Question

Questions:

Discuss three operation research (OR) problems of Amazon, and explain appropriate quantitative methods (QM) which may help solve the problems.

Amazon uses e-commerce to lower inventory and facility costs, but processing costs and transportation costs increase. Amazon is able to decrease inventories by consolidating them in a few locations. A bookstore chain, on the other hand, must carry the title at every store. Amazon carries high-volume titles in inventory, but purchases low-volume titles from distributors in response to a customer order. This also tends to lower costs because the distributor is aggregating (consolidating) orders across bookstores in addition to Amazon.

E-commerce allows Amazon to lower facility costs because it does not need the retail infrastructure that a bookstore chain must have. Initially, Amazon did not have a warehouse and purchased all books from distributors. When demand volumes were low, the distributor was a more economical source. However, as demand grew, Amazon opened its own warehouses for high-volume books. Thus, Amazon's facility costs are growing but still remain lower than for a bookstore chain. Amazon does, however, incur higher order-processing costs than a bookstore chain. At a bookstore, the customer selects the books, and only cashiers are needed to receive payment. At Amazon, no cashiers are needed, but every order is picked from the warehouse and packed for delivery. For books that are received from distributors, additional handling at Amazon adds to the cost of processing orders.

Amazon's distribution incurs higher transportation costs than a retail store. Local bookstores do not have the cost of shipments to customers, as most customers take the books with them at the time of the sale. Amazon, in contrast, incurs this cost—which represents a significant fraction of the cost of a book (as high as 100% on an inexpensive book). As demand has grown, Amazon has opened six warehouses, with more than 3 million square feet, in an effort to get close to the customer, decrease transportation costs, and improve response time.

Answer 1

E Commerce business model is basically dependant on goods being delivered to the customer door steps with the permitable timeline from the provider. According to the above case study Amazon experiences high processing and transportation cost.

Amazon may open offers to customers who can manage to pick their orders from the concern distributors in thier location. Through this the processing and transportation cost can be brought down. To understand the response the below methods can be worked out,

1. Primary Quantitative Research Methods: Through this method data can be directly collected from the respondents through,

a. Survey Research - Via online polls, Online surveys or through questionaires. Based on the output of the response analysis the strategy can be implemented.

2. Longitudinal Surveys: This is an observation technique for analysing different variables in different time interval. (Through this the options can be given as a choice to customers, if they opt for their personal mode of product collection then there will be a considerable discount on the product prices). After implementing this strategy and observing the response outcome in a different timeline the final decision can be arrived.

Amazon already tags up additional delivery charges in extra to the product cost. So accordingly the transportation cost is already mitigated. The above mentioned strategies can be thought to tackle both operational as well as transportation costs.