An effective distribution strategy will help Amazon.com increase profitability, improve customer satisfaction, and gain a competitive edge in the European market. The distribution strategy should help to overcome inefficiencies, address the shipping time problem, and reduce the cost of operation. The ultimate goal is to ensure that the distribution strategy adds customer value and helps the company to generate more profits. Apart from the distribution channel, business models such as BCG matrix should be applied to assist in the decision-making process about the market attractiveness and profitability of certain products. Amazon.com should only focus on goods and services that gives more return on investment. The following discussion analyses the viability of the proposed distribution strategy at the European market. Recommendations are also provided to enhance the success of the distribution network.
Summary
The case presents a dilemma that Tom Taylor (Amazon.com’s Director of European Supply Chain Operations) faced as he tried to establish an effective distribution strategy in Europe (Hammond, 2013). Following the high costs of operations, falling profits, and high competition in the European market, Taylor had to innovate a strategy that would give Amazon. com a competitive edge in Europe (Hammond, 2013). The main strategy was to establish a European Distribution Network (EDN) that would effectively and efficiently increase customer value, reduce the cost of operation at Amazon, and increase profitability. A centralized distribution center was expected to reduce the cost of labor, streamline operations , and provide customers will quality services. However, the challenge was where between the three countries (France, Germany, and the UK ) to locate the primary distribution center, and if the initiative will be successful. In the U.S market, Amazon. com had become successful because of strategic distribution centers and divestment business models. The nonperforming distribution centers such as that in Georgia and Seattle had to be closed down to increase the company’s return on investment and profitability (Hammond, 2013). Taylor thought that if some of these strategies are applied in the European market, the proposed distribution strategy will add more value to Amazon.com and customers.
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Analysis
The main predicament is whether or not Amazon. com needs a centralized distribution network in the European market to enhance customer satisfaction, increase efficiency, and profitability. The central questions are whether the proposed EDN would lead to growth and what other options Taylor has. A more centralized distribution center plays an imperative role in fostering customer experiences (Mallik, 2010). The rationale is that a company concentrates its core competencies and capabilities in few centers. The technology and more competent staff in the centralized centers help to improve customer satisfaction (Mallik, 2010). Having all the resources in one facility means that customers will have their issues addressed adequately by experts. One of Tylor’s goal is to increase customer satisfaction and retention. The strategy will help to expand the customer base, which will help Amazon. com to gain a competitive edge in the European market. However, one of the challenges that Taylor could face is that of shipping time. If the distribution facility is in France, for instance, and the buying center in Germany, this affect the shipping time. Goods will move to buying centers before they are dispatched to customers, which take more shipping time. The solution to this challenge is ensuring that distribution centers are situated closer to major vendors and target customers.
Taylor’s distribution strategy has another advantage of cost reduction, explaining why it will lead to growth (Hammond, 2013). Where there are many distribution centers, the inbound costs increase because of shipping in different facilities (Laszlo & Zhexembayeva, 2011). When the centralized distribution strategy is fully functional, the inbound costs reduces because a large quantity of goods is shipped in few facilities. One of Taylor’s goal is to promote customer value as well as that of the company. The proposed EDN will help the company to the cut down the cost of shipping, which help Amazon.com to share the benefits with customers. The reduced cost of operation should lead to a reduction in the cost of goods sold to customers. This strategy will help Amazon to become a price leader in the European market, thereby being able to compete efficiently with the rivals.
While the EDN will help Amazon.com to realize its goals of profitability, minimizing the cost of production, and fostering customer satisfaction, it will still face some challenges. The main challenge is the initial capital for establishing the centralized facilities at the strategic locations. The initial capital is expected to be high because of infrastructure that is required. Secondly, adequate preparations for emergencies will be vital because massive investments are centralized in fewer locations. In case of a natural disaster, Amazon.com will incur huge losses.
Effective Solutions
The solution should be to implement the proposed EDN because the benefits outweigh the costs. While the initial capital is high, there are more long-term benefits. In ensuring that Amazon.com becomes successful, particular business models should be used for the informed decision-making process. The BCG matrix business model helps a business to focus on business portfolios that are profitable and attractive in the market (Donald, 2012). The business model helps the management to track the performance of given products in the market and decide which ones to eliminate. Therefore, apart from the distribution strategy, Taylor should invest more in products that are in high demand. That will reduce the cost of storage and ensure that products are in best conditions when sold to customers. Another issue is the strategic fit. The question here is whether Amazon.com has the capabilities and resources to foster a sustainable investment. More infrastructure and systems will be required to make the EDN distribution strategy more effective. Next, Amazon.com has to pay more attention to quality. Even if the price strategy is vital in attracting customers, total quality management is equally important. Effective communication between customers and the management improves customer satisfaction. Amazon.com should have an effective customer relationship management system. It helps to establish the customer base, know the loyal customers, and attract other potential customers (Cameron, 2013). These strategies will help the company to grow and have a competitive edge.
Conclusion
Amazon.com should execute the proposed distribution strategy. The benefits are the reduced inbound costs, improved quality services, and enhancing the customer value. The success of the investment will depend on other factors such as determining the best strategic location, the availability of resources and capabilities, and the application of business models. Taylor seeks to foster profitability, customer experience, and gain a competitive edge in the market. While the proposed distribution strategy will help the company to achieve its goal, it is also important to allocate more resources for emergency plans in case of natural disasters.
References
Cameron, B. (2014). Using responsive evaluation in Strategic Management. Strategic Leadership Review 4 (2), 22-27.
Donald, B. (2012). Supply Chain Logistics Management . McGraw-Hill
Hammond, J. (2013). Amazon.com’s European Distribution Strategy . Harvard Business School Publishing, Boston, MA
Laszlo, C. & Zhexembayeva, N. (2011). Embedded Sustainability: The Next Big Competitive Advantage . Stanford, CA: Stanford University Press. ISBN 0-804-77554-0
Mallik, S. (2010). " Customer Service in Supply Chain Management ." In Hossein Bidgoil . The Handbook of Technology Management: Supply Chain Management, Marketing and Advertising, and Global Management, vol 2 (1 ed.). Hoboken, New Jersey: John Wiley & Sons. p. 104. ISBN 978-0-470-24948-2.
