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Amazon.Com’S Inventory Management

Introduction

Launched by Jeff Bezos, the Amazon.com website started in 1995 and is today considered as one of the most prominent retail website on the internet with a record turnover of US$ 14.87 billion in 2007. Jeff Bezos’s intention was to create an internet based company with the most dedicated product portfolio on the internet where customers could find anything they might want. Amazon’s success is based on technology, services and products (Jens et al., 2003).
Controlling inventory is known to be one of the toughest problems for companies. With 39 million active customer accounts and a vision such as being “Earth’s biggest selection of product”, Amazon has been putting a lot of effort to be as efficient as possible in their inventory management.
The purpose of this report is to understand the evolution of the inventory management of Amazon and how it has affected the company’s growth. This case study is both a practice case and a problem solving case, so the first section of this report focuses on the practices used by Amazon in the 4 stages and then in the second section we will solve the problem regarding their product returns problem and provide recommendations.

I- The 4 Stages of Amazon
Amazon’s Inventory management can be divided into 4 stages:
1) An initial start with no inventory
2) Built warehouses to store inventory
3) Entered into partnerships with distributors
4) Entered into partnerships with retailers

1. Initially started with no inventory
In the first stage Amazon’s main objective was to create a virtual bookshop, where customers could have more choices than any physical bookshop in the world, but also, he did not want to spend time and money on building warehouses and deal with inventory because each warehouse could cost around $50 million dollars.


Figure 1: First stage logistic process

As shown in figure 1, customers used to order products from Amazon’s website, Amazon then forwards the order to the distributor,...