US Supply Chain Network of United States

The physical supply chain network of Amazon.com which supports its different business models is discussed below

Retail Outlets Amazon.com generates all its sales from the virtual stores which are created by the Amazon.com and affiliate websites. It has no retail outlets. Thus it doesnt has to incur the cost of setting up physical retail stores. The technology infrastructure and website functionality creates a storefront personalized for each customer. The marginal cost of presenting a storefront for new customer required less investment. A retail store has to carry inventory in each store location as well as in distribution centers which adds to the cost. Amazon.com being an online retailer has store inventory at the distribution centres, thus they are able to carry a much wider selection of inventory. This provides them a competitive advantage over the retailers in inventory turnover.

Transportation Hubs - "Injection Points"

Different transportation hubs are operated under Amazon.com which they refer as Injection Points. These Injection point locations are determined by the concentration of customers in those areas, usually located in heavy customer concentration area. This help in reducing the transportation costs. The process includes It starts with consolidating the orders in distribution centers and then shipped from the DC to the transportation hub by contracting less than truckload or truckload shippers. When they reach the hub, the inbound trailers are unloaded. The packages are sorted and sent out to smaller carrier partners like United Parcel Service or the United Sales Postal Service. By using less than truckload or truckload carriers the overall transportation cost is reduced as they are less when compared to carrier partners.

Drop Ship Locations

Amazon.com directly delivers the order to customer with the help of its supply chain partners. The third-party sellers that offer their products for sale on Amazon.com can also be considered drop shippers.

Distribution Centers (Fulfilment Centres)

Amazon.com operates eight leased distribution centres throughout the United States. Location decisions are made based on proximity to customer concentrated areas and tax implications. Note that Amazon.com has three facilities in Nevada and Delaware, which both have no state income tax. Amazon.com has also taken advantage of unique opportunities to grow its distribution network, such as the abandonment of a large facility in Kentucky by another retailer that gave Amazon.com the opportunity to lease at a favourable rate. Amazon.com's initial model relied heavily on a small number of partners. Amazon.com began expanding its distribution network in preparation for the 1999 holiday season, opening five new distribution centres, in addition to the two existing facilities in Seattle and Delaware. The reasons for internal distribution were to reduce the dependency on book distributors; more proactively manage logistics execution and customer service, and improve margins . Processes in Amazon.com's distribution centres vary by the product mix in the facility. Products that are easily storable and conveyable are stored in highly automated facilities. Most of the items in the media product category fall into the sortable, conveyable category as products are relatively small, have a small variation in dimensions, and can easily be transported on conveyors and sorted by people or equipment. Products that are large or have irregular dimensions are stored in less automated facilities. Certain items in the toy product line have irregular dimensions and thus are difficult to handle in an automated fashion. Also, large consumer electronics such as plasma televisions are an example of a product type that is not conducive to automated conveyor and sortation systems.

5.2.6 Inventory Segmentation within the Amazon.com Network

The following is a description of the three tiers that comprise Amazon.com's inventory network. The website www.amazon.com owns the relationship with the customer. The first tier within the supply chain network is the Amazon.com distribution center network. Inventory is aggregated in distribution centres, which enables Amazon.com to carry less overall inventory than physical retailers that have to carry inventory in stores and DCs to support customers. The benefits of inventory aggregation are an improved ability to respond to fluctuations in geographic demand and high service level support with a lower level of safety stock. The second-tier in the inventory model is composed of wholesaler and partner DCs. This tier includes drop shippers such as Ingram Book Distributors, Baker and Taylor, and other book distributors. Also, CD distributors and other partners that are utilized to fulfil Amazon.com. Orders are also seen at this level. If Amazon.com is unable to fulfil the item from its DC, Amazon.com's IT systems can look into partner inventories to determine which party to assign the order. This prevents the Amazon.com customer from experiencing a stock-out for an item that Amazon.com carries but currently does not have in its own stock. It also allows Amazon.com to offer items that it does not sell directly through its inventory. Publishers, manufacturers, vendors, and third-party sellers comprise the third-tier in the Amazon.com multi-tier inventory model. These parties further enable Amazon.com to offer the nearly unlimited selection that they offer. Additionally, products sourced from these entities enable Amazon.com to avoid distributor mark-ups, reduce their dependency on distributors, and improve margins.