Utility is an economic term that refers to the total satisfaction achieved by receiving a good or service. In economics, products are substances that meet human needs and provide utilities, for example, when a customer purchases a satisfactory product. The four types of economic utility are form, time, place, and possession that apply to the purchase in September 2020 of an organic cotton sweater.
Time and place are the types of utility that that is thought of if purchased online through Amazon Apparel. Time utility is present when maximizing the availability of a company's products so that customers can purchase it when it is most convenient or desirable for them. Place utilities primarily make products or services physically available or accessible to potential customers (Yu et al., 2016). In this case organic cotton sweater can be purchased through their website with limited time available.
According to this concept, various logistics costs must be considered ‘collectively’ and counterbalanced to attain optimum cost level while choosing various alternative courses of action with respect to product distribution. For example, while taking choice for transportation type, a firm has to reflect on all other costs like inventory holding, warehousing cost subjected with a given transportation type and not just cost of transportation (Schultz, Stauffer & Lak, 2017).
The five (5) relevant logistical cost items that would likely be considered by the seller (Levi’s) before the company lists its Levi’s Bootcut Denim jeans for sale on amazon.ca. are:
In accordance to this concept, different costs related to logistics management system cannot be separately treated and a trade-off has to be subject to achieve the goal of overall cost reduction. For example, a firm may increase the number of warehouses (involves investment/opportunity cost). This may help in reducing the transportation cost but at the same time it may elevate the inventory and order processing costs.
There would not be any cost trade-offs if the denim jeans were to be delivered directly to the final customer by Levi’s, the brand/manufacturer, but sent from inventory or stock in a warehouse owned by Amazon there would be a cost tradeoffs as there are factors that increase or decrease the inventory holding cost like safety stock, seasonal demand and others (Tan, Gómez-Vilardebó & Gündüz, 2017).
Landed cost of goods is the whole cost of the product form source to destination subsequent to the shipment that has cleared customs at the port of entry and all inter-modal transportation, tariffs, taxes have been accounted for the total or landed cost of the goods.
Usually, these companies are active in sales processes. For example, they purchase a lot of items or semi-processed goods from local or foreign suppliers. Depending on the specifics of the companies like Levi’s or Amazon, landed costs can make 10 to 30 percent of the general company expenses. When companies practice international trade or import goods, their profit is closely related to currency fluctuations. The landed costs increase as the local currency rate goes down in comparison with the purchase currency. As a result, the profit decreases (Pumpe & Vallée, 2017).
Top two integrated clothing brands owned by Amazon are Goodthreads which is men's clothing line and Daily Ritual which is women's clothing line.
Vertical integration is when a company decides to operate all of the aspects of its production including parts of the process it would ordinarily farm out or subcontract. An appliance chain that owns the company that makes the refrigerators it sells. This is opposed to horizontal integration where, rather than focusing on maximizing profits within your existing domain, you would begin ventures in new domains (Nie, Wang & Yang, 2019).
Yes Amazon Apparel uses vertical integration to ensure that one or both of its top two integrated clothing brands has a price advantage over other companies selling comparable goods on the same site. Amazon has been fanatical with vertical integration since its foundation. It offers its own services related to logistics which is another logical step in vertical integration process of Amazon. The operational model of Amazon is to do vertical integration using its scale so it has a price advantage over other companies.
The concept of supply chain coordination focuses on maximizing the overall production of the organization by managing the flow of the goods and commodity within the organization as well as outside the organization. The various department (manufacturing, supplier, transport, warehouse) which are involved in producing the goods and commodity (from raw material to finished products), constitute the flow of resources within the organization and on the other hand retailers supply the end products to the customers.
Coordination that Amazon uses when selling products from brands such as Levi’s or Hanes on amazon.ca. is that they sell popular brands at low price as they save the cost of physical store, they save heavy staff cost, they save advertisement cost (to an extent), sometimes they sell at very low margin for a future benefit, sometimes product quality is different from the physical stores and they have tie-up or have their own courier services to cut transit cost (Singh, Gunasekaran & Kumar, 2018).
Six processes in the SCOR model from the perspective of an executive of an integrated Amazon Apparel brand include (Balogun, 2016):
Planning: the process of planning determines the resources, establishing the chain of communication and requirements in context to a process to make sure it aligns with the goals of business.
Sourcing: Sourcing processes involve the acquisition of goods and services to meet expected or actual market needs. This includes purchasing, receiving, mercury and incoming materials and the supply contract
Making: This involves the process of taking the finished products and preparing the market to meet their expected or actual demand.
Delivering: Any process involving the delivery of finished products and services to meet expected or actual demand, including the management of orders, transportation is related to the delivery.
Returning: Return processes involve the return or acceptance of returned products by the customer or supplier. This includes post-delivery customer support processes.
Enabling: This process is related to supply chain management like business rules, editing facilities, contracts, compliance, data resources and risk management.
Third Party Logistics (3PL) is a term given to a business that handles the collection, logistics, and execution of an e-commerce store. These are necessary because most ecommerce stores cannot handle all aspects of the business from product production (sometimes retail) to marketing, sales, property management and shipping (Singh, Gunasekaran & Kumar, 2018).
Two strategic considerations in this context are
ERP stands for Enterprise Resource Planning (ERP). It is business process management software that enables technology, human resources and services. ERP software integrates all aspects of the business, including development, production, product planning and sales and marketing, into a single database, application and user interface. For example, executives and workers want real-time access to data wherever it is. Companies like Amazon adopted mobile ERP to handle reports, dashboards and core business processes (Balogun, 2016).
Reverse logistics is a set of activities that are conducted to recover a price after a product has been sold and at the end of the product's life cycle or in a sale. Reverse logistics are sometimes referred to as aftermarket supply chain, aftermarket logistics or retrogistics (Sathish & Jayaprakash, 2017).
Amazon uses the same method for online purchase returns, involving Amazon's own brand as opposed to products related to other companies like Levi's or Hans. Amazon is known for having one of the most user-friendly return policies in the e-commerce world. Amazon makes it incredibly easy for customers to return and collect products. They offer quick and easy returns, set reasonable return policies, take full responsibility (even for third party vendors) and take into account customer satisfaction (and loyalty).
Balogun, A. S. (2016). ERP Critical Success Factors: Importance of ERP Consultants in ERP Implementation.
Nie, P. Y., Wang, C., & Yang, Y. C. (2019). Vertical integration maintenance commitments. Journal of Retailing and Consumer Services, 47, 11-16.
Pumpe, A., & Vallée, F. (2017). A typology for selecting an appropriate Total Landed Cost method in international supplier selection decisions. Transportation Research Procedia, 25, 853-869.
Sathish, T., & Jayaprakash, J. (2017). Optimizing supply chain in reverse logistics. International Journal of Mechanical and Production Engineering Research and Development, 7(6), 551-560.
Schultz, W., Stauffer, W. R., & Lak, A. (2017). The phasic dopamine signal maturing: from reward via behavioural activation to formal economic utility. Current opinion in neurobiology, 43, 139-148.
Singh, R. K., Gunasekaran, A., & Kumar, P. (2018). Third Party Logistics (3PL) selection for cold chain management: a fuzzy AHP and fuzzy TOPSIS approach. Annals of Operations Research, 267(1-2), 531-553.
Tan, O., Gómez-Vilardebó, J., & Gündüz, D. (2017). Privacy-cost trade-offs in demand-side management with storage. IEEE Transactions on Information Forensics and Security, 12(6), 1458-1469.
Yu, Y., Wang, X., Zhong, R. Y., & Huang, G. Q. (2016). E-commerce logistics in supply chain management: Practice perspective. Procedia Cirp, 52, 179-185.
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