Supply chain is one of the important aspects in an organization as it enables the product to reach the market on time. With the possibility of supply chain risks, organizations are required to seal any loopholes to avoid complications that affect their delivery. Technological companies dealing with e-commerce have their own share of supply chain risks that can disrupt their operations. One of such companies is Amazon.com Inc. which is a technological company dealing with AI, digital streaming, and e-commerce. It has one of the robust supply chains as it is termed as the biggest online market delivering products across the globe. This paper will look at the common supply chain risks amazon faces, effective strategies to manage the risks, and offer recommendations on how to manage such risks.
Amazon is one of the companies with efficient supply chain management that can handle pressures even when there are massive sales. Currently, the organization boasts of over eight hundred logistic sites globally and half are located in the US (Leornard, 2021). It has more than three hundred fulfillment centers and around three hundred delivery stations globally. It also has around eighty small warehouses in big cities to ensure faster deliveries are achieved. Other important features include around eighty sortation centers, twenty distribution centers for fresh food in the US, and twelve retail centers for whole food. Even with its excellent statistics, Amazon faces challenges in its supply chain when there is a high volume of sales and customers complain that goods are termed available at one instant but declared sold out when they are checking out. Such complaints poke holes in its supply chain management process and necessitate improvement to achieve customer satisfaction.
Amazon Supply Chain Risks
Amazon faces different supply chain risks, one of them being demand risks due to miscalculated end-customer demand. Supply risks are also due to technical infrastructure that cannot handle order spikes. Amazon developed Amazon Web Services, one of the largest cloud computing services globally (Wittig, 2018). However, its technical infrastructure overloads when there is high demand. Customers have constantly expressed their concerns as the site fails to checkout orders. Moreover, Amazon delays in putting products in their inventory. The delay is then propagated into the delivery of ordered products as the packages to be delivered are identified late. Amazon spends a lot of time addressing technical glitches which seen unending and constant delays contribute to negative reviews and star ratings. With poor forecasting of demand risks, Amazon risks losing clients due to high levels of dissatisfaction.
Another risk is the resource risk which makes it challenging when delivering goods when there is a high demand (Arishekar, 2021). For instance, Amazon faces difficulties when availing products on Christmas and Black Friday. Amazon is driven by data as its forecasts utilize current trends and the history of sales. It shows a heavy reliance on customer trends and past numbers and applies them before holidays or big events. However, such a method is unreliable when it comes to making decisions concerning increasing stock to cater for peak shopping. This was witnessed in the 2013 Christmas celebrations when Amazon faced a significant breakdown in its logistics and a high portion of customers failed to get their orders. The breakdown prompted the company to start controlling its deliveries in their last mile. It is now preparing its delivery network but it is far off from putting up a robust delivery channel that can handle more deliveries.
Financial risks are always witnessed through unfavorable changes in charging rates and poor compensation (Arishekar, 2021). Although prime service favors clients, it operates differently on the sellers’ side. Products purchased by sellers can be awarded free shipping but this is not the case as they pay the shipping costs. Sellers are not given a chance to select the products to use free shipping and the shipping costs reduce their profit margins. This is further intensified by the high possibility of losing their products while in transit. In case a product is lost, Amazon offers compensation schemes but they come up with the amount to compensate without considering the cost of the product. In the end, the suppliers end up losing as the compensation they get does not match the cost they incurred when buying the product. As such, there is a risk of suffering losses when purchasing products from amazon.
Effective Risk Management Strategies
There are various strategies to managing current risks in Amazon, one of them being a more robust inventory management team. For Amazon to register faster distribution and increased order fulfillment, there is a need to have management that can control the inventory better. It should seek the services of better management personnel that know how to utilize sophisticated software to accelerate the supply chain and ensure it operates effectively without constant downtimes. An inventory system of the multi-tier type will be vital in the reduction of the delivery time to ensure Amazon remains competitive among other online platforms (Sun, 2020). Although Amazon has invested in sophisticated technology, it can also be beneficial if it is utilized in the right manner. With the current data, perfect management will project correctly the number of products that are likely to be ordered in peak times instead of waiting up to the last moments.
Amazon’s financial risks can be managed by coming up with constant charging rates and favorable compensation mechanisms. When looking at its shipping rates and conditions, it is worth noticing that the sellers are on the receiving end. If they have to pay for shipping costs for all of their products, they should be given a chance to select the type of shipping their products should use to ensure they get huge profit margins. Moreover, the safety of goods in transit should be intensified to ensure there is a low probability of customers losing their products. In the event losses occur, a perfect compensation scheme should guarantee those affected are compensated the exact amount. Moreover, the delay should be compensated to ensure the unfortunate events do not erode the customers’ confidence in the organization. Robust security will go a long way in preventing financial risks that can occur and the organization will still receive positive reviews when accidents leading to loss of products in transit occur due to excellent compensation.
Another strategy will be automation to uphold twenty-four hours deliveries. Automation increases the efficiency and speed of deliveries compared to human assistance. Currently, there is the use of Amazon robotics as noted by Pearlson et al. (2020) but some of the deliveries are not getting to the customers in time, particularly in peak time. A high level of automation can be achieved by increasing the number of robotics operating in the warehouse. Apart from the use of robotics, automation can also be utilized in recording the number of products customers request to ensure products are not made unavailable at the last minute when the customers have already ordered. Currently, Amazon makes its decisions after analyzing past data and events. Big data can best be managed using automation to give the exact demand levels to be anticipated. As the organization grows, its data grows exponentially necessitating reliable utilization of data to make informed decisions and automation will be a perfect way of managing data.
Amazon can best eliminate the current supply chain risks by upgrading its inventory management schemes. Amazon faces challenges during its Prime Day due to increased demand. The organization finds itself in a situation whereby it has a limited inventory supply and products get depleted quickly. Although Amazon prepares for the prime days in advance, most of the orders are sent late since a high portion of sellers does not have the financial capacity of filling their warehouse months before the day. With the sellers minimizing the amount spent on goods in storage and lacking money to pay for inventory before Prime Day, Amazon should set infrastructure to ensure it can handle sudden large orders. This can include stocking products that sellers are most likely to order in peak times.
Another perfect strategy will be minimizing freight delays. Amazon has poor freight schemes to a point that customers anticipate delays during peak time. It has taken a perfect initiative of carrying out its last order deliveries but there are still delays and orders are not delivered as planned. It will be imperative if Amazon outsources delivery companies that solely deal with delivery. Currently, Amazon has a lot to tackle starting from forecasting seasonal and peak demands, sorting products as per customer requests, to transporting them. As such, seeking the services of a competent transportation company to deal with the last mile deliveries will be a perfect step to eradicate delays.
Apart from using transportation companies to reduce freight delays, outsourcing is the perfect remedy to eliminate financial risks brought about by damage and the disappearance of products in transit (Bohling, 2013). If a product is damaged or lost, the company will be held accountable and it will be prompted to compensate the customers with the exact amounts. This will reduce the negative reviews and rates Amazon receives from unhappy customers. As such, outsourcing will be a way of increasing the safety of products in transit since such companies are well versed in transportation and can protect products from any harm.
In summary, Amazon faces various supply chain risks such as demand risks caused by the poor projection of end-customer demand. It also experiences resource risk during festive seasons and Black Friday as it fails to meet the demand. Although it utilizes projections from past data, it normally finds itself lacking resources to carry out enormous demands. Financial risks are present as customers count losses in the event their products are lost since Amazon does not offer compensation amounting to the cost of the products. The management of the risks can be achieved by coming up with compensation schemes that favor its clients by compensating the exact amount lost, improving its inventory management team, and automating its deliveries. It is recommended that Amazon should minimize freight delays by improving the inventory management department and using an established delivery company to deal with its last-mile deliveries. Outsourcing will also be a way of reducing poor compensation schemes as the transportation company will account for the losses.
Arishekar, N. (2021). Ins and outs of the Amazon supply chain. Retrieved from https://www.sellerapp.com/blog/amazon-supply-chain/.
Bohling, J. (2013). Outsourcing and Third Party Logistics. Munich: GRIN Verlag GmbH.
Leornard, M. (2021). RBC: Amazon logistics’ planned 2020 growth exceeds previous 3 years combined. Retrieved from https://www.supplychaindive.com/news/rbc-amazon-logistics- delivery-stations-growth/585565/.
Pearlson, K. E., Saunders, C. S., & Galletta, D. F. (2020). Managing and using information systems: A strategic approach. Hoboken, NJ: John Wiley & Sons, Inc.
Sun, J. (2020). A review of multi-echelon inventory control in supply chain. Open Journal of Business Management, 8(2), 881-891. doi: 10.4236/ojbm.2020.82054.
Wittig, A. (2018). Amazon Web Services in Action. New York: Manning Publications Company.