Amazon Fresh Case Study

Amazon Fresh Case Study

Case Study 1The $600 billion U.S. grocery market segment is large and complex. Consumers now shop for grocery products in a variety of retail environments. Conventional supermarkets and grocery stores capture 52% of the market segment. Discounters like Wal-Mart and Costco capture 27% of the market segment. Convenience formats like c-stores and drug stores capture the remaining 21%.No channel is dominant today because no one retail format does it all. Supermarkets offer one-stop-shopping convenience and fresh food quality advantages, but at full margins. Discount formats offer better prices, but often at the expense of brand-selection and convenience. And convenience formats are easy to get to, but high-priced with very limited assortment. In response to this complex retail landscape, the typical consumer now shops the full of range of formats, with surprising frequency. Trying to balance the competing needs of great prices, my familys brands, and easy to get to, the typical consumer goes grocery shopping 3.3 times per week! Against the backdrop of increasingly time-starved lifestyles, this continuous grocery shopping solution is becoming less satisfying and less sustainable.Figure 1U.S. Consumer Grocery Shopping Behavior

Amazon.com plans to launch a national grocery business. This business will be a distinct tab/store on www.amazon.com and will take advantage of Amazon's existing distribution network. This offering is focused on shelf stable products which can be fulfilled through our traditional warehouses and transportation solutions. This will be a completely separate website and delivery infrastructure.

The Customer Service (CS) at Amazon responds to customer contacts via Phone, Email or Chat. Before taking on any new work, the CS team forecasts the quantum of work and productivity goals so as to recruit and train employees that can respond to customer contacts. Amazons Customer Service (CS) is known to be responsive and friendly and Amazon has won many awards for its world class customer service.Amazon Fresh launch will result in customer contacts for the CS team. John, the Global Expansion manager for Amazon Customer Service has been given the task of deciding on an optimum distribution of customer contacts among different sites and across mediums. He has already figured out that Amazon Fresh customer support will be supported on 2 mediums Phone and Email, with bilingual support English and French. His experience has taught him that a correct launch strategy for a new business goes a long way in maintaining high standards of service. The CS leadership believes that it is critical to do some part of work in-house to ensure that CS remains a core competency for Amazon. It was also believed that doing CS in-house helped in understanding defects and taking corrective action. Kaizen or continuous improvement culture at Amazon ensured that the defects were continually eliminated to improve customer satisfaction. Amazons goal is to offer best price, convenience and selection to its customers and offshoring helps companies to reduce its cost structure. There are challenges in quality and accent while offshoring work. However, the cost of doing everything in house is prohibitive. John has the following data on cost to help him in the analysis:Variable Cost per Contact:EnglishFrench

VCPC matrixPhoneEmailPhoneEmail

Onshore Internal$6.50$3.01$8.91$4.12

Offshore Internal$4.50$2.10$5.72$2.71

Offshore Outsourced$4.12$2.01$5.42$2.45

Expressed Dissatisfaction Rate (EDR): Expressed Dissatisfaction Rate is the primary quality metric. Quality of customer response by sites was a major criterion in site selection. Each customer is sent a survey to respond back whether he is satisfied by Amazon Customer Service. EDR is the ratio of total unsatisfied customers to total serviced customers.

EnglishFrench

EDR matrixPhoneEmailPhoneEmail

Onshore Internal1.3%5.4%1.5%5.4%

Offshore Internal2.8%4.6%3.3%5.2%

Offshore - Outsourced2.6%4.7%3.3%5.8%

The Capacity Planning team has forecasted the following contact volume:

Based on a 40 Hour week (~80% effective productivity) and Average handling time per contact at 15 min for phone and 20 min for e-mail, monthly capacity is given below:EnglishFrench

Monthly capacity (maximum)PhoneEmailPhoneEmail

Onshore - Internal6,0002,0009,0003,000

Offshore - Internal5,0005,5001,0002,000

Offshore - OutsourcedFlexibleFlexibleFlexibleFlexible

Risk of Failure (business continuity) for different channels is:ROF matrixPhoneEmail

Onshore - Internal1.0%0.3%

Offshore - Internal3.3%1.0%

Offshore - Outsourced4.5%2.0%

Assume that all sites have unlimited capacity and all agents can handle any contact related to Fresh.Q1. What percentage of email contact volume should be outsourced to offshore sites?Q2. What percentage of phones and email contact volume should be handled in-house and in North America?Q3. John intends to launch Chat after 3 months. Who should handle this volume? How will this be distributed (percentage)?Q4. What should be the contact distribution strategy for Amazon? Please discuss your rationale.

Case Study 2Amazon is known for its established online business for book, media, electronics, shoes, apparel and many other categories but Amazon Fresh is their first venture in handling perishable goods. Considering the nature of the business and product offering Fresh would require a dedicated website and robust logistics and transportation infrastructure. Being a category of very low shelf-life it requires faster information processing for new products to be launched on the website and it is equally important is that any kind of errors in ordering, dispatching, pricing should eliminated or reduced to minimum. Amazon business operates with the following strong principles:1. First get the customer experience right. Operational efficiency and profitability will follow. 2. Customer Experience is improved through trip elimination and selection expansion. It is maintained through short click-to-deliver time plus high perfect order rate. 3. Get it up and running fast. Amazon believes to learn more in a week of running a pilot than a month of analysis. 4. Provide widest selection at the lowest cost.The Retail Selection department (RSD) group is an integral part of Amazon online product lifecycle and buying operations. The team is designed to ensure Amazon remains competitive in the online retail space with the best price, wide selection and good product information. The teams primary role is to create and enhance retail selection/products on the worldwide Amazon online catalog. The main goal is quickly add new items on the catalog with good quality. The tasks handled by this group have a direct impact on customer buying decisions and online user experience. Vendors send the information to RSD for NIS item setup but not the 100% volume gets resolved by RSD immediately. A part of the volume gets processed by RSD but a part goes for further query to buyers and vendors. A small part of the Buyers volume goes further to vendors and then come back to RSD with clarifications (Process steps are in attached excel sheet). Similarly for Prob Rec , process requires multiple layers of clarifications before issue resolution. Currently RSD uses email communication to get these queries resolved but voice channels could also be explored. These multiple layers of clarifications from stakeholders spread across geographies make NIS/Prob Rec time consuming processes. RSD has worked with buyers/vendors who work in PST time zone and defined the SLAs for every query/clarification send to them. And on the basis of these RSD have defined its own SLAs.Adam is the site leader for RSD who is assigned the task for setting up the following process at their Chennai center to service Amazon Fresh. AmazonFresh being a new launch has aggressive expectations on SLAs. Based on the recent meeting with the AmazonFresh buyers, Adam is required to analyze the data he has gathered and answer the following, Part A1. Minimum possible Cost of Operations 2. Minimum steady state cost of operations if the processing % reduce to half on first step at RSD and resolution % in subsequent steps move up proportionately. 3. What is the minimum possible turnaround time assuming infinite resources and no constraints on work window in any location 4. And what would be the cost in above situation mentioned in point 3, Part B1. Can he commit to the SLA of 2 days for 2 processes, if not then what is the minimum he should commit a. He needs to revamp the entire process as the current set up will not be able to meet the SLA requirement and he has the following levers with him. i. Start a night shift and start a process for weekend work ii. Not just rely on Email communication but make effective use of voice channel2. Provide optimized work flow with minimum cost. 3. Increasing price of voice communication was raised as a major cost driver by finance. In order to handle this challenge Amazon has rented out web based communication services from XYZ ltd. The service is free but would require license per user. The cost of each license is $1500 and its valid for 6 months. Please comment if the new web communication channel is better than existing model. 4. Historically it has been observed that volume inflow does not remain constant. Data of last 3 months in a similar case suggest that both NIS and Prob Rec inflows fluctuate with standard deviation of 34.3 and 18.7 respectively. While their average inflows in this period have been 974 and 212 respectively. RSD plan to have capacity with 99% service levels. Please estimate the minimum cost provided in this scenario with other conditions remaining same as point 2 in Part B. Take any justifiable assumption to arrive at solution.Glossary:NIS NIS stands for new item set up; Process involves gathering of new product information from vendors and processing it to become part of catalog and then ready for display on website. Prob Rec (Problem Receive)This is a process where warehousing team raises a trouble ticket for inventory received which has problems ranging from extra units being shipped to incorrect product being sent. RSD team members resolve these tickets by working with vendor, buyer and other teams. BuyersBuyers are managers who negotiate and buy inventory from different vendors (suppliers) on behalf of Amazon. They are responsible for ensuring that vendors send timely information to RSD for item setup and also all clarifications are provided to RBS on time.

VendorsVendors are the product suppliers to Amazon.FCFC stands for Fulfillment centers. These are Amazon warehouses. They receive the inventory from the vendors and dispatch it to Amazon customers based on the customer orders. In case of any problem related to purchase/purchase order receive, FCs inform RSD about the issue. RSD further takes help of concerned buyers/vendors in the course of issue resolution.

Case Study 3With Amazon Fresh, the challenges faced in supply chain by Amazon increased because the products now had expiry dates. In addition to that, Amazon strives to deliver the freshest items to the customers optimizing its supply chain of suppliers, warehouses (which it calls Fulfillment Centers FCs) and customer demand.The following case will challenge the teams to fulfill customers orders in a city with the freshest farm and dairy products.Amazon sources farm and dairy products from the suppliers (SF Supplier of farm products and SD Supplier of dairy products). There are 3 FCs on the periphery of the city all of which can process and fulfill orders for Amazon Fresh. The demand from customers for farm and dairy products through Amazon Fresh program is divided into Demand North (DN), Demand South (DS), Demand East (DE), Demand West (DW) and Demand Central (DC).Refer to the map below for the suppliers, FCs, demand centers in the city. The distance between any two points on the map is the sum of horizontal and vertical distances. E.g. Distance between DE and DS is 18 (horizontal) + (6+9) (vertical) = 33 kms

All customer orders placed till 3 pm in the afternoon are processed for 2 hours (same for farm and dairy products) in each of the FCs. At 5 pm, trucks carrying customers orders leave for delivery.To maintain the freshness of the products, they are sourced from the suppliers so as to reach the appropriate FCs by 3 pm. Multiple trucks can be run between SF and SD to each of the FCs to have the most fresh item received in the FCs. Consider the age of the product, when the truck departs from the supplier as 0 hrs.The Inbound time from each of the supplier to the FCs is dependent on the distance between suppliers and the FCs. Following table gives the inbound times to the FCs from each of the supplier.Inbound time (hrs)From SFFrom SD

up to 10 km12

11 - 20 km23

21 - 30 km34

31 - 40 km45

41 - 50 km56

above 51 km67

After the processing on the products (as mentioned above), the trucks depart the FC. They take the following time to reach the destination, as per the distance:Outbound time (hrs)FC1FC2FC3

up to 10 km212

11 - 20 km213

21 - 30 km423

31 - 40 km424

41 - 50 km524

above 51 km535

Based on the above data and the map, answer the following questions:1. Which FC should cater to demand of North, South, East, West, Central city for the items to remain freshest (least old) under following conditions?a. Separate trucks for inbound for each O-Db. From an origin FC to a destination Demand Center, the trucks fulfilling farm and dairy products' orders can be separate - if necessary.c. 1 Demand Center can be catered by only 1 FC for any kind of product. i.e. FC1 and FC2 cannot deliver dairy products together to Demand North.

2. What is the minimum number of total trucks which will depart from the FCs if same truck can be used for delivery of Farm and Dairy products?

3. What is the weighted average age of farm and dairy products in the above case?

4. There have been new plans for improving the infrastructure utilization. Two decisions are taken:a. No customer orders for farm and dairy products will be fulfilled out of FC2, andb. From an origin FC to a destination Demand Center, the trucks fulfilling farm and dairy products' demand CANNOT be different i.e. Single truck will be running between any pair of FC-Demand Center combinationWhich FC should fulfill farm and dairy product orders for which Demand Centers for the items to remain freshest (least old)?5. In Question 4 if, additionally, the cost of fulfilling 1 unit of farm or dairy product for FC1 and FC3 to different Demand Centers are as follows:in Rs.DNDSDEDWDC

FC113442

FC242253

Demand from each center is 2000 kg and 2000 ltr of farm and dairy products respectively.What is the cost of providing best customer experience i.e. deliver the freshest products?

Case Study 4Amazon uses three carriers A, B and C for shipping packages to the customers. Amazon further offers its customers with two SLAs which are 1 day delivery (package is delivered on next day from customer placing the order) and 2 day delivery (package is delivered on second day from the day when customer places the order). There is a certain defect rate associated with the two SLAs for each of the carriers. At the same time there is a limited capacity that the carriers can manage for each SLA. The rates offered by the three carriers, their defect rates and their capacities for the different SLAs is as follows,

Cost of defect incurred by the company is $10/package. The total number of packages that we need to ship in a week is 5000 with 1700 for 1 day delivery and 3300 for 2 day delivery. There is also a minimum volume guarantee that we give the carriers which is 1200 for A, 1000 for B and 1300 for C.Keeping in mind the core principles of Amazon, devise the best combination of carriers and services to service the 5000 packages. Answer the following questions based on your adopted strategy.1. State the objective on which you have based your strategy2. What is the number of packages serviced by each of the carrier SLA combinations (e.g. A-1 represents carrier A for one day SLA)?3. What is the cost incurred by Amazon in servicing all the packages?4. Articulate the rationale of your strategy in less than 300 wordsAmazon.com confidentialPage 1

Sheet1Data Volumes(day)Productivity Current SLA Fresh SLA NIS100010042ISS2002552Process Steps (% Volume)345NISVendor (100%)RSD(100%)Processed ( 60%)Buyers (20%)RSD(15%)Processed (15%)Vendors(5%)RSD(5%)Processed (5%)Vendor(20%)RSD (15%)Processed(15%)Buyers(5%)RSD(5%)Processed (5%)

ISSFC(100%)RSD (100%)Vendor(50%)RSD (50%)Processed(40%)FC(10%)Processed (10%)Buyers(50%)Vendor(40%)RSD(40%)Processed (30%)FC(10%)Processed (10%)RSD(10%)Processed(10%)

Team Working windowEmail response timelinesVendors8 AM to 5PM PST Vendors reply next day to the day they receive emailsBuyers8AM to 5PM PST Buyers reply same day they receive emailsRSD8AM to 5PM IST Fulfillment Center8AM to 8 PM PST FC replies next day to the day they receive emails

Cost NoteAssociate cost1000 $/month 22 daysin 8AM-5PM window, no weekend work E-Mail0$Phone 2$

Additional conditionsPhone Response is immediate but can be utilized in customer working windowCost 100% higher in any other work windowAssociate can only work for 8 hour windowNo constraints on cost at Buyer/FC/Vendor/CSAll cases to be flipped to other teams happens at the end of respective shiftMovement of case from one team to another takes negligible time as we have standard mail drafts for various problem typesAll Mails in Inbox is checked at the start of the shift and all mails are sent at the end of the shift in the respective location Buyers and Vendors do not operate on night shift

Sheet3

Sheet4