Amazon – The OM Blog by Heizer, Render, & Munson

OM in the News: AI Data Centers, Water, and Sustainability

Large water tanks at the Meta data-center campus in Arizona

Amazon, Google, and Microsoft are among the tech companies spending an estimated $1 trillion on AI infrastructure this year and last. In some regions, they are using far more water than they report, depending on how data centers are powered. And their water consumption is projected to grow rapidly in coming years. Water demands of the biggest infrastructure buildout in U.S. history could lead to regional fights over who gets an increasingly scarce resource, writes The Wall Street Journal (July 3, 2026).

Google’s just-released 2025 sustainability report is an instructive example. The company said it consumed 10.9 billion gallons of water—a 34% increase from 2024—almost all for data-center cooling. Meta’s water use was 19 billion gallons in 2024. Meta has a plan to “become water positive in 2030,” in part through water-restoration projects. Microsoft has announced data centers that will have zero water use, as well as a commitment to “community-first AI infrastructure.” This includes a pledge to “replenish more water than we use.”

Cheap land and cheap power have put data centers in the high water-stress areas such as Arizona. About 2/3 of new data-center construction in the U.S. is in water-stressed areas. Phoenix is an example: the total water demands of data centers there amount to 3% of the city’s annual water use. By 2031, they could be in excess of 20%, a number approaching total water used by residents to maintain all of Phoenix’s lawns and landscaping.

Recently, Nvidia said it had solved the data-center water issue, showing off a closed-loop cooling system that doesn’t require additional water once filled. Unfortunately, most existing data centers use evaporative cooling systems that are energy-efficient but water-hungry, and retrofitting those could be prohibitively expensive.

In these boom times, it’s clear why AI data centers are in the spotlight. And the lack of transparency and widespread use of non-disclosure agreements by many data-center builders has only drawn more suspicion and distrust. These are among the reasons that $170 billion of AI data-center capacity has been blocked, stalled or canceled since 2024.

Classroom discussion questions:

What solutions are being considered to deal with electricity and water demands?
Are data centers overbuilding?

OM in the News: AI Agents, Project Management, and Work Team “Pods”

Companies are restructuring project management teams into smaller, more nimble cross-functional ‘pods,’ made up of humans and AI agents, writes The Wall Street Journal (May 18, 2026).

Pods are the next step in an ongoing project management organization evolution. In recent decades, so-called scrum teams—cross-functional groups focused on deploying and iterating quickly—have replaced a slower, step-by-step project management methodology known as “waterfall,” which is noted in Chapter 3 of your Heizer/Render/Munson text.

Smaller than a traditional project management group, pods are designed to move faster to build. They are also more cross-functional, including engineers, designers and applied scientists. And critically, all that expertise is concentrated in just a handful of human workers (anywhere from 1 to 8), as well as AI agents.

For years project managers have been slowly favoring smaller and smaller teams in the name of speed and agility, but the growing capabilities of AI coding assistants and other agents that can potentially reduce time are allowing for even smaller pod-size structures. With AI agents doing more of the actual software development, including coding and testing, it takes fewer human workers to complete projects.

The benefit of pods is speed, agility and the ability to do more, faster, with fewer resources, said a Coinbase tech leader. That company now has a team of 3 people working on an AI adviser project, he said, adding that: “historically an undertaking like that would have required 10 to 15 people. There are these exponential gains when we have fewer people because you’re spending a lot less time in meetings and reviews and getting people on the same page.”

In the early days of Amazon, Jeff Bezos famously advocated for the idea of the “two-pizza team”—that is, any team should be small enough that it could be fed with two pizzas. “If you have a large team, you spend half your time just talking to each other and trying to figure out what needs to be done,” said Amazon’s VP.

Classroom discussion questions:

How is AI influencing the management of large projects?
What is an AI agent?

Guest Post: Amazon’s Next Act–Supply Chain as a Service

Dr. Jon Jackson is Associate Professor of Operations Management at the Providence College School of Business. He has created a series of AI exercises for each chapter in our text.

The term “software as a service” (SaaS) has become ubiquitous over the last few decades, covering everything from CRM systems (e.g., Salesforce) to file storage (e.g., Dropbox) and e-commerce platforms (e.g., Shopify). Amazon entered this arena in 2006 with Amazon Web Services (AWS), offering “infrastructure as a service.”

Fast forward to 2026, and Amazon is applying a similar playbook to logistics with its new “supply chain as a service” platform, Amazon Supply Chain Services (ASCS), according to an Amazon press release (May 4, 2026).

ASCS opens Amazon’s vast global logistics network not just to its own marketplace sellers, but to businesses operating across competing marketplaces and in B2B channels. As Peter Larsen, vice president of Amazon Supply Chain Services, puts it, the platform is “available to any business of any shape or size.”

This marks a significant shift. For years, companies have relied on third-party logistics providers (3PLs), with an estimated 94% of Fortune 500 companies using at least one. Now, Amazon is positioning itself as a full-stack alternative, offering freight, warehousing, fulfillment, and last-mile delivery in a single integrated system. In 2025, Amazon’s logistics revenue was estimated at $172 billion, far surpassing competitors like DSV ($37 billion) and DHL Supply Chain ($35 billion), reported by The Wall Street Journal (May 4, 2026).

Early adopters of ASCS include major brands such as Procter & Gamble, 3M, Lands’ End, and American Eagle Outfitters.

If AWS transformed how companies build and scale software, ASCS could do the same for physical commerce by reshaping supply chains and the competitive dynamics of global logistics.

Classroom Discussion Questions

1.How does ASCS impact traditional 3PLs (e.g., FedEx, UPS, DHL)? What can they do to differentiate and defend their market share?

2. As a business owner, what concerns would you have about outsourcing your entire logistics operation to Amazon?

3. Could Amazon’s “supply chain as a service” model become as dominant as AWS? What would that mean for competition in retail and logistics?

OM in the News: Amazon Goes Rural

In dozens of thinly populated regions across the country, Amazon is building new delivery hubs to deliver packages in around 2 days. That might not seem especially rapid at a time when the e-commerce giant is introducing one-hour delivery in some areas, but residents of some far-flung Montana hamlets were used to waiting up to a week for their orders. It is part of a $4 billion investment by Amazon to push its signature speedy delivery further into the rural recesses of the U.S., writes The Wall Street Journal (March 22, 2026)

An Amazon driver taking a photo after dropping off a package in Connor Montana

The effort helps Amazon reduce its reliance on the U.S. Postal Service, a relationship that has become rocky following a dispute over contract terms. Amazon says it aims ultimately to have 200 rural delivery hubs serving around 13,000 ZIP Codes covering around 1.2 million square miles of America—an area the size of Texas, California and Alaska combined.

Delivering packages within Amazon’s signature 2-day frame means drivers contend with backcountry challenges such as bighorn sheep on the road, dangerously high winds in mountain passes and roads that are impassable during parts of the year.

Over the past decade, Amazon has expanded from major cities to regional urban centers by drawing ever larger circles of coverage. That is now allowing the company to lean on those urban hubs to speed up deliveries in ranch country. There are signs that Amazon customers in remote areas are just as likely to get hooked on speedy delivery as city slickers.

Amazon is experimenting with speedier delivery across its network as it competes with longtime rival Walmart and delivery upstarts such as Uber and DoorDash. In urban areas, the company has started offering 1-hour and 3-hour delivery as premium options. Amazon recently acquired a Swiss startup called Rivr, which is building 4-legged robots that could drop packages off on doorsteps. The e-commerce giant is also dipping its toe in the big-box retail business, with plans for a 230,000-square-foot megastore outside Chicago.

Classroom discussion questions:

What are the complications in trying to serve remote locations with 2-day delivery?
Why does the firm think the extra expenses will pay off?

Guest Post: Fast or Free? The New Tradeoff in E-Commerce Shipping

Dr. Jon Jackson is Associate Professor – Operations Management at Providence College

For years, e-commerce conditioned shoppers to expect near-instant gratification. Fast shipping became the industry standard as retailers tried to keep pace with Amazon. First, it was 2-day shipping, then next day shipping, and ultimately same day shipping. But the economics behind those fast-shipping promises are starting to crack, and retailers are quietly resetting expectations, according to a recent report in The Wall Street Journal (Mar. 6, 2026).

Shipping costs have risen sharply in recent years. Major carriers such as FedEx and UPS have increased base rates annually while adding fuel surcharges, residential delivery fees, and dimensional pricing rules. As a result, retailers are increasingly shifting their focus from “fastest delivery” to “lowest cost delivery.”

Amazon now offers customers a small discount if they choose a slower delivery date. Many other retailers have followed suit by introducing “no-rush” shipping that may take a week or longer.

Interestingly, customers appear willing to wait. McKinsey surveyed over 1,000 people in 2024, and speed of delivery dropped from the #1 priority in 2022 to the #5 priority in 2024. Meanwhile, the cost of delivery maintained its high priority, with more than 95% of surveyed shoppers saying that they prefer free standard shipping instead of paying for faster shipping.

Longer delivery windows help logistics networks operate more efficiently. When retailers promise delivery in 5-7 days instead of two, carriers can consolidate shipments onto fuller trucks, lowering the cost per package. Some retailers even encourage customers to choose delivery days later in the week when shipping networks are less congested.

Another unexpected benefit: fewer returns. Retailers report that extending delivery times leads to more intentional purchases and significantly lower return rates. The era of “fastest possible shipping” may not be ending, but it is becoming just one option among many.

Classroom Discussion Questions

If customers say they prioritize low shipping costs over speed, how should retailers redesign their fulfillment and delivery strategies?
Do you think slower shipping could become the new norm in e-commerce, or will competition eventually push retailers back toward faster delivery times? Why?

OM in the News: AI Push Is Costing a Lot More Than the Moon Landing

It’s bigger than the railroad expansion of the 1850s, the Apollo space program that put astronauts on the moon in the 1960s and the decadeslong build-out of the U.S. interstate highway system that ended in the 1970s.

We’re talking about the data centers now being built and financed by some of the world’s biggest companies in the artificial-intelligence boom. Four U.S. tech giants—Microsoft, Meta, Amazon, and Google—are planning to spend $670 billion to build out AI infrastructure this year alone as they scramble to increase the computing power needed to operate and scale their AI-related endeavors.

And if you compare this spending to some of the biggest capital efforts in U.S. history by percentage of gross domestic product, you can see exactly how staggering the figures are, reports The Wall Street Journal (Feb. 9, 2026). In fact, it’s dwarfed only by the Louisiana Purchase, completed in 1803, which doubled the size of the U.S. and consumed 3% of the GDP. (The AI buildout is projected at 2.1% of GDP, while railroads in the 1850s were 2%, the US highway system was 0.4%, and the Apollo space program was 0.2%).

The four companies’ capital spending has been increasing as a percentage of their annual revenue the past few years. In 2026, Meta’s spending could amount to more than 50% of its sales for the first time ever.

How is this build-out an OM issue? First, as we discuss in Chapter 2, these four companies are betting that they will attain competitive advantage by competing on low-cost and response. Second, our chapter on sustainability (Supp. 5) points out the costs of carbon footprints, which data centers generate heavily. Third, as we note in the chapter on location strategies (Ch. 8), the centers locate where power is cheap and plentiful.

As of late 2025, Northern Virginia has 64 data centers under construction, solidifying its position as the world’s largest data center market. The region hosts over 550 existing facilities. They consume massive amounts of power, comparable to the total usage of large states like Minnesota.

Classroom discussion issues:

Discuss the plusses and minuses of this massive construction trend.
What do the builders hope to obtain?

OM in the News: The Inventory Return Scam

Retailers nationwide have seen online returns skyrocket over the past four years after rolling out generous returns policies to attract customers amid a pandemic-driven surge in e-commerce. The returns policies have helped change shopping habits: Consumers have grown accustomed to ordering items online in several sizes and colors, then returning what they don’t want.

Shoppers last year returned 17.6% of items they purchased online, valued at more than $247 billion and more than double the percentage of goods returned in 2019. Returns have become such an entrenched part of online commerce that companies have sprung up to handle the growing business. UPS acquired one of those specialized operators, Happy Returns, for $465 million.

The ease of shipping goods back has also given criminals new tools to exploit in an online environment in which buyers don’t need to interact with store employees–and the scale and organization of the fraud is getting more ambitious, and organized. More than $100 billion in merchandise was returned fraudulently in the U.S. last year, estimated to be 9-15% of the $850 million returned goods retailers received in 2024-2025, reports Supply Chain Brain (Feb. 2, 2026).

Organized criminal groups “are taking advantage of the omnichannel retail environment,” said on industry expert. In some cases, fraudsters are returning knockoffs in place of designer goods and sending back boxes full of bricks or other filler rather than the original items. Others are manipulating shipping labels to receive a refund just from mailing back an empty envelope. Fraudsters marketing their services on Telegram and through other websites often sell their services in return for a cut of customers’ refunds.

Apparel retailer PacSun recently noticed a sharp increase in returns of online purchases, including one customer who had returned some 250 orders worth $24,000. PacSun had issued the refunds, but the company never received the actual merchandise at its warehouse. Instead, workers found “used or different merchandise returned in the box, or even empty shoeboxes.”

Some retailers such as Amazon are taking legal action. It just sued the refunding-services group REKK that it claimed was “responsible for stealing millions of dollars of products from Amazon’s online stores through systematic refund abuse.”

Classroom discussion questions:

How can the quality control inspections engaged during returns processing be defrauded?
How has e-commerce made this fraud easier?

OM in the News: Amazon’s AI-Robotics Warehouse Revolution

Amazon is rapidly transforming its e-commerce fulfillment operations through a bold integration of artificial intelligence (AI) and robotics, reports The Wall Street Journal (Oct. 23, 2025). The company’s vision is clear: make human workers more efficient while automating repetitive, menial tasks. At the heart of this shift is Amazon’s Shreveport, Louisiana facility, which now boasts ten times as many robots as a typical warehouse. This leap in automation enables packages to move through the system 25% faster, with anticipated cost savings passed on to customers.

Safety and efficiency are top priorities. Robots now handle tasks such as sorting packages, transporting carts, and retrieving out-of-reach items. Amazon is also investing in its workforce, offering apprenticeships to train employees in managing these advanced systems. The company’s latest innovations include Blue Jay, a robot arm designed for sorting in tight spaces, and Eluna, an AI agent that helps managers optimize staffing and avoid bottlenecks. Blue Jay’s rapid development—just over a year, compared to 3 years for previous models—was made possible by generative AI, which allowed for virtual prototyping.

The company aims to deploy Blue Jay robots in urban, space-constrained warehouses, enabling same-day delivery networks that are both faster and more cost-effective.

These advances could save Amazon billions annually. By the end of next year, nearly 40 fulfillment centers will be equipped with robots, with an estimated to $4 billion in yearly cost reductions. This automation trend is expected to reduce the need for both warehouse and white-collar workers. In fact, the average number of workers per facility dropped to around 670 in 2024, the lowest in 16 years.

Amazon is testing augmented-reality glasses

Amazon’s automation push extends beyond warehouses. Augmented-reality glasses are being tested for delivery drivers, helping them identify packages and navigate routes more efficiently.

Amazon’s journey began with its $775 million acquisition of Kiva Systems in 2012. Today, three-quarters of its deliveries involve some form of robotic assistance. The company’s latest announcements—Blue Jay, Eluna, and AR glasses—signal a new era where AI and robotics are supercharging logistics, reshaping the future of retail fulfillment.

Classroom discussion questions:

How does Eluna work?
Why is Amazon trying to eliminate warehouse jobs?

OM in the News: Amazon Is on the Cusp of Using More Robots Than Humans

The automation of Amazon facilities is approaching a new milestone: There will soon be as many robots as humans. The e-commerce giant, which has spent years automating tasks previously done by humans in its facilities, has deployed more than one million robots in those workplaces, reports The Wall Street Journal (July 1, 2025). That is the most it has ever had and near the count of human workers at the facilities.

Company warehouses buzz with metallic arms plucking items from shelves and wheeled droids that motor around the floors ferrying the goods for packaging. In other corners, automated systems help sort the items, which other robots assist in packaging for shipment.

One of Amazon’s newer robots, called Vulcan, has a sense of touch that enables it to pick items from numerous shelves. Amazon has taken recent steps to connect its robots to its order-fulfillment processes, so the machines can work in tandem with each other and with humans. Now some 75% of Amazon’s global deliveries are assisted in some way by robotics. The growing automation has helped Amazon improve productivity, while easing pressure on the company to solve problems such as heavy staff turnover at its fulfillment centers.

For some Amazon workers, the increasing automation has meant replacing menial, repetitive work lifting, pulling and sorting with more skilled assignments managing the machines. Amazon has trained more than 700,000 workers across the world for higher-paying jobs in mechatronics and robotics apprenticeships.

The number of packages that Amazon ships itself per employee each year has also steadily increased in the past decade to 3,870 from 175, an indication of the company’s productivity gains.

Amazon is also rolling out artificial intelligence in its warehouses to improve inventory placement, demand forecasting, and the efficiency of its robots. Amazon said it will cut the size of its total workforce in the next several years.

Classroom discussion questions:

Research Amazon’s history of using robotics.
What are the advantages of introducing more robots?

OM in the News: A.I. and Computer Programming Productivity

Since at least the industrial revolution, workers have worried that machines would replace them, writes The New York Times (June 8, 2025). But when technology transformed auto-making, meatpacking and even secretarial work, the response typically wasn’t to slash jobs and reduce the number of workers. It was to break them into simpler tasks to be performed over and over at a rapid clip. Small shops of skilled mechanics gave way to hundreds of workers spread across an assembly line. The personal secretary gave way to pools of typists and data-entry clerks.

Workers complained of speed-up, work intensification, and work degradation. Now this appears to be happening with A.I. in one of the fields where it has been most widely adopted: coding.

As A.I. spreads through the labor force, many white-collar workers have expressed concern that it would lead to mass unemployment. But the more immediate downside for software engineers appears to be a change in the quality of their work. It is becoming more routine, less thoughtful and, crucially, much faster pace.

Like assembly lines of old that we discuss in Chapter 1, A.I. can increase productivity. Microsoft found that programmers’ use of an A.I. coding assistant called Copilot, which proposes snippets of code that they can accept or reject, increased output more than 25%. Amazon’s CEO wrote that generative A.I. was yielding big returns for companies that use it for “productivity and cost avoidance.”

Shopify, a company that helps entrepreneurs build e-commerce websites, announced that “A.I. usage is now a baseline expectation” and that the company would “add A.I. usage questions” to performance reviews.

The shift has not been all negative for workers. At Amazon and other companies, A.I. can relieve employees of tedious tasks and enable them to perform more interesting work. Amazon says it saved “the equivalent of 4,500 developer-years” by using A.I. to do the thankless work of upgrading old software. Many Amazon engineers use an A.I. assistant that suggests lines of code. But the company has more recently rolled out A.I. tools that can generate large portions of a program on its own. One engineer called the tools “scarily good.”

Classroom discussion questions:

How can A.I. transform factory jobs?
Professors’ jobs?

OM in the News: Delivery Wars!

A decade ago, Walmart’s thousands of stores across the country made it look like a dinosaur in the online-shopping era, writes The Wall Street Journal (March 8-9, 2025). Now the retail giant is mounting one of the few serious challenges to Amazon’s dominance in e-commerce, and those very stores are central to its strategy.

Samantha Atkinson became a Spark driver last year to supplement her income. When Walmart workers load the car of a delivery driver, one order generally goes in the trunk, the second in the back seat and the third in the front passenger seat to prevent delivery errors.

Walmart delivered 5 billion items on the same day they were ordered last year, double the number delivered in 2023. It can now deliver most of the 120,000 products in its supercenters, including meat, eggs and milk, to 93% of U.S. households the same day, sometimes in hours. “I am very, very grateful that we have 4,700 stores,” which now double as fast-delivery hubs, says Walmart’s CEO. To make most of those speedy deliveries, the retailer relies on thousands of freelance drivers using a system called Spark, created by Walmart, which uses an app to coordinate online orders. Tens of thousands of Spark drivers, who aren’t Walmart employees, make the majority of same-day deliveries.

About 41% of U.S. e-commerce sales go through Amazon, a much bigger share than Walmart’s 9%. But Walmart had $681 billion revenue in 2024 versus Amazon’s $638 billion. Over years of attempts, tests and failures, Walmart has carved out a niche that has Amazon working to catch up—fast delivery of online orders that often include inexpensive groceries, and increasingly other items it sells in its stores, such as clothing, batteries and prescription medicines. Walmart gets more than 50% of its revenue from meat, eggs, lettuce and other groceries. It has used its scale to drive down prices for those items, which draw shoppers for regular trips.

Walmart’s same-day delivery coverage has stretched from 76% of U.S. households 2 years ago to 93% today.

Amazon also continues to expand rapidly. It has over 1,000 shipping facilities around the U.S., and more than 200 million people globally subscribe to its Prime membership. The similar Walmart+ offers free delivery for orders over $35.

But Amazon has struggled to dominate the fresh-food delivery business. It’s tried several models for delivery through Whole Foods and Amazon Fresh.

Classroom discussion questions:

How does Walmart’s delivery service compare to Amazon’s?
What is Walmart’s strategic advantage? Amazon’s?

OM in the News: Amazon’s New Robotic Warehouse and Humans

Amazon just opened its most-automated warehouse yet. But underneath the robotics and artificial-intelligence technology at the site, the facility will still rely on thousands of employees, writes The Wall Street Journal (Dec. 7, 2024). The 3 million-square-foot building in Shreveport, La., is Amazon’s first warehouse to use automation and AI at every step of the fulfillment process and be able to handle one million orders a day.

Amazon’s Sparrow device uses suction cups to lift items and artificial intelligence software to identify objects by color, shape and size

The facility shows how companies are spreading automation through their distribution centers to get online orders to consumers at an ever faster pace. The sprawling site also demonstrates the challenges Amazon and other companies face as they seek to turn over some of the most physically demanding and repetitive warehouse tasks to robots.

Amazon hired more than 1,400 people at the Shreveport distribution center and plans to eventually employ 2,500 workers picking orders, loading and unloading trucks and managing the robotics systems. The idea is to speed up operations, save on labor costs and make warehouses safer for the workers that remain. Amazon has been the subject of government scrutiny over the treatment of the workers at its facilities. The warehousing sector had one of the highest rates of injuries and illnesses in the U.S., with 4.7 cases recorded per 100 workers compared with the national average of 2.4 cases per 100 workers.

Some traditional warehouse roles have proved too difficult for Amazon to fully automate, however, partly because the company sells more than 400 million widely varied products that range in size, weight and fragility, from dog toys to toaster ovens. Humans can easily look into a storage container packed full of goods, identify a particular item and know how to pick it up and handle it, whether it is a bottle of shampoo or a sweater.

“The tactile grasp that the human hand has, and the situational awareness and the perception of the human brain, is unmatched,” said Amazon’s chief technologist. Instead, robots at the facility carry storage containers full of merchandise to human employees who look inside and pick out the item a customer ordered, then place that item into a tote box that goes onto a conveyor belt and is taken to be packaged.

Classroom discussion questions:

What are the advantages and disadvantages of automating warehouses?
Why do warehouses have high injury rates?

Guest Post: The Supply Chains Behind a Strong Holiday Shopping Season

Temple U. Professor Misty Blessley shares her insights today, on Black Friday.

The holiday shopping season is in full swing, and companies are optimistic about their year-end financial performance. Operations and supply chain managers have a crucial role. Chapter 1 of your Heizer/Render/Munson textbook explores how marketing and operations management strategies can drive bottom-line results.

Customer spending is expected to be strong this holiday season. The National Retail Federation is forecasting winter holiday sales to rise by 2.5% to 3.5% over last year. Meeting this demand requires retailers to fulfill orders when, where and how customers want. Companies are strategically using both brick-and-mortar stores and e-commerce platforms to appeal to their customers.

Supply chains have stabilized after years of disruption. Thus, core products have been efficiently moved from warehouses to retail locations to ensure availability for traditional retail customers. Additionally, e-commerce channels are poised to efficiently fulfill customer orders. Many retailers are adopting cost-effective delivery strategies tailored to peak shopping events like Black Friday and Cyber Monday. Instead of defaulting to same- or next-day shipping, retailers are spreading deliveries over several days to reduce costs and balance labor.

Amazon bolstered its labor capacity by adding 250,000 seasonal hires. DHL’s CEO explains why spreading deliveries is a viable strategy – extending shipments by just a few days allows companies to control warehouse costs while still meeting customer delivery expectations.

OM and SCM plays a pivotal role in driving both revenue growth and cost efficiency. By offering customers flexibility in choosing their preferred shopping and delivery channels, retailers enhance the customer experience and boost sales. Simultaneously, costs are reduced by managing product delivery.

Classroom discussion questions:
1. In Chapter 6 of your textbook we learn that customer expectations are the standards against which service is judged. What is the effect of exceeding expectations on contribution? (i.e., same or next-day shipping)
2. Aggregate Planning Strategies are covered in Chapter 11. Which strategies are being used by retailers to support this holiday shopping season?

Teaching Tip: Is Amazon Benchmarking–or Cheating?

At the end of each chapter of our text, we present an Ethical Dilemma for class discussion. The Wall Street Journal‘s expose on Amazon (April 19, 2024), called “Inside Amazon’s Secret Operation,” provides one such issue. Here is a summary:

For nearly a decade, workers in a warehouse in Seattle have shipped boxes of shoes, beach chairs, Marvel T-shirts and other items to online retail customers across the U.S. The operation, called Big River Services, sells around $1 million a year of goods through e-commerce marketplaces including eBay, Shopify, Walmart and Amazon under made up brand names. “We are entrepreneurs, thinkers, marketers and creators,” Big River says on its website.

Big River’s website says it sells on Amazon’s marketplace but doesn’t mention anywhere that it is part of Amazon. It also misspells Seattle.

What the website doesn’t say is that Big River is an arm of Amazon that secretly gathers intelligence on its competitors. Amazon publicly says that it pays little attention to competitors, instead focusing all its energies on being “customer obsessed.”

But Big River team members attended their rivals’ seller conferences and met with competitors, identifying themselves only as employees of Big River, instead of disclosing that they worked for Amazon. They were given non-Amazon email addresses to use externally, but internally they used Amazon email addresses. They took extraordinary measures to keep the project secret, disseminating their reports to Amazon execs using printed, numbered copies rather than email. In the event of a leak they were told to say they were formed to improve the seller experience on Amazon, and that such research is normal.

“Amazon, like many other retailers, has benchmarking and customer experience teams that conduct research into the experiences of customers, including our selling partners,” says the firm. This benchmarking team got top corporate approval to buy inventory, use a shell company and find warehouses in the U.S., Germany, England, India and Japan so they could pose as sellers on competitors’ websites. To get information about rival logistics services, Big River stored inventory with companies including FedEx, UPS, and DHL.

Virtually all companies research their competitors, reading public documents for information, buying their products or shopping their stores. But lawyers say there is a difference between such corporate intelligence gathering of publicly available information, and what is known as corporate or industrial espionage. Companies that misrepresent themselves to competitors to gain proprietary information are open to suits on trade secret misappropriation.

Classroom discussion questions:

What are the ethical implications of Amazon’s actions?
How would such benchmarking be legal?

Video Tip: Inside Amazon’s Strategy to Redefine Fast Shipping

In the fiercely competitive retail segment, three factors drive consumer choices: product availability, price and delivery speed. Minor variances in delivery time can considerably sway customer decisions.

Consumers often pay a premium for quicker delivery. This trend is particularly stark in the U.S. Here, e-commerce companies grapple with Amazon’s evolving delivery benchmarks, shifting from 3-day to 2-day, to 1-day and now same-day delivery in many areas. Amazon’s speedy delivery consistently outpaces other retailers, being powered by advanced robotics automation.

But to stay ahead of Target and Walmart, Amazon is overhauling its distribution network. The Wall Street Journal just visited a same-day facility to explore the company’s fast-shipping strategy and produced this excellent 8-minute video that your students will enjoy.

Amazon launched Prime in 2005, with a revolutionary free Two-Day Shipping on 1 million items. Today, Prime has more than 300 million items available with free shipping and tens of millions of the most popular items available with free Same-Day or One-Day Delivery. Across the top 60 largest U.S. metro areas, more than half of Prime member orders arrived the same or next day.

Here is how Amazon did it:

“Regionalizing” U.S. operations network They divided the country into 8 smaller, easier-to-reach regions with a broad selection of inventory in each region, making it faster and less expensive to get those products to customers. Previously, the firm fulfilled orders from operational sites across the country. Over 76% of customer demand is now fulfilled within their region.

Selecting the Right Items Amazon uses increasingly advanced machine learning algorithms to better predict which items customers in various parts of the country will want and when they will want them, and then works with vendors to store those products closer to customers. This helps to ensure that we have the right inventory, in the right places, at the right time. Each same-day facility stores the top 100,000 items sold in the region.

Growing the Same-Day Delivery network Same-Day facilities are smaller buildings situated close to the large metro areas they serve, which decreases the distance to customers. These buildings are designed for speed with smaller footprints, streamlined conveyors, and picking directly to pack stations. As a result, the average time from picking a customer’s items to positioning the customer’s package on the outbound dock is 11 minutes in Same-Day facilities, more than an hour faster than traditional fulfillment centers.

Note that we highlight Amazon’s inventory practices in Chapter 12’s Global Company Profile on pages 490-491.