Ashenafi Aregawi

Francisco Furtado

TTOM – Logistics

Amazon.com European Distribution Strategy

Amazon.com Leipzig Fulfillment Center

Master’s Program on Complex Transport Infrastructure Systems (CTIS) 1

EDN – Challenges and Opportunities

Current situation• Three independent units working separately in Europe• Fastest growing market for Amazon

Opportunities• Operation rationalizing and cost saving by aggregating services and infrastructure Expand product selection; Facilitate global sourcing; inventory planning at the global network level; Reduce risk of relying on a single DC; select the appropriate DC to fulfill a customer order; balance the load across appropriate DCs; expand into other European countries from existing DCs

Alternative Strategies • Single European distribution center (DC)

• Keep the three DCs • EDN as a backup • Selectively share inventory • Full integration

• Two DCs North and South Europe

Pros • Decrease demand variability across the supply chain due to location pooling in a single DC• Decrease total inventory and associated costs• Decrease cost of dealing with multi-item orders• Mitigate demand-supply mismatch • Theoretically decrease inbound transportation cost •Mitigate Bullwhip effect (Increase in sharing information, easier to integrate supply chain, easier to predict and manage synchronization and batching of orders)

• Commercial advantages mentioned in slide 1 • Easy to implement

Cons• Pooling effect diminished by positive correlation between demand in countries across Europe and marginal benefits decrease as more regions are pooled• Increased distance from supplier to customer, bigger outbound and inbound* transportation cost • Increase in lead times to customers (depending on the order)• Loose flexibility

* Many products are produced and consumed at the same place

Master’s Program on Complex Transport Infrastructure Systems (CTIS) 2

EDN – Single European DC

Pros • Decrease demand variability across the supply chain due to virtual pooling (Decrease total inventory and associated costs; mitigate demand-supply mismatch; mitigate Bullwhip effect)

Master’s Program on Complex Transport Infrastructure Systems (CTIS) 3

EDN – Keep the three DCs (full integration)

Combined effect of: Consolidated distribution/Shipments via central DCs/Single supply chain

Lower inventory and transportation costs (Allows for postal injections, smooth Pan

European distribution and “in-house” transportation)

• Flexibility • Commercial advantages mentioned in slide 1

Master’s Program on Complex Transport Infrastructure Systems (CTIS) 4

EDN – Keep the three DCs (full integration) Cons• Bigger inventory than a single DC• High coordination complexity and IT costs • Increase in lead times to customers

EDN – Two DCs North and South Europe • Combines the disadvantages of both options and fails to take significant advantages

EDN – Remarks about the 3 alternatives Keeping the DCs in each of the target countries, with integrated inventory management and as a single supply chain allows us to obtain the advantages of location and lead time pooling without increasing distance between customer and supplier and negligible decrease in customer service (lead times to customers). This way we can at the same time fully exploit the commercial advantages mentioned in the first slide, decrease inventory and transportation costs, and tailoring our distribution network to best fit European specificities.

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ConclusionsIs Europe a single region or a sum of different regions ?

It´s Both!!!

Amazon.com Fulfillment Centers in Europe

• Borders and common market• Tailored solution intensive use of IT and optimization (ware house location problem…), Integrated information system and supply chain management (story)• Use drop shipping , consolidated distribution, cross docking and postal injections (bypass borders) • Centralize services keeping in mind specificities (keep a buying department for French media products, websites?)• Computing complexity shouldn’t be an issue, rent/share excess capacity (warehouses, servers…)

• Expansion to other countries (Imported books are 4.7% of the Internal Market; 93% use Castellan as usual reading language, 4% Catalan and 1,1% English)*• Short review of: Newsvendor, pooling, Distribution network, Bullwhip effect

* Federación de Gremios de Editores de España