MGMT 300 Chapter 7

2. Building e-commerce operations worldwide 3. Developing a cloud computing platform 4. Pioneering e-book readers Amazon - answer-- went 7 years without turning a profit and lost over $3 billion during that time (firm's stock price had fallen from a high of $100 a share to below $6) - operates over 400 facilities worldwide dedicated to the warehousing, distribution, and delivery of products, sometimes guaranteeing delivery within the hour (*always have sold directly to consumers*) - Bezos refused to concentrate on the quarterly results (profit harvesting) instead followed his best reckoning on where markets and technology were headed - Amazon is clearly more than an online store and has even begun to aggressively invest beyond "clicks" into "bricks. - Amazon has the best reputation of any US corporation - *investment in cloud computing* has paid off spectacularly, and it now delivers over half of the firm's operating income What Amazon Operates - answer-- two dozen amazon branded stores that include "Amazon Books" and "Amazon Go (concept stores that are physical retailers with no-checkout convenience - Amazon pop up kiosks are now commonplace in malls cross country - Amazon completed a gargantuan $13.7 billion acquisition of Whole Foods—giving them a 42-state collection of over 430 grocery stores Amazon's Logistics and Shipping Efforts include - answer-- leased fleet of cargo jets (Prime Air) - hundreds of tractor trailers, an expanding local delivery infrastructure - foray into trans-oceanic shipping - publicized commitment to delivery by unmanned drone Operating Income - answer-- income you generate through your operations. - sales through daily business operations minus related expenses. - *Net income* is overall "profit" but can include things such as income from investments, expenses related to financing costs or taxes, or one-time income or expenses such as a gain from a sales or a corporate fine. Why Study Amazon? - answer-- *amazon* it the world's most valuable retailer and the largest, most profitable provider of cloud computing services - Bezos's firm is worth twice as much as the world's largest physical retailer (Walmart), and is growing far faster *amazon* provides a context for introducing several critical management concepts such as: (1) cash efficiency (2) logistic advantages (3) channel conflict - this company shows how tech-fueled operations can yield better profits than offline payers Advantages of Online vs Offline Companies are related to - answer-- scale - data asset - brand building benefits Amazon Kindle Business - answer-- this tablet, set-top box, and the voice-powered personal assistant allow us to look into the importance of mobile, multiscreen, and diverse-interface computing - is a vehicle for media consumption - distribution channel for increased sales and advertising - creator of switching costs - gathering point for powerful data, and a competitor for platform dominance Amazon Web Services (AWS) - answer-- allows us to see how the firm is building a powerhouse cloud provider, generating new competitive assets while engaging in competition where it sells services to firms that can also be considered rivals. Amazon's Category Crushing Performance in Online Commerce - answer-- have created a set of resources (data, scale, network effects, and more) that have a natural end-state of winner-take-all - give them enormous bargaining power with suppliers and partners, - made amazon the first stop for shoppers and the first choice for selling partners, allows the firm to gather an unprecedented amount of data, and has created a distribution footprint that's difficult to imagine any other firm rivaling Amazon is now under intense scrutiny from - answer-- antitrust regulators - workplace advocates - privacy groups - lawmakers - the public *wondering* if its justifiable that a firm earning $11 billion in profits paid $0 federal taxes over 2 years (received rebates) Amazon Logo - answer-- the stylized smile in the Amazon logo doubles as an arrow pointing from A to Z (as in "we carry everything from A to Z") Amazon vs. Walmart - answer-- amazon's revenues are still smaller than Walmart - amazon is growing far faster and has a market cap not just bigger than Walmart - *amazon is bigger* than Walmart, Target, Best Buy, Macy's, Nordstrom, Kohl's, JCPenney, and Sears (combine) Note - answer-- In Sept 2018, Amazon's market cap topped $1 trillion for the first time, and by January 2019 the firm was the most valuable firm on the planet Amazons "Wheel of Growth" - answer-*three pillars of Amazon's business* (1) large selection (2) customer experience (3) lower prices *work together to create additional assets for competitive advantage* Bezos Quote - answer-"I always get the question, what's going to change in ten years? "I almost never get asked, what's NOT going to change in the next ten years?" - *more important question* because you can build a business around things that are stable (low prices, faster delivery, customer convenience, selection) Exceptional Customer Experience - answer-- fuels a strong and makes amazon the first place most consumers shop online - having more customers allows the firm to provide more products, creating *scale* - *larger the business*, easier it is for Amazon to vertically integrate to become its own shipper in some circumstances—keeping prices and other costs down while speeding delivery Network Effect (Amazon suffers from) - answer-- amazon opens its website up to third-party sellers - dynamic where more customers attract more sellers, which attracts still more customers - *cycle of buyer-seller growth is a two-sided network effect*, source of competitive advantage Activity (within Amazon) - answer-- allows Bezos to further sharpen the business battle sword by gathering an immensely valuable data asset - *digital movement is logged*, constantly analyzing what users respond to in order to further fine-tune the customer experience, make more accurate demand predictions, squeeze out costs, and drive cash flow Amazon's Shipping Operations - answer-- firm's early warehousing was a shambles of inefficient, money-burning processes - amazon's warehouse and technology infrastructure are radically different than any conventional retailer - *to automate profit-pushing hyper efficiency*, Amazon warehouses are powered by at least as much code as the firm's website How Amazon Fulfilled Shipping Operations - answer-- built a system that worked by focusing on costs, data, and processes - allowed amazon to focus on what was wrong and how it could improve though applying technology - - *one effect*: Get the CRAP out, focused on products that can't realize any profits Change in Amazon's Shipping Operations - answer-1. Amazon previously relied exclusively on human beings rushing around maze-like warehouse shelves to stock products and pick orders *NOW* 2. Robots bring the shelves with the item to the worker for scanning new inventory and fulfilling orders (now using over 100,000 robots) - same items might be stored on different shelves allowing for different robots to simultaneously fulfill different orders for the same items - robots make a warehouse 50% more efficient at moving inventory and 50% more product can be stored - $46 million to set up a robot-run system warehouse - humans are still needed to grab an item off the shelf, do a second quality check, and place items into yellow plastic order fulfillment bins Amazon SLAM Steps - answer-- stands for scan, label, apply, manifest - packed boxes are weighed, and the software does an additional check to see if the weight is what's expected. - if an order is too light, that's a sign that a box is missing an item - if an order is too heavy and the wrong item may be in the order. Accounts Payable - answer-- money owed for products and services purchased on credit - a bill that says when payment is due some time in the future. - periods vary, but it's common for big retailers to be able to hold products for a month or longer without having to pay for them Cash Conversion Cycle (CCC) - answer-- period between distributing cash and collecting funds associated with a given operation - firm's period between paying suppliers for products and collecting funds from customers who purchase these products - firm can increase inventory turns and lengthen its accounts payable period to improve CCC - CCC varies over time, # are an average for all products (want to be small) Amazon's Cash Conversion Cycle is consistently negative - answer-- means amazon sells goods and collects money from customers weeks before it has to pay its suppliers. - *gives amazon* a special advantage where it has extra cash to put on expanding operations, making interest-bearing investments, etc. Liquidity Problems - answer-- problems that arise when organizations cannot easily convert assets to cash. *cash* is the most liquid asset Inventory Turns - answer-- number of times inventory is sold or used during a specific period (such as a year or quarter). - *higher number* means a firm is selling products quickly - *goal for amazon* keep inventory turns high and pay suppliers later Quantity (of amazon) - answer-- selling more goods gives better bargaining power with suppliers Size (of amazon) - answer-- provides the firm with negotiating leverage to secure lower prices and longer payment terms *Walmart's sales dwarf Amazon's* - Walmart's 2018 revenues were $514 billion. - Amazon's 2018 revenue was about $233 billion - *amazon* has a larger dollar-value of products moved but the firm only books the money it keeps selling third party products not overall sales figures Why Amazon allows third-party firms to offer products through its site. - answer-- allows Amazon to maintain the customer relationship and acquire data, even if it sells products from others - Amazon earns revenue from the sale and fulfillment of third-party products - reinforces the appeal of Amazon as a first-choice shopping destination Physical Presence (Amazon) - answer-- absence of brick and mortar stores brinds down costs for real estate, energy inventory, and security *allows for amazon* to spend significantly on software, automation, and expansion of its warehouses Employee Efficiency (of amazon) - answer-- greater as shift workers work at constant rates throughout the day Amazons Scale Advantage - answer-- enables them to operate with thin margin and low prices - allows them to create several of its own branded product lines (allowing for the cutting of branded supplier costs lowering prices and improving margins over conventional brands) - amazon's retail prices are not cheaper than other e-commerce firms but also larger rival firms to (walmart) - amazon generates cash and nearly puts every penny back into the firm through investments in fulfillment center infrastructure and higher margin cloud computing