Answer this question:
What are the major (current, future or both) operations and process management related problems and challenges that this organization is facing?
Answer this question: What are the major (current, future or both) operations and process management related problems and challenges that this organization is facing? OPER/109 IBS Center for Management Research Amazon.com: Developing Same-Day Delivery Capabilities This case was written by Syed Abdul Samad, under the direction of Debapratim Purkayastha, IBS Hyderabad. It was compiled from published sources, and is intended to be used as a basis for class discussion rather than to illustrate either effective or ineffective handling of a management situation. Sherree Evans Collection Management Level 4. Thomas Cherry Building The University of Melbourne, Victoria 3010 Australia Licensed to print 30 copies, 26 May, 2017. License valid upto 25 August, 2017. 2013, IBS Center for Management Research. All rights reserved. To order copies, call +91 9640901313 or write to IBS Center for Management Research (ICMR), IFHE Campus, Donthanapally, Sankarapally Road, Hyderabad 501 203, Telangana, India or email:
[email protected] www.icmrindia.org 1 OPER/109 Amazon.com: Developing Same-Day Delivery Capabilities “It’s hard to overstate how thoroughly this [Amazon's] move will shake up the retail industry … Amazon is investing billions to make next-day delivery standard, and same-day delivery an option for lots of customers. If it can pull that off, the company will permanently alter how we shop. To put it more bluntly: Physical retailers will be hosed.” 1 – Farhad Manjoo, Slate a , in July 2012 In August 2012, Amazon.com, the world‘s biggest 2 online retailer, announced that it would introduce same-day delivery of its orders as a service option to its customers and make next-day delivery standard service. This move came in response to the regulatory changes in some states of the US that required consumers to pay sales tax, which in turn would strip it off its price advantage. In order to stay ahead of the competition, Amazon decided to cut its shipping time. In 2005, the company had introduced free two-day shipping and discounted one-day shipping rates in the US on eligible purchases for a flat annual fee under a service known as ‗Amazon Prime‘. The same services were introduced in Japan, the UK, and Germany in 2007, in France in 2008, and in Canada in 2013. Apart from ‗Amazon Prime‘ services, in 2009, the company had introduced same-day delivery in 10 big cities which were close to Amazon warehouses and only on certain items ordered in the morning (before 7 A.M). In 2012, it decided to roll out the same-day model for all. However, analysts were skeptical about the success of this extended model due to the logistic hurdles that the company would have in the process, the large scale of operations needed, the extra costs involved for the company, and face reluctance to usage by consumers. Some argued that if successful, this model would become a nightmare for small retailers and would threaten their very survival. While speculations about the success and failure of Amazon‘s same-day delivery model of Amazon were just one side of the coin, the competition that the model would face with the entry of other big and small players like Walmart b , Postmates c , Instacart d , eBay e , etc., in the same arena, was the other. a Slate is a US-based English language online current affairs and culture magazine created in 1996. b Walmart Stores, Inc. is an American multinational retail corporation that runs chains of large discount department stores and warehouse stores. The company is the world‘s third largest public corporation, according to the Fortune Global 500 list in 2012. c Postmates, headquartered in San Francisco, is a same day urban logistics & delivery platform. It enables anyone to ship any product within a city in less than one hour. d Instacart is an independent software company that links customers with local personal shoppers. It offers 1 hour delivery time within the city. It focuses on basics and groceries and the service is available in San Francisco, Mountain View, and Palo Alto, California. e eBay Inc. (stylized as ebay) is an American multinational internet consumer-to-consumer corporation, headquartered in San Jose, California. It was founded in 1995. Amazon.com: Developing Same-Day Delivery Capabilities 2 GLOBAL E-COMMERCE INDUSTRY E-commerce, the buying and selling of products and services over the internet and other networks, had evolved through several phases since the internet was born in 1973. The internet was seen by many as the realm of techno-savvy people. However, when the World Wide Web (www) and HTML were conceived in 1989, it made the sharing of unlimited data possible in a user-friendly way. By 1993, entrepreneurs and consumers had come to realize the vast potential of the internet for retailing, publishing, and entertainment. In the economic boom that followed, thousands of new internet-based businesses were established and stock markets soared. But with the collapse of NASDAQ in 2000, the industry entered a dreary phase. However, by 2003, the sector had recovered and e-commerce firms began to prosper. Businesses found that the internet created wider opportunities, increased operational efficiencies, and derived profits. Consumers also began to increasingly get used to online purchasing. The convenience of fast internet access (wired or unwired) at lower prices, improved infrastructure and laws, evolved consumer preferences, and decreased costs of mobile internet devices fuelled the rapid growth of e-commerce. With the rapid increase in the number of online shoppers, the global internet retail sales (business to consumer sales) grew to over $1 trillion in 2012 (by 21.1% over 2011), with the US holding the top spot with $364 billion (Refer to Exhibit I for global e-commerce statistics). 3 Japan took second place with sales of $127 billion, followed by the UK ($124 billion), and China ($110 billion). Interactive Media in Retail Group (IMRG), a UK online retail trade organization, estimated that Global B2C e-commerce sales would pass the 1 trillion euro ($1.25 trillion) mark by 2013. 4 eMarketer f estimated that e-commerce would grow 18.3% in 2013 and that the Asia-Pacific would grab the number one position with a growth of 30%. 5 As developed markets were getting saturated, retailers were looking for new paths for global expansion and online trade had become an easy and a low-risk solution for them to expand globally and test new markets. AT Kearney g studied the top 30 countries of the 2012 Global Retail Development Index (GRDI) and prepared the E-Commerce Index, which revealed the top countries where online growth would be the highest. According to the index, AT Kearney assessed that China, Brazil, and Russia would be the top three countries with a strong growth in the online retailing sector in the near future (Refer to Exhibit II for The 2012 E-Commerce Index). AMAZON.COM Amazon.com, Inc. (Amazon) headquartered in Seattle, Washington, US, was the world‘s largest online retailer. It started as an online book store but later diversified its offerings to DVDs, CDs, MP3 downloads, software, video games, electronics, apparel, furniture, food, toys, and jewelry. It allowed manufacturers and sellers to sell their products through its websites. It further offered its own consumer electronic products like the Amazon Kindle e-book reader and the Kindle Fire tablet computer. It was also a major provider of cloud computing services. By December 2012, the company had separate retail websites for the US, Canada, the UK, France, Germany, Italy, Spain, Brazil, Japan, and China with international shipping facility to a few other countries. The company had two segments – North America and International (Refer to Exhibit III for Amazon’s Segment-wise Sales). The North America segment included sales from www.amazon.com and www.amazon.ca. The International segment earned from retail sales through all other international websites (Refer to Exhibit IV for a List of Amazon’s Websites). By the end of December 2012, the company was operating world-wide with 88,400 employees and had revenue of US$ 61.09 billion, operating income of US$ 676 million, and a net loss of US$ 39 million 6 during the year (Refer to Exhibit V for Amazon’s Consolidated Financial Data). f eMarketer is a provider of information on digital marketing trends, media, and commerce. g AT Kearney is a global management consulting firm. Amazon.com: Developing Same-Day Delivery Capabilities 3 In July 1994, Jeff Bezos (Bezos) founded Cadabra.com in his garage in Bellevue, Washington. It started as an online book store which sold across the US and 45 other countries. The company had a virtual warehouse of unlimited book titles compared to the limited titles available in brick and mortar stores. In 1995, the company was renamed Amazon.com after the Amazon River, one of the largest rivers in the world. In May 1996, it was reincorporated in Delaware. It issued its initial public offering in May 1997, which was traded in the NASDAQ stock exchange. In the initial years, Amazon showed slow growth, which brought in complaints from stockholders and even raised doubts about the company‘s survival in the long term. However, the dot-com bubble burst in 2000 and many e-companies went out of business. Amazon survived and went on to become a huge player as an online retailer and proved to