Amazon Fresh Case Study

Case Study 1
The $600 billion U.S. grocery market segment is large and complex. Consumers
now shop for grocery products in a variety of retail environments. Conventional
supermarkets and grocery stores capture 52% of the market segment. Discounters
like Wal-Mart and Costco capture 27% of the market segment. Convenience formats
like c-stores and drug stores capture the remaining 21%.
No channel is dominant today because no one retail format does it all.
Supermarkets offer one-stop-shopping convenience and fresh food quality
advantages, but at full margins. Discount formats offer better prices, but often at
the expense of brand-selection and convenience. And convenience formats are
easy to get to, but high-priced with very limited assortment.
In response to this complex retail landscape, the typical consumer now shops the
full of range of formats, with surprising frequency. Trying to balance the competing
needs of great prices, my familys brands, and easy to get to, the typical
consumer goes grocery shopping 3.3 times per week! Against the backdrop of
increasingly time-starved lifestyles, this continuous grocery shopping solution is
becoming less satisfying and less sustainable.
Figure 1
U.S. Consumer Grocery Shopping Behavior

Amazon.com plans to launch a national grocery business. This business will be a

distinct tab/store on www.amazon.com and will take advantage of Amazon's existing
distribution network. This offering is focused on shelf stable products which can be
fulfilled through our traditional warehouses and transportation solutions. This will be
a completely separate website and delivery infrastructure.

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The Customer Service (CS) at Amazon responds to customer contacts via Phone,
Email or Chat. Before taking on any new work, the CS team forecasts the quantum
of work and productivity goals so as to recruit and train employees that can respond
to customer contacts. Amazons Customer Service (CS) is known to be responsive
and friendly and Amazon has won many awards for its world class customer service.
Amazon Fresh launch will result in customer contacts for the CS team. John, the
Global Expansion manager for Amazon Customer Service has been given the task of
deciding on an optimum distribution of customer contacts among different sites and
across mediums.
He has already figured out that Amazon Fresh customer support will be supported
on 2 mediums Phone and Email, with bilingual support English and French. His
experience has taught him that a correct launch strategy for a new business goes a
long way in maintaining high standards of service.
The CS leadership believes that it is critical to do some part of work in-house to
ensure that CS remains a core competency for Amazon. It was also believed that
doing CS in-house helped in understanding defects and taking corrective action.
Kaizen or continuous improvement culture at Amazon ensured that the defects were
continually eliminated to improve customer satisfaction. Amazons goal is to offer
best price, convenience and selection to its customers and offshoring helps
companies to reduce its cost structure. There are challenges in quality and accent
while offshoring work. However, the cost of doing everything in house is prohibitive.
John has the following data on cost to help him in the analysis:
Variable Cost per Contact:
English

French

VCPC matrix

Phone

Email

Phone

Email

Onshore Internal

$6.50

$3.01

$8.91

$4.12

Offshore
Internal

$4.50

$2.10

$5.72

$2.71

Offshore
Outsourced

$4.12

$2.01

$5.42

$2.45

Expressed Dissatisfaction Rate (EDR): Expressed Dissatisfaction Rate is the

primary quality metric. Quality of customer response by sites was a major criterion
in site selection. Each customer is sent a survey to respond back whether he is
satisfied by Amazon Customer Service. EDR is the ratio of total unsatisfied
customers to total serviced customers.
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English

French

EDR matrix

Phone

Email

Phone

Email

Onshore Internal

1.3%

5.4%

1.5%

5.4%

Offshore Internal

2.8%

4.6%

3.3%

5.2%

Offshore Outsourced

2.6%

4.7%

3.3%

5.8%

The Capacity Planning team has forecasted the following contact volume:
Contacts Forecast - mix by medium
25000
20000
15000
No of contacts

10000
5000
0
Jan

Feb

Mar

Apr

May

Jun

Jul

Aug

Sep

Oct

Nov Dec

Sep

Oct

Nov Dec

Contacts Forecast - mix by language

25000
20000
15000
No of contacts

10000
5000
0
Jan

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Feb

Mar

Apr

May

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Jun

Jul

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Based on a 40 Hour week (~80% effective productivity) and Average handling time
per contact at 15 min for phone and 20 min for e-mail, monthly capacity is given
below:
English
Monthly capacity
(maximum)

French

Phone

Email

Phone

Email

Onshore - Internal

6,000

2,000

9,000

3,000

Offshore - Internal

5,000

5,500

1,000

2,000

Offshore - Outsourced

Flexibl
e

Flexibl
e

Flexibl
e

Flexibl
e

Risk of Failure (business continuity) for different channels is:

ROF matrix

Phone

Email

Onshore - Internal

1.0%

0.3%

Offshore - Internal

3.3%

1.0%

Offshore Outsourced

4.5%

2.0%

Assume that all sites have unlimited capacity and all agents can handle any contact
related to Fresh.
Q1. What percentage of email contact volume should be outsourced to offshore
sites?
Q2. What percentage of phones and email contact volume should be handled inhouse and in North America?
Q3. John intends to launch Chat after 3 months. Who should handle this volume?
How will this be distributed (percentage)?
Q4. What should be the contact distribution strategy for Amazon? Please discuss
your rationale.

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Case Study 2
Amazon is known for its established online business for book, media, electronics,
shoes, apparel and many other categories but Amazon Fresh is their first venture in
handling perishable goods. Considering the nature of the business and product
offering Fresh would require a dedicated website and robust logistics and
transportation infrastructure.
Being a category of very low shelf-life it requires faster information processing for
new products to be launched on the website and it is equally important is that any
kind of errors in ordering, dispatching, pricing should eliminated or reduced to
minimum. Amazon business operates with the following strong principles:
1. First get the customer experience right. Operational efficiency and
profitability will follow.
2. Customer Experience is improved through trip elimination and selection
expansion. It is maintained through short click-to-deliver time plus high
perfect order rate.
3. Get it up and running fast. Amazon believes to learn more in a week of
running a pilot than a month of analysis.
4. Provide widest selection at the lowest cost.
The Retail Selection department (RSD) group is an integral part of Amazon online
product lifecycle and buying operations. The team is designed to ensure Amazon
remains competitive in the online retail space with the best price, wide selection
and good product information. The teams primary role is to create and enhance
retail selection/products on the worldwide Amazon online catalog. The main goal is
quickly add new items on the catalog with good quality. The tasks handled by this
group have a direct impact on customer buying decisions and online user
experience.
Vendors send the information to RSD for NIS item setup but not the 100% volume
gets resolved by RSD immediately. A part of the volume gets processed by RSD but
a part goes for further query to buyers and vendors. A small part of the Buyers
volume goes further to vendors and then come back to RSD with clarifications
(Process steps are in attached excel sheet). Similarly for Prob Rec , process requires
multiple layers of clarifications before issue resolution. Currently RSD uses email
communication to get these queries resolved but voice channels could also be
explored. These multiple layers of clarifications from stakeholders spread across
geographies make NIS/Prob Rec time consuming processes. RSD has worked with
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buyers/vendors who work in PST time zone and defined the SLAs for every
query/clarification send to them. And on the basis of these RSD have defined its
own SLAs.
Adam is the site leader for RSD who is assigned the task for setting up the following
process at their Chennai center to service Amazon Fresh. AmazonFresh being a new
launch has aggressive expectations on SLAs. Based on the recent meeting with the
AmazonFresh buyers, Adam is required to analyze the data he has gathered and
answer the following,
Part A
1. Minimum possible Cost of Operations
2. Minimum steady state cost of operations if the processing % reduce to half on
first step at RSD and resolution % in subsequent steps move up
proportionately.
3. What is the minimum possible turnaround time assuming infinite resources
and no constraints on work window in any location
4. And what would be the cost in above situation mentioned in point 3,
Part B
1. Can he commit to the SLA of 2 days for 2 processes, if not then what is the
minimum he should commit
a. He needs to revamp the entire process as the current set up will not be
able to meet the SLA requirement and he has the following levers with
him.
i. Start a night shift and start a process for weekend work
ii. Not just rely on Email communication but make effective use of
voice channel
2. Provide optimized work flow with minimum cost.
3. Increasing price of voice communication was raised as a major cost driver by
finance. In order to handle this challenge Amazon has rented out web based
communication services from XYZ ltd. The service is free but would require
license per user. The cost of each license is $1500 and its valid for 6
months. Please comment if the new web communication channel is better
than existing model.
4. Historically it has been observed that volume inflow does not remain
constant. Data of last 3 months in a similar case suggest that both NIS and
Prob Rec inflows fluctuate with standard deviation of 34.3 and 18.7
respectively. While their average inflows in this period have been 974 and
212 respectively. RSD plan to have capacity with 99% service levels. Please
estimate the minimum cost provided in this scenario with other conditions
remaining same as point 2 in Part B.
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Take any justifiable assumption to arrive at solution.
Glossary:
NIS
NIS stands for new item set up; Process involves gathering of new product
information from vendors and processing it to become part of catalog and then
ready for display on website.
Prob Rec (Problem Receive)
This is a process where warehousing team raises a trouble ticket for inventory
received which has problems ranging from extra units being shipped to incorrect
product being sent. RSD team members resolve these tickets by working with
vendor, buyer and other teams.
Buyers
Buyers are managers who negotiate and buy inventory from different vendors
(suppliers) on behalf of Amazon. They are responsible for ensuring that vendors
send timely information to RSD for item setup and also all clarifications are provided
to RBS on time.

Vendors
Vendors are the product suppliers to Amazon.
FC
FC stands for Fulfillment centers. These are Amazon warehouses. They receive the
inventory from the vendors and dispatch it to Amazon customers based on the
customer orders. In case of any problem related to purchase/purchase order
receive, FCs inform RSD about the issue. RSD further takes help of concerned
buyers/vendors in the course of issue resolution.

Fresh Case Study

Case Study 3
With Amazon Fresh, the challenges faced in supply chain by Amazon increased
because the products now had expiry dates. In addition to that, Amazon strives to
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deliver the freshest items to the customers optimizing its supply chain of suppliers,
warehouses (which it calls Fulfillment Centers FCs) and customer demand.
The following case will challenge the teams to fulfill customers orders in a city with
the freshest farm and dairy products.
Amazon sources farm and dairy products from the suppliers (SF Supplier of farm
products and SD Supplier of dairy products). There are 3 FCs on the periphery of
the city all of which can process and fulfill orders for Amazon Fresh. The demand
from customers for farm and dairy products through Amazon Fresh program is
divided into Demand North (DN), Demand South (DS), Demand East (DE), Demand
West (DW) and Demand Central (DC).
Refer to the map below for the suppliers, FCs, demand centers in the city. The
distance between any two points on the map is the sum of horizontal and vertical
distances. E.g. Distance between DE and DS is 18 (horizontal) + (6+9) (vertical) =
33 kms

All customer orders placed till 3 pm in the afternoon are processed for 2 hours
(same for farm and dairy products) in each of the FCs. At 5 pm, trucks carrying
customers orders leave for delivery.
To maintain the freshness of the products, they are sourced from the suppliers so as
to reach the appropriate FCs by 3 pm. Multiple trucks can be run between SF and
SD to each of the FCs to have the most fresh item received in the FCs. Consider the
age of the product, when the truck departs from the supplier as 0 hrs.
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The Inbound time from each of the supplier to the FCs is dependent on the distance
between suppliers and the FCs. Following table gives the inbound times to the FCs
from each of the supplier.
Inbound time
(hrs)
up to 10 km
11 - 20 km
21 - 30 km
31 - 40 km
41 - 50 km
above 51 km

From
SF
1
2
3
4
5
6

From
SD
2
3
4
5
6
7

After the processing on the products (as mentioned above), the trucks depart the
FC. They take the following time to reach the destination, as per the distance:
Outbound time
(hrs)
up to 10 km
11 - 20 km
21 - 30 km
31 - 40 km
41 - 50 km
above 51 km

FC1

FC2

FC3

2
2
4
4
5
5

1
1
2
2
2
3

2
3
3
4
4
5

Based on the above data and the map, answer the following questions:
1. Which FC should cater to demand of North, South, East, West, Central city for
the items to remain freshest (least old) under following conditions?
a. Separate trucks for inbound for each O-D
b. From an origin FC to a destination Demand Center, the trucks fulfilling
farm and dairy products' orders can be separate - if necessary.
c. 1 Demand Center can be catered by only 1 FC for any kind of product. i.e.
FC1 and FC2 cannot deliver dairy products together to Demand North.
2. What is the minimum number of total trucks which will depart from the FCs if
same truck can be used for delivery of Farm and Dairy products?

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3. What is the weighted average age of farm and dairy products in the above
case?
4. There have been new plans for improving the infrastructure utilization. Two
decisions are taken:
a. No customer orders for farm and dairy products will be fulfilled out of FC2,
and
b. From an origin FC to a destination Demand Center, the trucks fulfilling
farm and dairy products' demand CANNOT be different i.e. Single truck will
be running between any pair of FC-Demand Center combination
Which FC should fulfill farm and dairy product orders for which Demand
Centers for the items to remain freshest (least old)?
5. In Question 4 if, additionally, the cost of fulfilling 1 unit of farm or dairy
product for FC1 and FC3 to different Demand Centers are as follows:
in Rs.
FC1
FC2

DN
1
4

DS
3
2

DE
4
2

DW
4
5

DC
2
3

Demand from each center is 2000 kg and 2000 ltr of farm and dairy products
respectively.
What is the cost of providing best customer experience i.e. deliver the
freshest products?

Case Study 4
Amazon uses three carriers A, B and C for shipping packages to the customers. Amazon further
offers its customers with two SLAs which are 1 day delivery (package is delivered on next day
from customer placing the order) and 2 day delivery (package is delivered on second day from
the day when customer places the order). There is a certain defect rate associated with the two
SLAs for each of the carriers. At the same time there is a limited capacity that the carriers can
manage for each SLA. The rates offered by the three carriers, their defect rates and their
capacities for the different SLAs is as follows,

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Cost of defect incurred by the company is $10/package. The total number of packages that we
need to ship in a week is 5000 with 1700 for 1 day delivery and 3300 for 2 day delivery. There is
also a minimum volume guarantee that we give the carriers which is 1200 for A, 1000 for B and
1300 for C.
Keeping in mind the core principles of Amazon, devise the best combination of carriers and
services to service the 5000 packages. Answer the following questions based on your adopted
strategy.
1.
2.

State the objective on which you have based your strategy

What is the number of packages serviced by each of the carrier SLA combinations (e.g.
A-1 represents carrier A for one day SLA)?
3.
What is the cost incurred by Amazon in servicing all the packages?
4.
Articulate the rationale of your strategy in less than 300 words

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