Introduction
Amazon is a giant online retailer that sells everything from books to electronics and clothing. Moreover, the company is a significant provider of cloud services. Given its size and scope, the organization has one of the most complex supply chains. One of the biggest challenges Amazon faces is managing its vast supplier base. The company has over two million suppliers worldwide, and the number is only growing as the enterprise expands into new markets. Keeping track of them and managing relationships is a tremendous hardship. Another challenge Amazon faces is managing inventory as it sells numerous different products. Therefore, there is a need to maintain an extensive list that could be inquiring while still keeping costs low.
The company uses a buyers management system to keep track of its suppliers, permitting it to follow performance, manage orders and payments, and deal with contact information. It assists Amazon in streamlining its administration process and making it more efficient. Nevertheless, Amazon is an extensive organization with a complex organizational structure that requires perfect coordination. For this reason, the procurement process within a giant corporation is especially tricky. It needs to be studied in detail to implement the changes necessary to improve the company’s efficiency. Therefore, the paper will explain the company’s background, structure, and challenges facing its purchasing function and supply chain to offer solutions to the complications. Amazon’s procurement and sourcing process is a multi-component process, and the only analysis of its flow can be an opportunity to implement improvements.
Company Background
Amazon was founded in 1994 by Jeff Bezos, who started the company as an online bookstore. Nevertheless, the corporation expanded quickly and began selling other items, such as electronics, furniture, and clothing. Today, Amazon is the largest online retailer globally, with a vast cloud computing business. It has over two million suppliers worldwide and numerous fulfillment centers across the globe (Huang et al., 2020). The company also has a network of third-party warehouses that store and ship inventory, allowing shipping orders to customers quickly and efficiently. However, Amazon has faced some challenges with its supply chain despite the prominent possibilities in recent years. In 2013, it had to deal with a holiday season inventory crunch (Huang et al., 2020). Enterprise had trouble getting enough merchandise to meet customer demand, and the crisis led to long shipping delays and dissatisfied customers.
Moreover, recently Amazon faced an intractable problem with an excessive inventory that had to be sold at a discount which was the reason for lower profits and disgruntled shareholders. One of the specialties that make Amazon’s supply chain complex is the sheer number of products they sell. The enterprise has millions of developments, and it has to keep track of all these products and have enough commodities on hand to meet customer demand. It can be a challenge, significantly when customer demand is most increased during the holiday season. Despite these hardships, Amazon has continued to grow and look for new ways to improve the supply chain and expand operations.
Organization’s Structure and Purchasing Process
The purchasing function of Amazon is carried out by several distinct departments, each responsible for different types of purchases. Its principal goal is to sell a considerable amount of goods and provide numerous services to satisfy the needs of all customers. The largest unit is the media purchasing department, liable for selling books, music, movies, and other digital content. This department is further divided into sub-units accountable for each type of content (Aćimović et al., 2020). Other central divisions include hardware purchasing, responsible for devices such as the Kindle and Fire TV, and the software department, responsible for accepting applications and games for the Amazon Appstore. Each branch is headed by a manager answerable for the department’s budget and negotiating contracts with suppliers. Below the manager are a team of buyers accountable for selecting the products that the unit will purchase.
The supplier development process at Amazon begins with identifying potential new suppliers that can provide products and services that fit the company’s needs. Once they are placed, the company’s team works with them to assess their capabilities and develop relationships. The selection process at Amazon is based on several factors, including the supplier’s ability to meet quality standards, deliver products on time, and provide competitive prices (Huang et al., 2020). When a supplier is selected, Amazon operates with them to develop a product ordering process that meets the company’s needs. It includes defining the developments or services to be ordered, setting delivery schedules, and establishing payment terms.
Moreover, Amazon company has a particular and organized purchasing process to ensure that they receive the most satisfactory possible products from their suppliers. The first step in this process is developed, and the company managers cooperate with providers to help them improve their offers. Moreover, their leading task is helping them to create new products that Amazon company can offer to their customers. The next stage in the enterprise’s purchasing process is supplier selection. Amazon company carefully selects its suppliers based on various factors, including quality, price, and customer service (Huang et al., 2020). Thus, it can be concluded that the company’s primary purchasing function is to satisfy all customers and provide them with high-quality products. For this purpose, the institution has divided the purchasing process into several stages and created separate departments with specific functions that monitor the supplier’s selection and the methodology of fulfilling their responsibilities.
Supply Chain and Purchase Function Challenges
One of Amazon’s central challenges regarding its purchasing department is ensuring that they get the most suitable products from its suppliers. Therefore, the company efforts to implement a particular and organized buying process to guarantee that they obtain the most pleasing outcomes from their distributors. However, sometimes the providers do not meet the company’s high standards, which can be the reason for receiving products that are not of the best quality. Another challenge that Amazon faces is ensuring that they get the most feasible price for their products. The company works with numerous different suppliers, and each of them has its unique pricing structure (Cui & Bassamboo, 2019). Amazon company must ensure that they get the best possible price for their products. It is not always possible to track which purchases will be more profitable and how to save money and avoid losing quality.
Another challenge Amazon faces is managing inventory as it sells numerous different types of products, and there is an urgent need to maintain an extensive list. It can be inquiring about accomplishing while still keeping costs low. Possessing a considerable amount of inventory is expensive and tracking what products are selling sufficiently and which ones are not is likewise challenging (Cui & Bassamboo, 2019). It can cause problems with overstocking or understocking certain goods.
Furthermore, one of the most significant issues in the purchasing function at Amazon is the company’s rapidly changing business. The enterprise constantly introduces unknown products and services, which means the purchasing team must continually adapt to unique customer needs. For example, when Amazon launched the Prime membership program, the purchasing team had to start buying eligible products for free two-day shipping (Cui & Bassamboo, 2019). Similarly, when the company founded the AmazonFresh grocery delivery service, workers had to begin purchasing fresh food and other perishable items. Moreover, an institution is facing the increasing complexity of managing purchases online. As the website has developed, it has become more difficult for customers to find the products they are looking for, increasing customer returns and additional closing costs. Amazon has difficulty organizing and tracking purchases regarding its size, especially concerning the ratio of a reasonable price to high-quality goods.
Solutions to the Challenges
Due to the analysis of the company’s website and customer feedback, it was possible to collect enough information for the study to form potential solutions to the concerns. Moreover, the analysis of scientific articles studying the internal work of Amazon enabled to use of them as a qualitative source of data, which was the basis for recommendations that could improve the efficiency of the company. The statistical data obtained from the company’s financial reports made it possible to analyze the most conspicuous omissions in the procurement process and thus suggest necessary improvements (Cui & Bassamboo, 2019). Therefore, there are several ways to improve the obtaining procedure at Amazon. One method to enhance it is to centralize the decision-making process. Currently, the purchasing function is decentralized, with each international website having its team of buyers (Cui & Bassamboo, 2019). It can cause duplication of efforts and confusion about finding responsible workers for each step.
Therefore, Amazon could streamline the purchasing methodology and make it more efficient by centralizing the decision-making. Another possible solution is to provide the buyers with more authority. Moreover, the customers work closely with the suppliers to ensure that the products they purchase meet Amazon’s high standards (Cui & Bassamboo, 2019). However, they do not have the final vote on whether a product is purchased. It can lead to delays and frustration, while by giving the buyers more authority, the company could speed up the obtaining and make it more efficient.
To improve supplier development, Amazon can work on building more profitable relationships with potential suppliers. It can be accomplished by investing more time in supplier assessment and providing more resources to help them meet the standards. The enterprise can develop a more comprehensive choice criterion that includes quality, delivery, and price to improve supplier selection. To enhance the product ordering process, Amazon might work on streamlining the procedure and making it more profitable. It can be done by automating and improving communication with suppliers.
Conclusion
In conclusion, the purchasing function at Amazon is a critical part of the company’s success. The corporation has an extensive and experienced team of buyers who are experts at negotiating contracts and finding the best deals on Amazon’s products. However, the purchasing function is facing a few challenges, such as the company’s rapidly changing business and the increasing complexity of the Amazon website. Nevertheless, there are some ways in which the purchasing process at Amazon could be improved, including centralizing the decision-making, giving the buyers more authority, automating the order placement process, and investing in better tools and technology. The company faces numerous challenges when managing its vast supplier base and inventory. However, Amazon can use a supplier management system and an inventory administration system to help address these challenges.
References
Aćimović, S., Mijušković, V., & Milošević, N. (2020). Logistics aspects of goods home delivery: the case of Amazon company. Marketing, 51(1), 3-11.
Cui, R., Zhang, D. J., & Bassamboo, A. (2019). Learning from inventory availability information: Evidence from field experiments on amazon. Management Science, 65(3), 1216-1235.
Huang, Y., Liu, H., Li, W., Wang, Z., Hu, X., & Wang, W. (2020). Lifestyles in Amazon: Evidence from online reviews enhanced recommender system. International Journal of Market Research, 62(6), 689-706.