Sustainable Operation - Management

Amazon.com Inc.’s e-commerce success

depends on the high ef ciency achieved

in its operations management (OM),

which directly determines productivity.

The company must address the concerns

of the 10 strategic decision areas of

operations management to optimize

productivity. As the leading player in the

e-commerce industry, Amazon is an

example of the signi cance of

technologically supported productivity

for optimal ef ciency of services. These

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BUSINESS, MANAGEMENT

Amazon.com Inc. Operations Management: 10 Decisions, Productivity UPDATED FEB 21, 2017 | EDWARD FERGUSON

Panmore Institute

Amazon Tower II (Rufus Block 19) in February 2016.

Amazon.com Inc.’s operations management tackles the 10

strategic decision areas through automation and HR

development for optimal e-commerce productivity. (Photo:

Public Domain)

10 strategic decisions of operations

management become increasingly

complex, as the organization continues to

expand and diversify its business.

Continuous improvement can help

enhance the capabilities of Amazon in maintaining adequate support for operations

despite global expansion and the broadening of the product mix [Read: Amazon’s

Product Mix, Marketing Mix]. Through effective operations management, Amazon keeps

its lead in online retail and the e-commerce market.

Amazon ensures that its operations management (OM) efforts satisfy the 10 strategic decision

areas of its e-commerce business. With expanding operations in addition to online retail

business, Amazon.com Inc. must continue adjusting its operations management approach for

the corresponding changes in these strategic decision areas.

Amazon’s Operations Management, 10 Decision Areas

1. Design of Goods and Services. The design of organizational output is covered in this

strategic decision area of operations management. Amazon addresses this concern

primarily through technology. For example, the company uses advanced information and

communication technologies to ensure that its online retail services are ef cient and

convenient for target customers. Such technologies are also used to support maximum

ef ciency of Amazon’s e-commerce operations.

2. Quality Management. The objective in this strategic decision area is to maximize

quality of operational output to satisfy the expectations of customers. Amazon.com Inc.’s

operations management approach involves continuous improvement efforts in its e-

commerce business. The company uses its organizational culture to support innovative

idea creation among employees [Read: Amazon’s Organizational Culture]. For example,

Amazon encourages employees to be bold and pioneering in creating new ideas to solve

problems and improve the business.

3. Process and Capacity Design. An objective of operations management is to optimize

production processes and capacity. In this strategic decision area, Amazon applies

extensive automation to streamline its business processes. For example, considering

online retail service as its main organizational output, the company automates the

ordering process to increase the capacity to accept as many simultaneous orders as

possible. This approach to operations management highlights the importance of

automation and related technologies in enhancing Amazon’s process and capacity in e-

commerce.

4. Location Strategy. The accessibility of resources and markets is considered in this

strategic decision area of operations management. In the case of Amazon.com Inc., the

emphasis is on the strategic location of warehouses or ful llment centers. For example,

Amazon must maintain warehouses that are optimally near the largest possible number

of customers of the online retail business.

5. Layout Design and Strategy. In this strategic decision area, operations managers have

the objective of optimizing the movement of human resources, materials, and

information. Amazon addresses this objective through ef cient layout designs that align

with computer-assisted processes. For example, in the company’s warehouses and

ful llment centers, items are organized according to a computerization policy. The

corresponding layout involves maximization of shelf space and minimization of aisles to

achieve optimal capacity without reducing process ef ciency in Amazon’s online retail

business.

6. Job Design and Human Resources. Human resource development is the focus in this

strategic decision area. Amazon’s operations management uses a combination of in-

house employment processes and third-party employment agencies. For example,

workers from these agencies ll temporary positions and are evaluated to determine

suitability for permanent positions, especially in warehouses and ful llment centers.

Amazon’s recruitment and hiring processes are aligned to organizational growth and

human resource needs in corporate of ces.

7. Supply Chain Management. The operations management concern in this strategic

decision area is to streamline the supply chain to support organizational objectives.

Amazon does so through automation and enabling suppliers and buyers to access some

of its IT assets. For example, sellers adjust supply levels based on demand data available

from the company’s online retail website. Also, buyers can track order and communicate

with suppliers through data available from Amazon’s website.

8. Inventory Management. In inventory management, operations management’s focus is

on maintaining optimal inventory ordering and holding. Amazon addresses this strategic

decision area through a nished goods inventory using just-in-time inventory

management in some areas. For example, in just-in-time inventory management, some

goods that arrive at the company’s ful llment centers are immediately shipped to ful ll

customers’ orders. Amazon holds other goods as part of its nished goods inventory. In

addition, to ensure optimal inventory ordering and holding, warehouse employees are

trained to maximize the speed of order ful llment through mobile computers linked to a

central computer and database. In this way, Amazon.com Inc.’s operations management

optimizes its online retail inventory size to minimize costs while satisfying market

demand.

9. Scheduling. Operations managers consider intermediate and short-term schedules to

ensure that resources satisfy market needs. In this strategic decision area, Amazon

relies on the involvement of suppliers for its online retail business. For example,

suppliers access the company’s website to determine demand levels and implement

their shipping and delivery schedules accordingly. Also, Amazon’s operations

management automates shipping schedules involving its ful llment centers, which

provide shipping services to sellers for a fee.

10. Maintenance. This strategic decision area emphasizes the reliability and stability of

business processes. Amazon.com Inc.’s operations management involves specialized

teams for maintaining technological assets. In addition, workers are regularly trained to

maintain human resource capacity to satisfy the company’s needs for its e-commerce

business. Moreover, Amazon is always on the lookout for advanced technologies to

improve its operational ef ciency.

Amazon.com Inc.’s Productivity Measures Amazon’s business productivity mainly refers to the productivity of its personnel and

automated systems in ful lling customers’ orders. In online retail operations, the

company’s employees must move fast in packing and shipping items to ful ll customers’

orders. The following are some of the measures or criteria used to determine

productivity at Amazon:

1. Inventory items processed per hour (inventory productivity)

2. Orders ful lled per hour (Amazon Ful llment Center productivity)

3. Inquiries answered per day (customer service productivity)

References

Amazon.com, Inc. Form 10-K.

Liu, S., & Jiang, M. (2011). Providing Ef cient Decision Support for Green Operations

Management: An Integrated Perspective. INTECH.

Najdawi, M. K., Chung, Q. B., & Salaheldin, S. I. (2008). Expert systems for strategic

planning in operations management: a framework for executive

decisions. International Journal of Management and Decision Making, 9(3), 310-327.

Verdaasdonk, P., & Wouters, M. (2001). A generic accounting model to support

operations management decisions. Production Planning & Control, 12(6), 605-620.

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10 DECISION AREAS OF OPERATIONS MANAGEMENT AMAZON.COM INC. CASE STUDY & CASE ANALYSIS E-COMMERCE OPERATIONS MANAGEMENT RETAIL RETAIL INDUSTRY

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