Research Report on Quantitative Analysis of Amazon

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Research Report on Quantitative Analysis of Amazon

Amazon is a company who focuses on e-commerce and has locations all over the United States and world for that matter and is based out of Seattle. This company was founded in 1994 and has had the same CEO since 1996, Jeff Bezos. Amazon is most famous for their idea of Amazon Prime. This is typically a yearly subscription that qualifies members for free two-day shipping on thousands of their items. This membership also includes free movies and tv series that are available all the time along with music options. This membership is only $99 a year for alll subscribers. Amazon currently employs 750,000 people and is the second largest employer in the United States. It also has a net worth of $918 billion and is a leader in the industry.

I chose Amazon because I find it to be a very interesting company and are a leader in the market. Everyone knows who and what Amazon is and this seemed to be an overnight sensation. They have made so much progress within the twenty years that it has been around, and they have become one of a kind in their industry. They are constantly exploring new options for ways to better themselves. Bezos says it best when he states that “Our customers are loyal to us right up until someone offers them a better service” (Robischon, 2017). Amazon has set a new shipping expectation for their customers that has bled over to other companies. From personal experience, I have chosen Amazon over other companies because I will get the merchandise quickly and there will be “no” shipping charges, if you will. Amazon has also expanded into other unfamiliar areas for themselves, such as acquiring Whole Foods or expanding into the film industry when they produce Amazon originals that are introduced to Prime for new screenwriters. I feel that a quantitative analysis on Amazon will be interesting to assess where they are successful and areas that can be improved on. There are many different areas that Amazon can better themselves in to continue to be a leader in the industry, but they are also performing well in other areas. Some of the areas that I will discuss are decision analysis, forecasting, inventory control, transportation, and project management. Each of these helps to look at a different aspect of Amazon and I will add my personal thoughts.

Decision Analysis

Our textbook offers six different steps in decision making that would help to make an important business decision. The steps are as followed “clearly define the problem at hand, list the possible alternatives, identify the possible outcomes or states of nature, list the payoff of each combination of alternatives and outcomes, select one of the mathematical decision theory models, and apply the model and make your decision” (Render, Stair, & Hanna, 2012). Amazon launched the Kindle in 2007 and had a decision-making process to go through prior to this launch. Amazon saw that there was a demand for e-reading and saw that the supply needed to be created. Some of the alternatives that could have been discussed was a desktop format to use on a PC or personal computer or the handheld option that Amazon did go with that is easy to transport and can be used virtually anywhere. The possible outcomes would be that the idea would be a bust and there would be no interest, there would be some interest, but not enough to justify manufacturing, or there would be mass amounts of interest and the company would see a profit. If there were little or no interest, the company would suffer a loss, but if there were high amounts of demand, then the company would see a profit. For this example, I would use the decision-making process under uncertainty by solving the criterion of realism (Render, Stair, & Hanna, 2012).

Forecasting

Forecasting is a mathematical process that managers use to help predict the future in some manner. This could be a restaurant forecasting how much food they will sell during a specific time frame or a company forecasting what their sales will be for a particular item for a period of time. The goal of forecasting is to have enough on-hand inventory to meet their potential demand from customers. This has been something that Amazon recently had to overcome because they purchased Whole Foods. This is a market that Amazon is not familiar with because it deals with perishable foods. To maximize profitability, Amazon has to be able to purchase the right amount of food to keep stocked at the Whole Foods stores in order to meet customer demands. If there is too much food at the end of the day, then Amazon has to find a way to dispose of the food and suffer a loss. If there is too little, then Amazon suffers the loss of potential sales and has dissatisfied customers. Forecasting is key to keeping the business profitable and customers happy. An example that Amazon may want to consider would be measuring forecasting accuracy through forecast error. Amazon may forecast that they will sell 100 pounds of grapes in a week for a particular area, so the manager orders 100 pounds of grapes. That week they only sell 75 pounds of grapes. We would see that we had a forecast error of -25 because Amazon over ordered and had product left over that will expire. Perishable foods through online ordering is something to be very cautious of to ensure that there are minimal amounts of waste daily.

Inventory Control

Inventory is one of the most expensive assets to a company because it is necessary to meet customer demands, but also to be kept to a minimum to keep those costs low (Render, Stair, & Hanna, 2012). There are a few different areas that are directly impacted by inventory, such as the decoupling function, storing resources, irregular supply and demand, quantity discounts, and avoiding stockouts and shortages (Render, Stair, & Hanna, 2012). The accuracy of inventory is just as important because it helps to keep these costs to a minimum as it cuts back on overordering items. This is very important for a company like Amazon because they carry so many different items, some of which are very expensive to purchase. This is why Amazon implemented Inventory Control Specialists to help cut back on having too much on-hand inventory. This also helps to ensure that the inventory that is in stock is correct and up to par with their quality standards. Inventory control specialists can also help with the ordering process by assessing past sales and comparing those to help forecast future sales. This helps to stock the correct amount of inventory for that particular item. For this, we could use the formula Average inventory level = Q / 2. Q is the order quantity, so for Amazon they may want to order 1,000 firesticks from the manufacturer in a week. If we divide 1,000 by 2, then the average inventory level would be 500.

Transportation

Transportation is an issue that Amazon largely has to deal with because they ship all over the world. The transportation problem shows us that there is a set amount of supply at certain sources and there is a set amount of demand that needs to be met. Amazon must work to meet the demand that their customers have all over the world for particular products. While Amazon wants to meet the demands of their customers, they also need to keep shipping costs down for themselves to maximize their profitability. This is where many different warehouses come into play to help meet the demand and shipping issues. There are warehouses all over the United States and world to ship product from to help decrease these shipping costs. The next issue that Amazon has to address is their free two-day shipping with having a Prime account. This is necessary to meet consistently so customers continue to come back, so Amazon has to figure out where the order must ship from in order to get it to the customer in that timeframe. This could mean shipping the product via air to a warehouse closer to the customer. The goal, however, is to ship the product from the closest warehouse to minimize costs on shipping. For example, say we want to ship some product from Seattle to Chicago. The per unit cost to ship the product is $5 and we are shipping 10 of those, so the total cost to ship would be $50. This is what Amazon should work to minimize to keep shipping costs at a minimum.

Project Management

Project management helps us to understand all of the working parts of one particular project and how they work to influence and determine the critical path. Since Amazon does not manufacture anything, we will use the task of shipping an order to a customer. It first starts with getting the order and that is submitted right away to Amazon, then it is given to the correct warehouse for shipping, then the employee in the warehouse gets the order and pulls it, next someone puts it in a box and stages it for shipping, lastly it is shipped out to the customer. Each of these parts are incredibly important because they all determine if the order will be delivered to the customer in the guaranteed time given. Out of these, I would say that pulling the order is the most important step because this determines if Amazon has the product at that warehouse or not. If they do not, then they may decide to ship from another warehouse close by. Amazon has proven incredibly competent of being able to distribute the orders to the corresponding warehouses and getting the orders shipped to their customers in the guaranteed time given to the customer when ordering. There really is not a lot of room for improvement on Amazon’s end because they are performing well and consistently.

Conclusion

Amazon has proven that they are a leader in the e-commerce business because of how diverse they are with their products and how willing they are to try a new product or service. Amazon is well aware of the risk that comes with introducing a new product or service, yet they try anyways. This has helped them to get to where they are today as one of the largest companies in the United States. Amazon is using various types of quantitative analysis each day to properly and efficiently function. They have used decision analysis to determine if they want to launch a new product. They go through the six steps to make an educated decision on whether or not launching a new product will be worthwhile. Forecasting helps them to know what they need to stock of their products and where they are over or under stocking creating a surplus or shortage for their customers. Inventory control helps to assess the new products coming into the warehouse to meet the quality control processes. Inventory control also helps to make the decision of when to order more product so there is not too much on hand. Too much inventory on hand is incredibly expensive, but it is an asset to the company. Transportation is key to the profitability of a company because the goal is to minimize all costs with transportation. Amazon should work to ship from the closest warehouse to the customer and maximize their use of space when shipping from warehouse to warehouse. Project management shows us that there are many different parts that fit together to make one job. Shipping a package is not quite as simple as it sounds because there are many different sub-jobs that go into shipping that package. These sub-jobs help us to determine the critical path of the project and where we do not have time to slack on. Amazon has proven time and time again that they are willing to do whatever it takes to start and keep loyal customers. They are constantly working towards bettering themselves in all aspects. After reviewing them through this quantitative analysis, I would agree that Amazon is performing well and will continue to do so.

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