Tuesday, February 28, 2012


Immediately, when we began talking about Walmart and their distribution network, I similarly wondered what Amazon was doing. As I order most everything from Amazon when I'm in the U.S. (camera, computer, TV, clothes, food, books, etc.), I was thinking if it would make economic sense for the company to invest in its own distribution network in order to cut down what must certainly be high costs with UPS (which usually ships their products).

I found a few interesting articles detailing Amazon and its distribution network. The first one (http://www.forbes.com/2001/06/07/0607amazon.html), while dated, was good because it talked about "drop shipping", which we went over in class today. Jeff Bezos began pushing the idea of drop shipping, which was somewhat embarrassing as the company had spent such a great deal in building distribution facilities. While certainly not an empirical study, I have noticed in the last few years that most items on Amazon are "fulfilled by ...". The article mentions that Amazon saves roughly 50% of its fulfillment cost when using drop shipping, which is an obvious benefit.

More recently, Amazon has also continued expanding its distribution space, somewhat contrary to the idea of more drop shipping. Specifically, the article mentions six more distribution centers that were planned for 2011, of which three were overseas (two in Japan, one in Scotland). I found it interesting that Amazon actually has more distribution centers overseas than in the US (25 to 22) and that they are targeting China very aggressively.

I also found an interesting article from the Northwestern's Kellogg School of Management. In it, they mention Amazon and its book sales as being superior to a company like Borders. Amazon has 4 distribution centers for books (or did at the time of the article), while Borders has/had over 400 retail locations. The article talks about customers willing to wait longer for books, and that Amazon has a distinct advantage and a much great inventory turnover time than Borders. http://www.kellogg.northwestern.edu/faculty/chopra/htm/research/deliverynetwork.pdf

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