers.
- 2007 – Amazon payments: Amazon launches a payment service to rival PayPal’s offer, allowing third- party sellers to set up electronic payment services on their sites.
- 2007 – Amazon develops and launches proprietary electronic products.
- 2012 – Amazon acquires Kiva Systems, a designer and installer of warehouse automation systems, and re-brands it as Amazon Robotics.
- 2013 – Amazon initiates Operation Dragon Boat to coordinate the shipment of product from factories to its distribution centres.
- 2013 – Amazon launches a Black Friday Deal store.
- 2014 – Amazon consolidates inbound shipments and distributes to its own DCs.
- 2015 – Amazon begins building its own air and truck fleet.
- 2015 – Amazon launches Amazon Business.
- 2015 – Amazon launches Prime Now local store delivery.
- 2016 – Amazon launches Prime Air, a venture to test delivering packages by drone.
- 2016 – Amazon launches its own freight forwarding service, to be used internally.
- 2017 – Amazon launches sortation centres to sort merchandise before it is sent to DCs.
- 2017 – Amazon acquires Whole Foods Market.
- 2018 – Amazon Go, a self-checkout grocery store concept, opens in Seattle.
- 2018 – Grocery delivery from Whole Foods Market. Source: Created by the case authors based on content from Zvi Schreiber, “Amazon Logistics Services - The Future of Logistics?,” Supply Chain 247, February 2, 2016, accessed June 15, 2018, supplychain247/article/amazon_logistics_services_the_future_of_logistics; “Amazon: The Making of a Giant,” Wall Street Journal, accessed June 15, 2018, wsj/graphics/amazon-the-making-of-a-giant/.
zyxwvutsrqp zyxwvutsrq Page 16 9B18D EXHIBIT 9: AMAZON GLOBAL REVENUES BY SEGMENT (IN US$ BILLIONS) 2014 2015 2016 2017 Online 68 76 91 108. Physical stores 5. Retail third-party seller services 11 16 22 31. Subscription services 2 4 6 9. Amazon Web Services 4 7 12 17. Other 1 1 2 4. Total 88 107 135 177. Notes:
- Online: Includes product sales and digital media content.
- Physical stores: Includes product sales where our customers physically select items in a store.
- Retail third-party seller services: Includes commissions, related fulfillment and shipping fees, and other third-party seller services.
- Subscription services: Includes annual and monthly fees associated with Amazon Prime membership, as well as audiobook, e-book, digital video, digital music, and other non-Amazon Web Services subscription services.
- Other: Includes sales not otherwise included above, such as certain advertising services and co-branded credit card agreements. Source: Created by the case authors based on data from “Global Net Revenue of Amazon from 2014 to 2017, By Segment (in Billion U. Dollars),” Statista, February 2018, accessed May 3, 2018, statista/statistics/672747/amazons-consolidated-net-revenue-by-segment/.
zyxwvutsrqp zyxwvuts zyxw Page 17 9B18D ENDNOTES 1 This case has been written on the basis of published sources only. Consequently, the interpretation and perspectives presented in this case are not necessarily those of Amazon Inc. or any of its employees. 2 “Amazon (AMZN) Market Cap” YCharts, accessed June 15, 2018, ycharts/companies/AMZN/market_cap; All currency is in U. dollars unless specified otherwise. 3 Great Speculations, “Amazon Continues to Impress with Rapid Growth,” Investing (blog), Forbes, February 2, 2018, accessed June 15, 2018, forbes/sites/greatspeculations/2018/02/02/amazon-continues-to-impress-with- rapid-growth/#6049f9295cbb. 4 Laura Stevens, “Amazon Says More than a Million U. Small Businesses Sell on Its Site,” Wall Street Journal, May 3, 2018, accessed June 15, 2018, wsj/articles/amazon-says-more-than-a-million-u-s-small-businesses-sell- on-its-site-1525341606?ns=prod/accounts-wsj. 5 Laura Stevens, Jennifer Smith, and Paul Ziobro, “What It Would Take for Amazon to Become UPS or FedEx,” Wall Street Journal, February 10, 2018, accessed June 15, 2018, wsj/articles/what-it-would-take-amazon-to-become- ups-or-fedex-1518264001. 6 Amazon Inc., Annual Report on Form 10-K for the Fiscal Year Ended December 31, 2017, February 2, 2018, accessed June 15, 2018, phx.corporate-ir/phoenix.zhtml?c=97664&p=irol-sec&control_selectgroup=Annual%20Filings. 7 Jennifer McKevitt, “Amazon the Freight Forwarder Gains Ground in China,” Supply Chain Dive, January 26, 2017, accessed June 15, 2018, supplychaindive/news/amazon-3pl-ocean-freight-forwarder/434760/. 8 Laura Stevens, “Amazon to Launch Delivery Service That Would Vie with FedEx, UPS,” Wall Street Journal, February 9, 2018, accessed June 15, 2018, wsj/articles/amazon-to-launch-delivery-service-that-would-vie-with-fedex- ups-1518175920. 9 United States Department of Commerce, “Quarterly Retail E-Commerce Sales: 4th Quarter 2017,” News Release, U. Census Bureau News, February 16, 2018, accessed June 15, 2018, www2.census/retail/releases/historical/ecomm/17q4.pdf. 10 “Retail E-Commerce Sales in the United States from 2016 to 2022 (in Million U. Dollars),” Statista, October 2017, accessed June 15, 2018, statista/statistics/272391/us-retail-e-commerce-sales-forecast/. 11 “Total Retail Sales Worldwide from 2015 to 2020 (in Trillion U. Dollars),” Statista, March 2017, accessed June 15, 2018, statista/statistics/443522/global-retail-sales/. 12 “E-commerce Share of Total Global Retail Sales from 2015 to 2021,” Statista, March 2018, accessed June 15, 2018, statista/statistics/534123/e-commerce-share-of-retail-sales-worldwide/. 13 James Risley, “Walmart’s US Online Sales Grow 44% in 2017 Despite Q4 Stumble,” Internet Retailer, February 20, 2018, accessed June 15, 2018, digitalcommerce360/2018/02/20/walmarts-us-online-sales-grow-44-in-2017- despite-q4-stumble/. 14 Dennis Green, “How Walmart Turned its $3 Billion Acquisition of Jet into Its Greatest Weapon against Amazon,” Business Insider, September 29, 2017, accessed June 15, 2018, businessinsider/jet-walmart-weapon-vs-amazon-2017-9. 15 Matt Lindner, “Target Rings Up More Than $700 Million in Online Sales in Q2,” Internet Retailer, August 16, 2017, accessed June 15, 2018, digitalcommerce360/2017/08/16/target-rings-700-million-online-sales-q2/. 16 Huileng Tan, “The US-China Trade Discussion is Just Getting Started, So Experts Don’t Expect Much Yet,” CNBC, May 4, 2018, accessed June 15, 2018, cnbc/2018/05/04/us-china-trade-discussion-beginning-experts-dont-expect- much-yet 17 Pankaj Ghemawat and Jose Luis Nueno, Zara: Fast Fashion (Boston, MA: Harvard Business Publishing, 2003). Available from Ivey Publishing, product no. 703497. 18 P. Fraser Johnson and Ken Mark, Half A Century of Supply Chain Management at Wal-Mart (London, ON: Ivey Publishing, 2012), 2. 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Amazon Supply Chain Packet
Course: Supply Chain Management (SCMN 7776)
University: Auburn University
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