Real World Case: Amazon.Com:

Challenges of an E-Commerce Leader

1. What problem does Amazon have that is very similar to traditional brick and mortar companies?

Amazon was overstocked with too much inventory. They have had trouble balancing demand and inventory for a long time. They started loosing profits. They also offered too many products so many products that they couldnt balance the old products from the new ones. They also had to fire 2% of their employees.

2. What infrastructure or organizational problems did growth create for Amazon?

They realized that as they added more products and customers, the virtual model would not work. To offer not just the biggest selection but also the nearly instant gratification customers demanded, they needed to stock and ship their own inventory. So they spent $300 million to build five new distribution centers, and hired hundreds of customer-service operators. They had to hire more people to work in these distribution centers to keep up with the demand.

3. For the first half of 2002, answer the following financial questions:

a. Are revenues increasing, decreasing, or steady? By what percentage?

Revenues are increasing by 30%.

b. Is Amazon making a profit or loss? How much? Is the bottom line making progress towards (more) profitability? Justify your conclusion. What has had the most impact on more profits / lower loss?

It is making a loss. They were still millions (about 4) in the hole. They are making progress toward profitability. I think that selling web space has made the biggest impact on higher profits.

c. How would you summarize the diversity of products Amazon currently offers? Is it being effective? Which products are creating more profitability?

They have an extremely diverse product line. Yes it is being effective. The book line seems to still be their biggest profit maker.

4. For Q2 2002, is Amazon making a profit or loss? How much?

Amazon is still making a loss, but they are continuing to improve and are expected to turn a profit in 2003.