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. by redesigning a bottleneck where workers transfer orders arriving in
green plastic bins to a conveyor belt that automatically drops them into
the appropriate chutes, Amazon has been able to increase the capacity
of the Fernley warehouse by 40%. [In 2003], Amazon's warehouses
handle three times the volume they could in 1999, and in the past three
years the cost of operating them has fallen from nearly 20% of Amazon's
revenues to less than 10% percent. The company doesn't believe it will
even have to think about building a new warehouse for another year.
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All of this helps explain Bezos's larger point, one he's been making since he started
Amazon but that people are only now starting to believe:
"In the physical world it's the old saw: location, location, location," .. "The
three most important things for us are technology, technology, technology. There
just aren't other companies that let a consumer order two out of what are
millions of products in a warehouse and then quickly and efficiently, at low cost,
get those two things into a single box.".
But success was not a forgone conclusion. Amazon faced a lot of red ink in its first five
years. Ultimately its devotion to IT paid off. For instance Amazon spends heavily on
software application development, but now its platform requires little additional
investment in the early 2000s. Thanks largely to its conversions to the free Linux
operating system, technology and content expenses were down 20% in 2003 as
compared with 2000. As its competitors disappeared from the scene, Amazon
leveraged its data management capabilities to drive error out of operations,
personalize the Web experience for its customers, and add value to its relations with
suppliers by providing them with deep business intelligence concerning the publics
interest in their various products.
To achieve these results, Amazon developed its own methods and built its own Webenabled information systems from scratch. Fortunately, the company could take
advantage of established supply-chain management (SCM) systems for the backend of
the business. In the final analysis, it was Amazons dedication to collecting and using
information to run its business, an effort spearheaded by the companys Chief
Technology Officer Werner Vogels and his MIS team that turned the enterprise
profitable.
Once Amazon becomes expert in a capability they better position themselves to turn
that internal capability into a revenue-generating service. For instance, Amazons
initially internal need for data storage required them to design and develop large
capacity data centers. This in turn provided them with the opportunity to subsequently
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provide cloud computing services to other companies. According to Gartner, Amazon
(as of 2013) has five times as much cloud computing capacity in use for its customers
as its next 14 rivals combined2.
2 Tech executives facing up to hard realities of the cloud - FT.com (Aug 22, 2013)