Amazon’s European Distribution Strategy

By:Ananda Neogi

Aditya RamachandranBhavana Gundboyina

AlagupiraisoodanAbdul Aqeeb Arshad

Shaik Abdul SalamAmit kumar Sahu

Established in the year 1998.

Started with the acquisition of bookpages.co.uk(United Kingdom) and Telebuch.de(Germany)

Amazon international comprises of Amazon Europe and Amazon Japan, 35% of total revenue.

To sustain its growth Amazon has replicated the broad array of product line structure of U.S into Europe.

It is expected that Amazon Europe would exceed Amazon U.S in terms of revenue by 2004

Facts

Amazon was founded in 1995, to enable book buying into the easiest, fastest and most enjoyable shopping experience.

It offered 2.5 million titles, but had only 2000 books in stock(5% of it orders).

Out of warehouse orders were sourced “as-needed” basis. As orders increased, Amazon opened direct account with the

publishers. Warehouse expansion and starting of new DC’s in 1996-97 Strategically positioned DC’s to reduce lead time and reduce

dependency on main supplier Ingram Major investment was done to improve their software. Expansion of product line from books to other items(cd’s, videos).

Evolution of SC and distribution in U.S

In 1998, they adopted “Get Big Fast” to increase revenue. Introduced SC strategist software to located the best possible

warehouse locations. Their next decision was regarding the variety of product to be kept

in various DC’s. Introduction of latest technology: “pick-to-light”, RFID, voice. Formation of “pick-profile”, for the fastest selling items. “Pick profile” would contain 100 items kept according to title, ASIN

and slot-location. Pick list: 1) single item

2) multi item(pre-sortation, sortation) Companies mantra “deliver at any cost”, helped Amazon sell

20million items and acquire 2.5 million first time customer.

Evolution of SC and distribution in U.S

Introduction of “six-Sigma” and “total quality Management” in 1999. Taught staff about DMAIC(Define Measure Analyze Improve and

Control). Simulate holiday season’s condition to prepare staff for high

demand situations. Improve the software to introduce “Available-to-promise” and

“cascading” Amazon started having their wholesalers “drop ship” orders. Partnering with other companies to reduce the financial risk. Eg.

ToysR’Us To reduce shipping cost, they started with “Zone Skipping”. In 2001, Amazon was able to cut their total cost by 17% and had

their first profit.

Evolution of SC and distribution in U.S

In 1998 Amazon entered the European market of UK, Germany and France.

Duplicated the “Get Big Fast” strategy. European market was as aggregation of regional market. Built 24-hours customer service(native language) Introduced free shipping in 2001 and clearance sale. Amazon offered the option of “pay by checks” to French customers

and postal order German customers. Establish relationship with hundreds of publishers and distributors,

due to lack of wholesalers Unifying marketing and branding team of Europe.

Launching Amazon in europe

SWOT ANALYSIS

Strength: Multiple expansion options They use to differentiate from its Brick and Motor

competitors. They have better supply chain and Distribution

network. Pick to light system-radio frequency technology. Key metrics to measure

Worker performanceNumber of items picked per hourFree replacement rateNumber of hours from order confirmation to shipmentCost per unit shipment

Strength: Used Six Sigma DMAIC

(Define,Measure,Analyze,Improve and Control)Used to improve inventory record accuracy

Drop ship- shipping directly to the customer. Postal injection-arranged for full truck loads

driven to major cities.

Weakness Temporary employees Split shipment(paid separate shipment cost) Delivery at all cost Using country postal service

Opportunity: Tying with Ingram’s inventory In 1998, Amazon acquired Bookpages.co.uk

(united kingdom) and telebuch.de (Germany) and relaunched as Amazon.co.uk and amazon.de

Threat: Competitors(1998)

◦ Buy.com◦ Barnesandnoble.com

Wall street began to put profit pressure on all dotcoms . The stock price began to fall.

In Europe , They faced several challenges particularly in operational and organizational choices.

Recommendations: Implement European distribution network(EDN). Centralize management office in the UK in order to

perform more operations. Create cross-docking enabled warehouses,

preferably in Southern Europe where higher demand is observed.

Make use of strategic order fulfillment to minimize lead time

Utilize strategic inventory distribution to reduce cost. By continuing free shipping for local products,

extending the use of postal injection for some high demand products.

Contd: Leveraging Amazon techniques: 1. Drop-shipping 2. Pick profiles 3. Technology Investment. Full truck loads from DC’s to major cities. Reduce postal service charges, maintain low

shipping cost and offer free shipping in some new places.