Amazon.com's Inventory Strategies
You'll find that reading how Amazon.com is dealing with its inventory and shipping problems is extremely instructive in seeing the strengths and weaknesses of a drop-shipping model. Here are some insightful articles from our Research Room:
Anthony Biancom, "Virtual Bookstores Start to Get Real," Business Week, October 27, 1997. Discusses distribution tactics by Amazon and other booksellers. Both Ingram Book Group and Baker & Taylor Books are distributors willing to drop-ship for Internet booksellers. Pros and cons of inventory vs. drop-shipping. Article is a year old, but still helpful.
John Evan Frook, "Missing Link Emerges: Inventory Management," TechWeb News, March 9, 1998. Article gives examples of how several companies set up their inventory management systems: eToys, Pacific Feather, Chemdex, BarnesAndNoble, and Amazon.
Larry Dingnan, "E-Tailing: Amazon.com's Push to Profits," Inter@ctive Investor, July 15, 1998. Cites projections of Amazon.com becoming profitable in 2001. Notes low customer acquisition cost of $12 and that 60% of first-time buyers return. What could hurt Amazon.com is a price war with BarnesAndNoble.com.
"Amazon.com: Prototype of a New Millenium Company?" An Ice Group Report, August 20, 1998. Financial analysis of Amazon.com's Second Quarter 1998 results. Summary of Amazon in particular and issues facing e-businesses in general. Concludes that at its present growth rate, Amazon.com must generate an annual revenue of $1 billion to break even. The company's average purchase is $48.76, but the average order costs $56.91 to process, losing Amazon $7.15 per transaction processed. If Amazon.com can increase its efficiency, it can become profitable. PDF format.
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