Inventory Management

Presented by :

Ashutosh Kumar Jha(91011)Deepinder Singh(91016)Divanshu Kapoor (91017)Harsh Agrawal (91022)Nishant Singh(91039)Sweta Agarwal (91059)

"In the physical world it's the old saw: location, location, location. The three most important things for us are technology, technology, technology."- Jeff Bezos, CEO, Amazon.com

Amazon.com

One of the first online shopping sites launched in 1995.

Consistently ranked as one of the best retail sites on the Internet.

According to an analyst, "When you think of web shopping, you think of Amazon first."

It is an American electronic commerce company based in Seattle, Washington with an additional office in Coffeyville, Kansas. It has six global websites to serve domestic customers in the US, the UK, Germany, France, Japan and Canada

Features include: one-click shopping, customer review and e-mail order verification.

The company is in coalition with other retailers and offer various new, and used items in categories.

It has expanded from its existing business of selling books to selling a wide variety of products such as DVDs, music CDs, computer software, video games, electronics, apparel, furniture, food and more

• Jeff Bezos, in 1995, started AMAZON.com as a “virtual” retailer – no inventory, no warehouses, no overhead; just computers

• Amazon owed its popularity to its excellent customer service, which was due to its effective inventory management.

HISTORY

TYPES OF INVENTORIES

Raw materials (items to be used for manufacturing)

Work in process(semi finished items that are stored temporarily)

Finished goods(waiting in stores for delivery)

Transit inventory (need to transport items)

Buffer inventory (uncertainties of supply and demand)

Anticipation Inventory(anticipation of a possible future event)

Reasons for Huge inventories

Customer’s orders in anticipation To protect against stock-outs To take advantage of quantity discounts To protect against inflation To protect the uncertainties of supply and demand Unpredictable events Seasonal increase in demand Stocking when customer demands may be uneconomical

Different types of Inventory Costs

Carrying costs- basically opportunity costsE.g - rent, lighting, staffing etc

Ordering costs – basically acquistion costs E.g – purchase order, recording , accounting etc

Shortage costs – E.g – urgent purchases, loss of reputation etc

Inventory Management

Initially Bezos aimed at hassle-free operations

Time and money not to be spent in dealing with the inventory.

Satisfy customers ; forced to build warehouses.

Each warehouse cost him around $ 50 million and in order to get the money, Amazon issued $ 2 billion as bonds

In 1999:Added 6 new warehouses to total to 10

Computerized warehouses

Increased warehousing capacity from 300,000 sq. feet to over 5 million sq. feet

Automation of events after placement of order to make inventory management easier

In 1999, when Amazon's sales grew 170% from the previous year, its inventories ballooned by 650%, Suria pointed out. ''When a company manages inventory properly, it should grow along with its sales-growth rate,'' he noted. When inventory grows faster than sales, ''it means simply that they're not selling as much as they're buying.''

Decided to stock all possible items that customer could demand during holiday season

Appreciated; but faced a lot of problems in inventory management

Thus looked for alternatives

• Decided to buy directly from publishers rather than distributors

• Upgraded software which helped to accommodate inventory as per demand

• Placed products which were generally bought together at one point. Eg. CD’s and CD player

Initial Changes

• Inventory goals: right product in the right quantity to the right place at the right time.

• Reduce redundant inventory• Blockage of working capital.• Low inventory turnover.• Cost of holding > cost of outsourcing• Thus they OUTSOURCED

Deciding the Strategy

Stocked only popular items and rest were outsourced from distributors.

Outside distributors at Amazon for three kinds of products: cell phones, computers and books, excluding those on best-seller lists

CellStar handled the cell phone sales Wholesale distributor Ingram Micro handled the computers

and books.

Inventory Outsourcing

• Concentrate on main activities • To reduce the inventory holding costs.• To earn more profits• To free the working capital and increase liquidity.• Adoption of Drop-shipment model which increased the

overall efficiency and streamline supply chain logistics.• Warehouses could handle thrice the volumes• Reduced the shipping charges.

Advantages of Outsourcing

Drop-Shipment Model

• The variable cost incurred by multiple delivery attempts and reverse logistics.

• Multiple delivery attempts cost the company about 20-30% of the total cost for home deliveries.

• 35% of orders placed at Amazon belonged to different product categories.

Disadvantages of Drop-Shipment Model

Amazon.com’s Customer Fulfillment Network

• Made improvements in its distribution centre which reduced 12% of the wrong inventory to 4% by 2002.

• Tightened its operation to ensure that it did not miss any customer orders.

Steps taken for improvement

• Till 2001 Amazon was in deficit of US$2.86 billion.• Earned its first ever profit of $5 million in the 4th quarter of

2001.• Year 2002 recorded sales of $3.93 billion which was 26%

higher than sales of 2001.• Cost of operating warehouses reduced from 20% to 10%

where as the capacity increased 3 times.• Inventory turnover was 20 times as compared to other

retailers having 15 times.

Success Story