Question

Briefly explain 2 ways Amazon has successfully implemented a low-cost provider

            strategy.

Answer 1

One way the company has achieved a low cost provided strategy is definitely by realizing the economies of scale. By operating online, the company can reach its customers globally without any barrier. Added to this is the user interface of the e-commerce website or mobile app that leads the company to reach a number of customers of various demography. So, the order it places from the suppliers is huge and it is easy for them to negotiate with these suppliers. No bricks and mortar retailers can really achieve such power on suppliers as they cannot provide a commitment to such huge orders.

Second, the supply chain strategy itself leads to a lower cost per product. The company has its own warehouse located in strategic locations across the globe. These warehouses (aka fulfillment centers) provide various advantages such as consolidation, bulk-break, cross-docking, assembly, or mixing activities. All of these activities primarily convert usage of LTL service for smaller shipments to the usage of TL service at a lower cost for larger shipments (due to the effect of consolidation) on either the inbound side of the customer accommodation side. This makes the system capable of leveraging again on the economies of scale (quantity principle) and distance (tapering principle). As a result, transportation costs and the cost per unit reduce.