Amazon European distribution strategy Harvard Case Solution & Analysis

Introduction

Amazon wants to devise a suitable distribution strategy for its Europe market. The main dilemma lies between the centralization and decentralization of the distribution centers located in the United Kingdom, Germany and France. Tom Taylor, the Director of European Supply Chain Operations, wants to develop a European distribution network and has to develop a business case to convince stakeholders about the potential of this approach.

Case Study Summary

Amazon was established by Jeff Bezos in order to sell books through the use ofthe internet in 1995. Over time it became the largest internet book store on earth. It had the policy to maintain lower inventory levels and utilized wholesalers to buy books. As the business increases, it established relations with publishers which provided 48% discount as compared to wholesaler’s 41%. In 1996, the business grew rapidly and it expanded its distribution center in Seattle and also opened a new one in Delaware near its East Coast customers and publishers. It enabled Amazon to fulfill customers' orders on time and reduced dependency on wholesalers like Ingram.

In 1998, Amazon introduced new products such as the Music Store in June and Video and DVD stores in November. The procurement mode of these products was same as of the books. As the competition in the industry grows, it looks to strengthen its position in the market. It began to spread its network making use of technology such as i2 technologies to identify the locations of its distribution centers considering the factors such as supplier and customer locations, inbound and outbound freight rates, warehousing expenses, labor and other cost factors. Each distribution center had mix of products based on transportation costs, time to deliver to customers and the cost of dealing with multi-item orders.

In the same year, Amazon entered the European market initially targeting two countries that are the United Kingdom and Germany. It acquired a leading online retailer in each country: Bookpages.co.ukand Telebuch.de in Germany launches them under the names of Amazon.co.uk and Amazon.de.These sites offered 1.4 million UK titles, plus 200,000 US titles on the UK site and 335,000 German titles, plus 374,000 US titles on the German site.

In 2000, it entered into France, where it developed its website from scratch. Due to the high level of competition in the French market, it came up with every product it could offer. The strategy was different as compared to strategies applied in Germany and the United Kingdom. At the end of 2000, the international segment of Amazon comprising in the UK, Germany and France and Japan reached $381 million in sales, accounting for 13.8% of the company’s total revenue. The international sales grew by 74% in 2001 to reach $661 million or 21% or sales.

The three markets of Europe had different characteristics. For instance, in France, it was not allowed for retailers to sell products at a lower price than their on-invoice purchasing price. Moreover, the procurement strategy applied in the United States of America could not be applied in these markets because they did not have wholesalers, therefore the services of the vast amount of publishers were used.

In order to sustain growth in the European market, profitably, Tom considered the benefits of the policy of European distribution network where the location of inventory would be strategically determined rather than geographically. Moreover, the location of EDN DCs was also in question if the policy is implemented. Finally, it had to prepare a implementation plan for the purpose.Amazon European distribution strategy Case Solution

Will Amazon be able to provide proper services to its customers in Europe under the proposed EDN model?

The choices for customers would improve if the introduction of EDN takes place. As the customers in each country would have more choices to select the products they want, they will not be dissatisfied with any of their unfilled orders. As this strategy would allow Amazon to buy the products from lowest cost vendors, it would benefit customers in terms of lower costs. The delivery times to supply goods will improve because customers will be able to get their products shipped from any of the distribution centers irrespective of the location of the customers’ place.

However, the program may not turn up well for the customer. According to Siobhan Farnon, the delivery service levels would deteriorate and may not meet the expectations. The customers may have to pay for the shipping costs, which was free previously. This would have a negative impact on Amazon as 45% of customers make use of free shipping.Furthermore,it would be difficult for Amazon to detect the trends in the consolidated volume of customers served .......................

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