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Amazon.com is a leading e-commerce company that prioritizes customer satisfaction. It offers a diverse selection of products such as books, music, toys, gifts, and electronics. As per the 2011 Annual Report, Amazon achieved $48077 million in net sales and earned $631 million in net income. With a workforce of 56200 employees worldwide, Amazon serves over 137 million customers globally and ranks 16th for international traffic. The key factors contributing to Amazon's success are its extensive inventory, commitment to improving customer convenience, and competitive pricing.
This study examines how Amazon achieved its objectives through its digital channel.
One way Amazon differentiates itself from brick-and-mortar retailers is by leveraging its online operations for mass customization. Customers can access a vast selection of books, music, and other items without physical inventory on Amazon.com. Unlike traditional stores struggling to maintain such inventory, Amazon offers millions of books for purchase. Since 1999, Amazon regularly introduces new product lines and capabilities every six weeks to increase sales revenue.
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Currently, Amazon provides products across 34 broad categories, setting it apart from competitors. Product customization plays a crucial role in providing a competitive advantage by allowing customers to find tailored products all in one place.
Amazon.com's success can be attributed to its ability to provide mass customization. It follows three operating models to achieve this:
Lastly, Amazon has ventured into e-commerce solutions, website design, and hosting services for its customers.
These three operating models contribute to a vast collection of products that aligns with Amazon's limitless inventory business strategy.
The success of Amazon's strategies lies in the integration of its business operations. Figure 1 demonstrates how Amazon integrates its operations to fulfill customer orders. Amazon.com's server utilizes supply chain optimization software to predict demand and optimize its supply chain. The first step involves processing customers' credit card data to finalize their orders. At the same time, Amazon's warehouse gathers information about the customer's order for coordination purposes and to determine stock availability. If there is a shortage at the Amazon warehouse, appropriate suppliers are chosen. This information is then transmitted to publishers, music companies, and electronic OEMs (Original Equipment Manufacturers) for further processing. Once the order information is received, publishers, music companies, and electronic OEMs physically dispatch the required products to the nearest Amazon warehouse. At the warehouse, these items are packed and sent to the customer's location using UPS or US postal services. This approach allows Amazon to develop integrated business operations that facilitate information sharing across its network for enhanced efficiency.
Amazon's integrated system has improved the delivery process, allowing customers to receive their products within the same day or next day. This enhancement will enhance customer loyalty. Additionally, Amazon has made necessary adjustments to its fulfillment system, particularly for large order fulfillments. A notable example is when Amazon received an unprecedented advance order of 275,000 copies of a single volume of Harry Potter. This presented a significant challenge for the information staff at Amazon.
During this event, Amazon sent confirmation emails to its customers regarding delivery information. The shipment data for each package was also updated before being sent out. To ensure timely fulfillment of orders, Amazon collaborated with FedEx and scheduled 100 flights to ship 250,000 orders on the release date. This successful collaboration allowed Amazon to meet the high demand for orders.
According to Porter (1980), firms can achieve sustainable competitive advantages through strategies like differentiation, cost leadership, or focus. According to Loudon & Loudon (2006), online operations can help firms achieve cost leadership by reducing ordering and inventory costs. Furthermore, Amazon's implementation of mass customization has increased activity levels while keeping variable costs low, contributing to its profitability. As Drury (2006) states, fixed costs per unit decrease with increased activity compared to variable costs per unit. In the case of Amazon, their system has higher fixed costs associated with technology expenses, fulfillment costs, and advertising expenses than nominal variable costs.
This text highlights the significance of high activity leading to low fixed cost per unit cost, demonstrating how Amazon can offer low prices. This mass customization also increases productivity and optimizes profits by reducing fixed cost per unit. Additionally, Amazon reduces costs through cross docking shipments, where various items like books, toys, and electronics are grouped together in a single order and sent to the nearest warehouse for customers' convenience. To achieve this, Amazon employs its "12 technologies" to optimize solutions and predict demand. Another strategy employed by Amazon is the Customer Fulfillment Network (CFN) strategy which aims to increase gross profit margins by directly purchasing books from publishers rather than involving distributors who add their own profits. The CFN strategy integrates customer relationship management and order fulfillment management applications. It assesses customer demand against their capabilities to determine if orders can be fulfilled with reasonable profits while also predicting dynamic demand which reduces carrying and transportation costs at Amazon's warehouses. Furthermore, it improves cash flow by reducing tied-up cash in inventory and enhances inventory turnover ultimately contributing to increased profits for the firm.
Amazon's success can be attributed to its skill in extracting and utilizing customer information. The company maintains a comprehensive record of all its customers, storing data on their purchasing habits. By analyzing this information, Amazon can determine when a customer last placed an order and what they ordered. If a customer has not made a purchase in a while, Amazon will send them an email coupon featuring items from a different or related product line to encourage them to reorder. For example, if you recently bought a notebook, you may receive an email promoting computer equipment products.
Amazon.com offers the same level of convenience in product selection through customization on their website. Customers can personalize their web pages based on their preferences when logging in. Amazon.com divides all of their products into 34 broad categories.
Amazon offers convenience to customers by allowing them to easily select and search within 34 broad categories. This aligns with their strategy. According to Chevalier and Mayzlin (2006), digital means of information can be used to communicate product quality and create a bond between buyers and sellers, particularly in online markets. Amazon encourages its customers to write editorial and reviews of the books they purchase, which provides positive information to potential customers and increases the likelihood of purchase. Chevalier and Mayzlin (2006) also argue that improved book scores through reviews contribute to purchase intentions and lead to high sales revenue. Amazon's quick shipment is also a key area of success, as it provides hassle-free fulfillment of customers' orders, often with same or next day fulfillment. This sets Amazon apart from other online retailers, as demonstrated in figure 1 of their integrated order fulfillment process.
The following diagram depicts Dell as a worldwide technology sales company.
Being the second largest globally, this company is the leading computer manufacturer in the United States with a net revenue of $61,133,000,000.
Dell caters to both B2B and B2C commerce, meeting the needs of their corporate and individual clients. They recognize that business customers, who make bulk purchases, have distinct requirements compared to individuals seeking to customize a single unit.
This document is a comprehensive analysis of Dell's operations management approach. It covers various aspects such as the company's introduction, product design process, internal processes, and technology used. Additionally, it examines Dell's production rate forecasting and inventory management practices. The document also discusses the quality model implemented by Dell and their human resource strategy. In conclusion, it provides a summary of key points and reflections.
Dell's operations strategy encompasses all key activities where operations play a role. This includes a range of strategies that are implemented across various areas within the company:
Globalization has directly impacted Dell's product life cycle management, resulting in increased complexity and involvement of more stakeholders. One significant factor introduced is the consideration of environmental issues. Dell emphasizes the need for energy-efficient and eco-friendly product design, supported by strict business controls and supplier audits. Key aspects include optimizing performance per watt, assisting customers in deploying systems efficiently to reduce carbon footprint, eliminating the use of unregulated substances, and promoting supply chain sustainability by encouraging suppliers to uphold environmental responsibility.
The design activities of Dell comply with the ISO 14001 certification program, which is an internationally recognized standard for environmental management system criteria.
The main way Dell involves their customers in product design is through the website "Dell Idea Storm." This platform allows customers to contribute their own ideas, vote on existing ideas, and provide critiques of Dell products. With its wide range of posts and group discussions, the website is an excellent resource for conducting a thorough SWOT analysis of product design.
Dell's 'Dell Direct' operational strategy has been a key factor in its success. This strategy adds value by operating on demand and removing intermediaries from procurement, manufacturing, and distribution processes. The utilization of advanced technology in Dell's manufacturing process is crucial to the company's overall operations.
Dell has a competitive advantage over its rivals because it can effectively integrate resources, supplier relationships, and consumer communication using its technological capabilities.
Dell falls under the "Mass Production" process category because of its stable demand for products. The main line of production at Dell is assembly work, which is done with a good level of efficiency. There is always ongoing debate among employees as to whether Dell should be considered a manufacturing or assembly company. On one hand, Dell builds new products, mainly computers, that do not yet exist in the market, making them manufacturers. On the other hand, they primarily assemble components sourced from suppliers, leading some to view Dell as a "buy to sell" company. For the purposes of this document, Dell will be referred to as a manufacturer company.
The need for new products on the production line drives the generation of innovative ideas. This need is primarily determined by the interaction with suppliers and customers.
All Dell manufacturing centers utilize identical processes, supported by identical systems, and are evaluated in the same manner. This ensures uniformity in quality across the global network while also facilitating the identification and implementation of best practices.
The process of manufacturing is divided into different stages, as shown in the following diagram.
Final examination and categorization
Area for accumulating orders
Software Installation and Testing
Customer Order Pull
Kiting
Boxing
Build
The following describes these processes.
Through its many manufacturing centers, Dell has harnessed technology to continuously improve its value chain. The Internet has been instrumental in fostering strong relationships with both suppliers and customers. This high level of integration is evident on Dell's corporate website (www.dell.com). Suppliers can track the movement of their materials within Dell's operations, submit invoices, review engineering change orders, access cost reports, and monitor overall performance and progress.
The solution implemented by Dell, called Dell i2 Supply Chain Management (i2SCM), was designed to address communication needs with suppliers. This implementation has allowed Dell to lower costs by providing component suppliers and Dell planners with a comprehensive understanding of product demand and material requirements.
In collaboration with IBM, both companies have successfully upheld a high level of employee productivity. Through their joint efforts in designing production lines, they have achieved nearly limitless access to their IT infrastructure. An additional result of this partnership is the incorporation of an electronic catalog equipped with efficient search capabilities.
Altiris Recovery Solution was chosen by Dell in the past to deliver integrated backup and disaster recovery. Along with Dell Open Manage Client Administrator (OMCA), Altiris will offer direct integration of backup and recovery technology with OMCA, leading to business continuity and cost savings for Dell customers through proactive IT management. The implementation of these factors into a concrete disaster recovery plan gives Dell and IBM the confidence to scale and manage complex IT networks.
According to the definition, Dell is a manufacturing company that primarily focuses on assembling computers. The company does not produce any individual parts or components of the computers themselves. Instead, they rely on their suppliers who possess the expertise and dedication required for Dell's production line. If we view Dell and their suppliers as one unified entity, it can be considered a typical "Process Layout" where Dell's role can be equated to the assembly department.
The primary benefits of the "Product layout" (or assembly line production layout) include a faster overall product readiness time compared to other types of process layouts.
Dell's layout orientation to product has a negative aspect, which is that the required infrastructure is more costly compared to other layouts. This is due to the need for a highly cohesive assembly line, which requires advanced technology and specialized machinery.
Dell Company is involved in all operations, from suppliers to the final customer. This model highlights the lack of intermediaries in the supply chain, resulting in low cost and quick response to client orders.
The communication between Dell and its suppliers occurs through the Internet, allowing for real-time monitoring of component statuses. This enables suppliers to prepare new orders and negotiate prices as needed. Typically, suppliers have warehouses located near Dell's Manufacturing Centers to minimize the risk of component shortage in Dell's main assembly line. Additionally, this arrangement helps Dell avoid inventory costs.
Typically, suppliers provide components for Dell's assembly line. However, as demonstrated in the illustration, there can be suppliers located after Dell's production line, including those outside of Dell's facilities. Dell's partnerships with screen and printer manufacturers enable customers to order products that are not produced by Dell. These orders are completed in Dell's warehouses before being shipped to the customer.
It is crucial to acknowledge that the Internet is the lifeblood of this system. Without this technology, it would be impossible to coordinate such a valuable system.
In order to enhance customer experience within this supply chain, Dell has divided their home page into several distinct customer groups:
Dell, like other large companies, uses its internal Customer Relationship Manager system (CRM) as a forecasting method. The CRM stores customer records, which are analyzed to determine current trends and predict future demand for specific products.
Regarding daily operations at Dell, there is a constant "Short Range Forecast" process in place. Dell utilizes advanced production planning programs to predict the quantities of components necessary for computer assembly. Once these forecasts are generated, supply chain systems transmit them to suppliers, who then provide cost estimates and adjust their production plans accordingly. Additionally, as the CRM, the i2SCM technology mentioned in the technology section also serves as a source of forecast information, offering real-time factory scheduling and inventory management.
Dell employs "Quantitative Forecast Methods" while also leaving room for decision-makers to consider the forecast resulting from "Qualitative Forecast Methods".
Dell relies on the i2SCM system for its scheduling process. i2SCM primarily aims to optimize the supply chain by ensuring a consistent supply of components at the assembly line's starting point. As a result of this optimization, i2SCM is responsible for generating the manufacturing schedule for the entire plant. This scheduling process is updated every 2 hours.
Dell has implemented a "Just-In-Time Inventory System" where they only operate with 6 days of inventory. This has provided Dell with significant advantages, such as reduced warehousing costs and the elimination of employee hiring and maintenance for inventory management. Additionally, despite the rapid obsolescence of technology, Dell does not face this issue as they do not hold obsolete technology in their limited inventory.
The way Dell manages its inventory and costs is referred to as being a "Demand Pull Company", which is also a part of the Lean system method. In contrast, one of its main competitors, such as Compaq HP, follows a strictly supply-push approach and operates in a more traditional manner.
For several years, Dell has been operating their manufacturer plants using the production standards ISO 9001, ISO 14001, and OHSAS 18001 (Dell).
Dell's operations in China have been recognized and honored by the Ministry of Information Industry (MII) and the China Quality Management Association for Electronics Industry (CQAE). They have received awards such as "Excellent Quality Management Corporation," "Excellent Quality Management Team," and "Excellent Quality Management Individual." These accolades highlight Dell's dedication to delivering top-notch products and ensuring an exceptional customer experience (Dell).
The primary factor driving this award is the ongoing emphasis on a customer-centric strategy and the desire for continuous improvement in the quality management system.
At Dell, the quality control process begins with engineering design and early testing, with a focus on reliability. By considering quality standards during failure analysis, the product design is tailored to meet customer needs and operational requirements. Additionally, reliability testing and improvement are crucial factors in achieving the highest quality standards.
Dell has emphasized the importance of suppliers' quality management in their "quality chain." They see the quality of components as a crucial factor for product quality. As a result, Dell has implemented a comprehensive management process that rigorously selects and controls industry-leading suppliers to ensure the final product's quality.
The strongest guarantee of Dell products' quality is the Quality Management during manufacturing process. Before any new product launch, engineering pilot and employee training are conducted. Dell is able to detect and improve incoming material and process issues through Statistic Process Control Quality Analysis, ensuring the best manufacturing quality.
The organizational structure at Dell, which is influenced by the direct business model, promotes open communication and listening. In order to achieve this, Dell has implemented the "Tell Dell" program, a voluntary and confidential employee opinion survey. This program allows employees to provide honest feedback on Dell's principles, values, strategies, policies, managerial effectiveness, and employee engagement. The HRM department uses the survey results to take immediate action and respond accordingly. For instance, in the past, some responses to these surveys led to the introduction of an employee purchase program.
Another strategy to obtain employees' feedback is through the use of Employee Storm, a less formal but equally important tool. It allows every Dell employee to contribute their experiences and creative solutions to benefit Dell and our customers.
With the goal of minimizing errors and their consequences, Dell has implemented a strategy that focuses on ethical tools. This strategy encompasses policies regarding communication, which encourage employees to approach the company when they feel it is necessary.
Amazon's Integrated Business Operations. (2016, Mar 25). Retrieved from https://studymoose.com/business-strategies-of-dell-amazon-and-ibm-essay
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