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Written by Marijn Overvest | Reviewed by Sjoerd Goedhart | Fact Checked by Ruud Emonds | Our editorial policy
Procurement Amazon — Everything You Should Know
- Amazon uses diverse strategies to recognize innovative and competitive opportunities.
- The company extends its supplier network globally, giving them access to product variations and more partnership opportunities.
- However, the company also faces challenges that relate to its expansive approach.
Amazon is one of the most known brands in the world and the fourth tech company to reach the $1 trillion market capital value. As one of the largest companies in the world, you may wonder how it does its procurement.
In this article, we will discuss what Amazon is and how it does its procurement effectively which led it to become what it is today. We will also show you Amazon’s revenues and expenses so you may grasp how large Amazon is.
Once you are finished reading this article, you will know how Amazon procures, earns, and spends. Additionally, you can gain some insights into how Amazon procures which you can implement in your company to help it develop.
What is Amazon?
Amazon was founded by Jeff Bezos on July 5, 1994. It is the largest online retailer in the world and a well-known cloud service provider. Originally, Amazon started as an online bookselling business on July 16, 1995.
Jeff Bezos first incorporated the company as Cadabra but changed it later on to Amazon. He selected the name Amazon as it was exotic and a reference to his plan for the company’s size to reflect the Amazon river which is one of the largest rivers in the world. Since then, the company’s motto has always been “get big fast”.
In 2005, Amazon announced Amazon Prime as a membership service offering free two-day shipping within the United States for all eligible purchases for an annual fee. This was the beginning of one of the largest subscription programs in the world. Up until now, Amazon continues to add more benefits to its Prime offering to attract new customers to subscribe.
Additionally, Amazon launched Amazon Web Services (AWS) in 2006 which offers cloud computing services not just to itself but also to other companies. AWS allows companies to purchase storage space to host a website or to run a huge database.
AWS was launched for Amazon to stay at the forefront of the retail industry. By creating great technology for itself, it was able to launch all of its quick selling and delivery services for various businesses and realized its technology was a business offering on its own.
As Amazon continues to diversify, it has revolutionized numerous industries to change the way customers consume entertainment, buy clothing, get their groceries, and buy and read books. Furthermore, with all the companies it has acquired recently, it is obvious that it will not stop until it has dominated all aspects of retail.
Amazon is also expanding into more and more regions across the world. With all the milestones that Amazon achieved, there is no doubt that it had already embodied its tagline which is “the everything store”.
The Amazonificationof Procurement
One of the reasons why Amazon is at the top of its game is due to the multi-leveled e-commerce strategy it employs. This strategy allows almost anyone to sell almost anything using Amazon.
The level of customer tracking at Amazon is on another level too. Using the data it gathers on every registered user during every visit to its website, it points users to products they may be glad to discover and buy.
The HFS Triple-A Trifecta is a framework that helps you grasp the different clusters of technologies central to the amazonification of procurement. To automate most processes, the use of smart analytics is utilized to identify patterns and support decision-making.
Smart analytics is infused with AI to learn about the customer’s behavior and create an intelligent interface and support customers with recommendations and actions.
As Amazon digitized its procurement, it is building a system that will automatically evaluate responses, solicit bids, and generate contracts. Additionally, data input and classification will become more advanced when the system executes transactions independently.
How Amazon Procures Its Products?
Over the years, Amazon has created a massive network of suppliers that provides it with the products that they sell on its website. Suppliers can come in all shapes and sizes and can be based all over the world.
Amazon developed relationships with its suppliers to offer a wide variety of products to its customers. In some cases, Amazon manufactures its own products. Amazon does this to provide customers with unique products that they cannot find anywhere else.
Individual sellers, businesses, and manufacturers sell their inventory to Amazon at wholesale rates. Amazon Vendor Central then gives Amazon the ownership of the seller’s inventory which is marketed and sold to customers on their website.
A large portion of items sold on Amazon comes from third-party sellers. Third-party sellers are individuals or businesses that sell products through the Amazon website.
An example of this is Amazon will pay the sellers upfront for their products. Amazon will then handle the rest including the importation of the products. This allows Amazon to control the flow of its inventory.
Additionally, it will give Amazon direct access to how your products are and the costs of their production. Therefore, they can label their own products and compete with the other sellers on the platform.
The Revenue and Expense of Amazon
Amazon has reported a rise in revenue in the 3rd quarter of 2022. However, there will be sluggish sales during the holiday season.
Amazon reported total sales of $127.10 billion in Quarter 3 of 2022 which is a 15% jump from the $110.81 billion a year earlier. Thus, Amazon has returned to profitability after two consecutive quarters of losses. Nonetheless, the $2.87 billion in net income in the third quarter was a 9.37% drop from the sales of quarter 3 of 2021 which amounts to $3.15 billion.
The Seattle-based Amazon warned that holiday sales will be less than what Wall Street analysts had predicted. The net sales for the fourth quarter are estimated to be between $140 billion and $148 billion.
One of the factors is inflation. As inflation continues to soar, many consumers are looking for ways to save money where they can. Amazon tried to take on the challenges of inflation. Unfortunately, it is evident from its earnings that Amazon was not able to deal with the inflation.
Amazon’s total operating expense increased to $117.9 billion which is a $12.5 billion increase compared to last year’s same second quarter. On the other hand, net sales increased by just $8.2 billion. This means that Amazon’s expenses outpaced sales by more than $4 billion.
Conclusion
Amazon’s procurement prowess, e-commerce strategies, and diverse ventures underline its global dominance. Examining its revenue, expenses, and growth reveals the dynamics behind its success. Insights from Amazon’s strategies can inspire effective procurement practices for your company’s development.
Frequentlyasked questions
What is Amazon?
Amazon is founded by Jeff Bezos and is currently the largest online retailer in the world.
What is the meaning of Amazonification?
Amazonification means being similar to how Amazon does its process.
How does Amazon procure its products?
Amazon procures its products through Individual sellers, businesses, and manufacturers.
About the author
My name is Marijn Overvest, I’m the founder of Procurement Tactics. I have a deep passion for procurement, and I’ve upskilled over 200 procurement teams from all over the world. When I’m not working, I love running and cycling.
