Influence of Trade Offs on Amazon

The proper management of trade-offs plays a very key role in the success of many businesses. Amazon utilizes several trade-offs in a unique supply chain. Since Amazon has a manufacturing sector, it employs trade-offs in its manufacturing process by ensuring a balance between lot size and inventory, inventory and transportation costs among other trade-offs. Through Trade-offs, Amazon has managed to evolve into the giant online retailer that it is today. Failure to properly manage supply chains through trade-offs organizations are vulnerable to late deliveries, missed shipments, product stock-outs and high management costs. Smaller lots sizes make it difficult for manufacturers to offer discounts similar to those offered for larger volumes of products. Smaller lot sizes lead to reduced inventory and may expose the product t to the obsolesce risk due to reduced profits.

Large lot sizes lead to an upsurge and upswing in inventory which may lead to the bullwhip effect. In order to effectively deal with this consequence of large lot sizes, companies must be able to correctly predict the demand of different products. Amazon is constantly collecting metadata to be able to correctly predict the demand of its product. Through the frequent movement of products and subsequent sales due to the high demand, Amazon is able to maintain low inventory levels and minimize transportation costs. In addition, Amazon uses distribution control systems which enable them to combine shipments of different products from warehouses to stores in order to ensure the transportation trucks are full. Amazon moves its products to their distribution outlets relative to customer demands.

Also, Amazon aggregates unsold products with sold products and transports them to their strategic warehouses. If the unsold or viewed product is brought before it reaches the warehouse, it is offloaded and processed for shipment. Through its extensive well-placed warehouses Amazon is able to provide a variety of products to its customers and hold inventory. The product-variety trade-off allows the company to offer their customers a wide variety of products at a moderate inventory holding cost. Coping with the Bullwhip Effect The bullwhip effect occurs when changes in consumer demand cause companies in a supply chain to order more goods to meet the new demand. It flows up the supply chain starting with the retailer, the wholesaler, distributor, manufacturer and then to the raw material supplier.

According to Simchi-Levi, the Bullwhip effect is a problem that occurs in a supply chain management when consumers are overbuying with respect to their actual needs, thus creating a variation within the system that was not planned for. Information sharing consists of Amazon frequently analyzing product market(s) and trends, monitoring sales trends, forecast performance, product demand, and consumer demographics (Huang, Lau, & Mak, 2010). Amazon shares these findings with their partners and thus supply adjustments are affected were applicable. Strategic partnerships Amazon has established alliances with vendors through their famous vendor agreements, distributors, and other small lot-size suppliers. These strategic alliances enable Amazon to effectively deal with shifts in demand by providing multiple distribution channels and constant supply of products. Amazon has partnered with a vast network of suppliers who can manage their inventory and ensure availability of products in the desired quantities that can meet customer demand at any time.

Through strategic partnerships and alliances with vendors and suppliers, Amazon has established a good relationship with the supplier. As a result, the suppliers prioritize Amazon’s orders thus reducing their processing lead time. In addition, Amazon air a cargo airline brand name for Amazon freight delivery service has significantly reduced the lead time and thus ensuring that products are delivered to the customers within the shortest time possible. In addition, the strategic placement of warehouses and the patent of a drone delivery system have further reduced the lead time from hours to just minutes. In conclusion, through proper utilization of trade-offs and elimination of the bullwhip effect, Amazon has managed to effectively manage its supply chain ensuring quick delivery of items to the huge customer network.