Mid 

Exam for MM5002 - Operations and Supply Chain Management

By Mohammad Alfian Syah Siregar - 29322150

I. Amazon.com: Supply Chain Management

1. From a supply chain perspective, what makes Amazon's supply chain operate successfully?

Answer :
Amazon use technology and innovation to make their supply chain lean. They always improve
and innovate new method to make their supply chain lean from time to time.

- At first they applied traditional supply chain, in 1994 they bought 2 Warehouse and later
on, in 1999 they expanded their supply chain game by opening 5 more fulfilment centre
including in Europe
- They created FBA, a service that managed the fulfilment process for its third-party
sellers. Third-party sellers could manage their own inventory and ship directly to
Amazon customers (for which they would be reimbursed the standard shipping and
packaging fees), or they could outsource inventory storage, picking, shipping, customer
service, and returns to Amazon through FBA
- They apply Amazon Prime membership to attract more customer segments, Amazon
Prime is a subscription with an annual flat pricing that offers 2 days delivery, access to
Prime Videos and Prime Music.
- They build lots of Hub Spoke and DC, Delivery Stations and launch Amazon Flex
(contracted driver that paid hourly) that actually save them a lot of money instead of
hiring local driver
- They launch Shipping with Amazon the service that deliver packages from merchant’s
warehouse directly to its customer house
- They launched Vendor Central that allowed suppliers to track and monitor their
inventory, and submit invoice
- They eliminate waste in such aspects;

Transportation  by letting their 3rd party seller to deliver their own goods to customer

Inventory  by letting their 3rd party seller to manage their own inventory, and using
Shipping with Amazon, they can save more money on building hub, and DC

Waiting  Because their 3rd party seller allowed to manage their own shipping and
inventory, it cuts a lot of waiting process
 Over Processing  By using Vendor Central, it makes invoicing process with its suppliers
more efficient

2. Review Amazon's supply chain. How is Amazon's supply chain different from that of
traditional brick-and-mortar retailers?

Answer:
What makes Amazon different from traditional brick-and-mortar retailers are;
- Most of the goods that are sold in Amazon is coming from online store. They don’t have
as many as other retailer company’s physical store.
- Other brick-and-mortar retailers needs physical store, every physical store need its own
inventory. Amazon eliminate those aspects, they focused on investing in expanding their
Hub, DC, Sortation Centre
- Once Amazon has physical store, they maximize its function not only as a store but also
as a pickup point to handle returned product

3. What are the key advantages to the structure of Amazon's supply chain and the company's
management of its supply chain operations? Support your analysis with data from the case.

Answer:

The Key advantages to Amazon’s supply chain operations are;

- Their distribution network

 The have a lot of facilities that enable them to easily deliver goods to customer or
receiving return form customer. See exhibit 7, they have 122 currently active fulfilment
centre, supplemental centre and return centre, then followed by 70 delivery station
 - The use of technology (online platform and services)
 Amazon really take advantage and opportunity of the internet evolution, and the
shifting of customer’s buying behaviour from offline shopping to online shopping. This
strategy is successful, see exhibit 9 - their online platform and services contribute to
company’s most revenue from time to time.

4. What are the challenges Amazon faces, and what are the implications for its supply chain?
- The increasing demand of online customers and high operational cost (shipping cost) are
the challenges that Amazon might be facing.
 The increasing demands affect to Amazon supply chain. They may need continue to
expand their delivery network to make delivery in time, while investing in delivery
network is not cheap.

5. As Jeff Bezos, what steps would you take to improve Amazon's

supply chain? Why?
- I would like to make partnership with other retail company (offline), so that customer
can pick up their orders not only in Amazon retail store but also in any other partnered
company store. It would benefit both company
- Amazon needs to review its Amazon Prime subscription terms & conditions and pricing
 2 days delivery is not easily fulfilled if the demand continued to increase
 They may need to increase the subscription price, because the operational cost of
sales continue to increase

6. Identify and define three possible problems Amazon will face

in the next five (5) years.
- The increasing demand of customers  The shifting trends from
conventional/traditional shopping to online shopping and the evolution of internet users
in developing country, could be a problems if Amazon couldn’t keep up to balance their
demand and supply
 - High operational cost  Because of the difference between shipping cost and the
actual cost that Amazon charge to its customer and 3rd party seller through Amazon
Prime, Amazon lost significant revenue
- Geopolitical issues  Ukraine-Russia War, China’s trading policy, US economic
recession are examples on how political issues could give major impact to world
economic condition. If this issues continue to happen, the customer’s buying capacity
would decrease and might affect Amazon’s business

7. What are the three possible sources of business risk in Amazon?

Explain.
- Political Instability : The constrain of international policy, might affect the supply chain
and overall business practices in Amazon (e.g. the influence of Ukraine-Russia wars on
international policy)
- Trade restrictions : E.g. China’s domestic trade policy could affect
- Extreme weather conditions/ pandemic : Global warming cause extreme weather in
several country, this conditions could affect supply chain, distribution and capacity
planning. On the other hand, Pandemic also cause the high demand of goods, but the
supply is limited due to international travel restriction.

8. What do you think of the Walmart vs. Amazon supply chain?

Please compare and contrast how Walmart and Amazon
handle their supply chains

Subject Walmart Amazon

Business Model Mainly physical store then Mainly online store then
developing online store developing physical store
Distribution 1. Focus on building a lot of 1. Focus on building distribution
store network (e.g. physical centre, hub, sortation centre
store, distribution centre and in strategic area for making
omnichannel) near customer delivery process more timely
area 2. Partnering with logistic and
shipping company such as
FedEx and UPS to handle their
package distribution

9. To build a highly agile and resilient supply chain, the company must adopt innovative
strategies with the support of digital technology as a key action. Please elaborate on the
innovation based on digital technology Walmart and Amazon use to support their advanced
supply chain.
Subject Walmart Amazon
Technology Use 1. Inventory 1. Inventory
 Retail Link App  FBA – a service that allowed 3rd
Allow suppliers to check real time party seller to manage their own
inventory & invoicing status inventory and directly ship to
customer
Robotic Process
Self-scanning inventory robots,  Vendor Central – a platform
Robot assistance in filling grocery that allowed suppliers to track
pick up order and self-process invoice to
Amazon

2. Delivery
 Amazon Flex, using contract
drivers to deliver goods in certain
area, they are paid hourly

 Using drone technology to

deliver goods directly to
customer

 Amazon Key, a smart lock

system which has ability to allow
Amazon couriers to access
customer’s home to place
packages inside

10. What are the impacts of digital technology on their supply chain and company’s
performance?

Subject Walmart Amazon

Technology Impact 1. With Retail Link App, it 1. With FBA and Vendor
eliminates so many manual Central , it eliminates so many
process in terms of inventory waste process in terms of
monitoring and suppliers inventory monitoring,
invoicing. delivering package and
2. Robotic process, make suppliers invoicing
delivery pick up order process 2. Amazon Flex allow contract
more fast and precise (less driver to deliver package in
human error) specific area for certain hours.
It saves a delivery cost while
Those process make the supply maximizing delivery packacge
chain more lean and eliminate capacity
waste such as transportation, 3. Drone makes delivery process
 waiting, rework and motion more quick, controllable, and
efficient (less traffic jam)
4. Amazon Key, allow Amazon
courier to have access inside
customer house to place their
package. It eliminates
returning product process
(e.g if the recipients is not in
place/ out of area)

II. Align Technology, Inc.

Matching Manufacturing Capacity to Sales Demand

Align Technology produced a dental appliance that required custom manufacturing. Because
this was an innovation, accurate sales forecasts for the appliance were difficult to make. The
company had built its production capacity ahead of demand. Now it has decided to find a more
cost-effective strategy. The Sales and Marketing team has prepared an 18-month forecast of
case sales that indicates a significant reduction in projected cases for July 2001, followed by
gradual growth. To simplify the analysis, we will assume a linear projection for the increased
sales. The new projections are:

• July 2001: 125 cases/day

• Increase: 1 case/day/day and assume there are 20 workdays
each month.
(This leads to a projected forecast for August of 145 cases/day)

1. Assume these forecasts represent Align's most reliable estimates of future case sales. How
should Len Hedge and his manufacturing team think about adjusting Align's production
capacity, given this forecast?

Answer:
- Len Hedge needs to change the current strategy from “build it and they will come”
strategy. It’s not applicable because Align is not a “make to stock” Firm. They should
change their new strategy to “make to order”, because every customer has their own
unique case and has different treatment. That’s why “make to stock” strategy doesn’t fit
with the firm.
- They need to use remaining excess inventory to fulfil the demand. The manufacturing
capacity should be forecast based on the previous sales report, so that they don’t
overproducing the inventory
 - They should reduce the buffer inventory amount, for now 20% buffer is too high. I
would recommend minimum 10% buffer and it could be upgraded/downgraded based
on sales report (flexible buffer, should be reviewed periodically)

2. What is the "right size" for the capacity? What capacity (for each of the six processes)
would you recommend for July 2001? Why?

Answer:
- Dental Lab :
 They should consider to make partnership with any other logistic company (other
than UPS), to cover more area
- Data acquisition
 They may invest more in technology to make the process faster
- Treat operations
 They need to hire/ outsource its process to more employee, because it’s the 2nd
longest process among other process. They may consider to set Treat Operations in
more nearby and less conflict country. Having too much dependency on 1 treat
operations in highly conflict country may not be wise in a long term business practice.
- ClinCheck
 The ClinCheck online based application allows more orthodontists to review the
simulation plan. They may increase its application capacity to enable more users to
access the app at the same time
- SLA Fabrication
 The remaining equipment is quiet enough to supply the current demand. No need to
invest more on this equipment unless there are significant increasing demand
- Aligner fabrication & shipment :
 They may make partnership with any other manufacturing company (maybe inside
USA, to cut the waiting time in production and shipping)

3. After "right-sizing," what decision processes would you recommend to increase the labor
capacity as demand grows? Illustrate your policies by using the receive/order entry
process.

- As the demand grows, they need to give proper training to all employee especially in
manufacture process, to lessen the human error. Also they may to continue giving
training to more orthodontist, so If the company finally can grab the market, the
orthodontist are ready to serve them.
- They might outsource more employee if the demand are continue to grow
4. Will your policies change when additional machines are required to expand capacity?
- Yes, policies should be flexible following the company’s need.
If the demand is increasing while the policies are too strict and not allowing to expand
capacity, it will cause the company can’t fulfil the market demand. Thus, the customer
will change to another competitor whom are ready.