Amazon Fresh Case Study

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Case Study 1
The $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 1
U.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.

Quick Trips Fill-In Trips Major Stock-Ups
%of Trips 62% 25% 13%
Average Items 4.2 9.1 16
Average Order Size $21 $49 $97
%of Grocery Budget 34% 32% 33%
Average Minutes 20 40 54
Purpose 2/3rds for consumption
within next two days
Mostly for consumption
within next two days and
responding to special offers
Shopping for both short term
and long term consumption.
Because of time investment,
especially sensitive to
selection
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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:

English French
VCPC matrix Phone Email Phone Email
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.

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English French
EDR matrix Phone Email Phone Email
Onshore Internal 1.3% 5.4% 1.5% 5.4%
Offshore Internal 2.8% 4.6% 3.3% 5.2%
Offshore -
Outsourced
2.6% 4.7% 3.3% 5.8%

The Capacity Planning team has forecasted the following contact volume:



Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec
Total 2300 2760 3560 4557 5378 6722 8806 7695 10004 12604 15756 23060
Phone 1610 2263 2599 3737 3926 5176 6252 6156 7102 9453 12289 16603
Email 690 497 961 820 1452 1546 2554 1539 2901 3151 3466 6457
0
5000
10000
15000
20000
25000
N
o

o
f

c
o
n
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Contacts Forecast - mix by medium
Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec
Total 2300 2760 3560 4557 5378 6722 8806 7695 10004 12604 15756 23060
English 1472 1766 2243 2780 3388 4100 5636 4925 6502 7689 10241 14528
French 828 994 1317 1777 1990 2622 3170 2770 3501 4916 5514 8532
0
5000
10000
15000
20000
25000
N
o

o
f

c
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n
t
a
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Contacts Forecast - mix by language
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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:
English French
Monthly capacity
(maximum) Phone Email Phone Email
Onshore - Internal 6,000 2,000 9,000 3,000
Offshore - Internal 5,000 5,500 1,000 2,000
Offshore - Outsourced Flexible Flexible Flexible Flexible

Risk of Failure (business continuity) for different channels is:
ROF matrix Phone Email
Onshore - Internal 1.0% 0.3%
Offshore - Internal 3.3% 1.0%
Offshore -
Outsourced 4.5% 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.





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Case Study 2
Amazon 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 A
1. 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.
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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 B
1. 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
channel
2. 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.
Buyers
Buyers 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.


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Vendors
Vendors are the product suppliers to Amazon.
FC
FC 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.
Fresh Case Study

Case Study 3
With 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
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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
SF
From
SD
up to 10 km 1 2
11 - 20 km 2 3
21 - 30 km 3 4
31 - 40 km 4 5
41 - 50 km 5 6
above 51 km 6 7




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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)
FC1 FC2 FC3
up to 10 km 2 1 2
11 - 20 km
2 1 3
21 - 30 km
4 2 3
31 - 40 km
4 2 4
41 - 50 km
5 2 4
above 51 km
5 3 5

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-D
b. 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, and
b. 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 combination
Which 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. DN DS DE DW DC
FC1 1 3 4 4 2
FC2 4 2 2 5 3

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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 4
Amazon 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 strategy
2. 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 words
SLA
A B C
1 day delivery 2.7 3 3.2
2 day delivery 2.4 2.8 2.9
SLA
A B C
1 day delivery 3% 1% 2%
2 day delivery 5% 7% 5%
SLA
A B C
1 day delivery 700 700 700
2 day delivery 1400 700 1400
Carriers Rates per package
Carrier defect rates
Carriers Capacities per week