Introduction
Operating a successful business requires extensive measures, efforts, and inputs. Maintaining an inventory is one of the strategies that have proven useful in running a successful business entity. ** () defines inventory management as the process of ensuring that the stock mix of a particular product matches its demand. Therefore, the function enables the company to produce sufficient products that satisfy the customers’ demands without incurring extra costs related to wastage. Singh and Verma (2018) also explored the concept of inventory management as a function of the supply chain, and defined inventory as “raw materials, work-in-progress products, and finished goods that are considered to be the portion of a business’s assets that are ready or will be ready for sale.” Any goods that contribute to the assets of an organization once finished are the company’s assets.
Singh and Verma defined inventory management as the planning, implementing and controlling “the efficient, effective, forward, and reverse flow and storage of goods, services, and related information between the point of origin and the point of consumption. The purpose of inventory planning is to ensure the company meets customer demand sufficiently and without delays. Amazon is one of the companies that exhibit efficient management of its assets.
The primary goal of the report is to explore and analyze Amazon’s inventory management techniques, systems, and other procedures related to management of the company’s portfolio. Analyzing the Amazon’s inventory management will offer pertinent insights regarding its inventory management techniques, problems and challenges it faces in managing the portfolio, the value that this function adds to the business, and its contribution to the overall success of the company. Studying this topic will be helpful to Amazon in that the company can utilize the information to improve its inventory management. Amazon can also utilize the findings and recommendations of this research to identify weaknesses in its inventory management procedures and institute better techniques that enhance efficiency.
The project will also be useful to other similar companies that intend to initiate inventory management procedures or improve their existing ones. Such companies can borrow insights from Amazon regarding how it implements and controls its assets to achieve business success. The report will also create awareness about the different types of inventory management techniques available to firms like Amazon, and also to other organizations that employ varying business models. Studying this topic also adds to my overall knowledge concerning successful business management and the vital aspects of business that contribute to its victory.
The report will comprise various sections that will include the detailed study of Amazon’s inventory management and the conclusion and recommendations section. The detailed study section will highlight the company’s inventory management techniques, challenges and problems that the firm experiences with its inventory management, the benefits and value of this function to the business, and the role that inventory management plays in the overall success of Amazon Company.
The section will also highlight the strengths, weaknesses, opportunities, and threats of Amazon’s inventory management system, which will offer insights on how the company can utilize opportunities to add value and avoid threats to prevent and cut costs. The conclusion section will offer a comprehensive summary of the report, reflecting on the lessons learned and highlighting opportunities for further study. The section will also include recommendations for the Amazon Company concerning improving its inventory management.
Detailed Study
Amazon Inc.
Amazon Inc., herein referred to as the Amazon, is an American e-commerce company founded in 1994 by Jeff Bezos. The company relies on cloud computing as the backbone of its business processes, and it has expanded significantly since its inception. The Amazon began as an online platform for selling digital books, but later expanded its assets to include almost every other consumer good that any client may be seeking, including clothes, furniture, electronics, gardening tools, and other types of merchandise.
The organization describes itself as the “earth’s most customer-centric company, best employer, and safest place to work” (Amazon, 2021). The enterprise prides itself in meeting customers’ needs through its principle of client obsession instead of competition with its business competitors. Passion for invention is another guiding principle at the Amazon, which facilitates the efficiency with which it delivers its services to the customers (). The efficiency wins Amazon its competitive edge against its rivals.
Additionally, the corporation prides itself in operational excellence and long-term thinking as the other guiding principles. Focusing on operational excellence ensures that Amazon not only wins new customers, but also retains loyalty from the existing ones. Long-term thinking enables Amazon to forecast customer trends and patterns that determine their shopping behaviors. Consequently, Amazon plans and institutes changes accordingly to accommodate the dynamic customer purchasing behaviors.
As an international provider for multiple services from numerous providers and suppliers, the company relies on inventory management to meet its principle of customer obsession and delivering goods with efficiency. The company’s primary intentions are to guarantee convenience in its services, wider selection of products to the clients, and lower prices. Therefore, the firm ensures that its services are available online and in physical stores. The company acknowledges the importance of maintaining the right inventory to avoid unnecessary delays and meet client demands efficiently.
Amazon’s Inventory Management: Techniques
Amazon Inc. cannot undermine the importance of inventory management to its business operations. According to the company, inventory management involves “processes and activities that take place between the moments you obtain your inventory and the moment you sell it to the final customer” (Amazon, 2021b). As an organization that relies on sourcing the products from other providers and suppliers, maintaining an inventory is critical in sustaining the business’s operations. Making changes to the inventory management techniques can also have significant implications on an organization’s bottom line by either boosting sales or leading to lost revenues (Amazon, 2021b). Therefore, inventory management plays a critical role in the efficient operation of Amazon’s business.
Inventory management at the Amazon comprises vital activities such as sourcing and storing products, and processing and distributing the goods to make sure they reach the client on time. According to Amazon (2021b), inventory management is an investment that allows the company to store and track goods sufficiently, ensuring that the demand is quickly and efficiently met. Poor inventory management bears significant adverse implications of a business establishment. Deadstock, spoilt goods, increased costs of storage, unfulfilled orders, and depleted stock are some of the negative effects of poor inventory management (Amazon, 2021b).
These negative impacts decrease a company’s profitability, hence compromising its survival and competitiveness. Although the negative effects may not be evident for months, the eventual outcome is debilitating even to large organizations like the Amazon.
Amazon uses an internal inventory management system that allows the sellers to track and manage their inventory across the company’s fulfilment and distribution stores. According to Amazon (2021b), the company owns over 175 fulfillment stores across the globe, which store thousands of tons of goods every day. To avoid the negative effects attributed to poor inventory management, Amazon uses a highly complex system that calculates and provides excess inventory alert by evaluating the price, elasticity, seller costs, and seller inputs (Amazon, 2021b). The tracking system enables suppliers to calculate the amount of stock in Amazon’s stores, the age of the products, and optimum inventory levels (Amazon, 2021b). The highly complex inventory management by Amazon makes it a preference for many sellers, who have experienced the benefits of effective inventory management. Fulfilment by Amazon, commonly known as FBA, is the company’s primary inventory management technique.
FBA allows Amazon to pick goods from sellers, package them, store them in its fulfilment centers, and redistribute them to buyers globally, offering distribution services. This model of managing inventory corresponds to the Economic Order Quantity, EOQ, deterministic model of inventory control. According to ** (), the EOQ model relies on the philosophy of deciding the order quantity based on whether the ordering and carrying costs are minimal.
This deterministic approach allows the seller to make the most profits and minimize losses in case of lower demand due to market dynamics. The EOQ inventory management model assumes that the demand for each single item is known and fairly constant. Goods whose costs and demand are dynamic are challenging to determine and unsuitable for the EOQ model. Replenishing the goods also utilizes a fairly constant model with a preset figure based on the demand for the product. Therefore, a constant amount of order replenishes the inventory when it reaches a predetermined reorder level.
A product whose demand is already established as high requires quick replenishment after depletion. Therefore, this model assumes that replenishment of the dwindling goods occurs instantly (). However, the model does not make an account for other delays that the suppliers may encounter before the products reach the fulfilment centers. Therefore, Amazon has adjusted its FBA inventory model to allow instantaneous replenishment of goods that may deplete fast due to unavoidable market factors such as unexpected marketing efficiency. Since the replenishment level is predetermined, the model also assumes that all items ordered arrive at the same time and are in perfect condition for distribution to the final customer (). However, this may not always be the case for breakable and perishable items.
Amazon’s customized FBA model facilitates instantaneous supply and exceeds the reorder limit to cover for damages and broken items. Also known as the free restock, the tool enables sellers to see the amount of inventory to replenish and when to send it (Amazon, 2021b). Therefore, the suppliers ensure that there is no shortage of their products in Amazon’s fulfilment stores via the tool. The tool is based on machine learning, which makes it a deterministic model in that it can predict inputs and demand through forecasting (Amazon, 2021b). Other factors that guide the FBA tool in determining replenishment levels and reorder time include seller inputs on lead time, seasonality, costs, frequency of refills, and the cost of products (Amazon, 2021b).
The FBA tool also mimics the EOQ deterministic model in that the costs of ordering, holding, and unit price remain constant. Although Amazon’s FBA inventory management bears the characteristics of a typical EOQ deterministic inventory management framework, the company has adjusted it to accommodate eventualities that occur due to market dynamics. The tool accords Amazon and the sellers a variety of benefits, making the company a preference for many sellers and buyers.
Benefits of Amazon’s Inventory Management: Value to the Business, Overall Success and SWOT Analysis
Amazon’s inventory management accords it numerous benefits that consequently contribute to the company’s overall success and competitiveness. One of the benefits that the company experiences from the efficient inventory management are fast order fulfilment and higher customer satisfaction rates (Amazon, 2021b). The suite of inventory management tools on FBA allows the seller to automatically replenish goods upon a depletion alert. The seller does not receive the alert when the goods deplete, but rather when the products attain a particular stock level. Therefore, the seller can replenish the products before the fulfilment centers run out of stock. FBA also indicates essential product information such as sell-through rates and the age of stock (Amazon, 2021b). A seller can utilize this information to update the stock levels accordingly.
Amazon’s inventory allows sellers and the company to maximize profits by reducing storage costs, transportation costs, and spoilage of products. The FBA tool provides sellers with real-time data regarding the state of their inventory in Amazon stores (Amazon, 2021b). This information is crucial in identifying fast-selling products that do not require higher inventory time. Consequently, sellers utilize this information to leverage on fast-selling goods, hence optimizing profits by reducing storage costs. A product that overstays in Amazon’s storage space attracts extra costs, and this eats into the sellers’ profitability. Therefore, the FBA inventory management helps sellers avoid incurring such costs. Amazon’s inventory management also updates sellers on the age of the product (). For goods that have a shorter shelf-life, sellers can run promotions and offer discounts to enhance faster sales, hence maximizing on profits by reducing wastage and spoilage.
SWOT Analysis
Amazon’s inventory management offers the company strengths, weaknesses, opportunities, and threats that it can either leverage to enhance success or mitigate to avoid negative outcomes. The table below highlights a SWOT analysis of the company’s inventory management:
Problems and Challenges
Among the challenges that Amazon faces with the inventory management include policies and regulations, holding and transportation costs, and ordering costs.
Conclusion
Analyzing Amazon’s inventory management was enlightening in that it provided pertinent insights about the company’s inventory management techniques, the value of the techniques to the company’s overall success, the problems and challenges that the company encounters in inventory management functions, and the solutions and recommended alternatives that can help resolve these challenges. Amazon currently has one of the best inventory management that allows it to conduct its business operations efficiently. The inventory management system is cloud-based, and allows vendors and the company to track and manage products n stores and in transit.
Over the years, Amazon has invested in newer technology to help serve the client base better. One of the company’s guiding principles is customer obsession, which implies that Amazon is more concerned about meeting client demand, than it is in achieving competition against its rivals. Therefore, its investments are customer-oriented and always geared towards enhancing client experience with the company. Evaluating the company’s inventory management revealed that Amazon utilizes an EOQ deterministic model that allows sellers to replenish goods effectively. The company has customized its system to notify sellers about depleting products, alongside other benefits. Therefore, the inventory management is beneficial to sellers, customers, and the company, as it helps maximize profits by reducing losses and high storage costs.
However, the current explosion of innovations offers the company more potential for future growth and improvement of its services. The current inventory management also offers insightful background information that can inform future research regarding maximizing inventory management to achieve maximum returns on investments.