Long-Tail Phenomena forRhapsodyTotaldemand17,000oooaieaMarch2005March2004Songsavailable23%ofbothWall-Mart28%1,000andRhapsodySongs500available onlyonRhapsody2005050,000200,000400,000800,000Songs ranked by popularityFIGURE12-1:TheRhapsodydata--2004versus200511-11
11-11 Long-Tail Phenomena for Rhapsody FIGURE 12-1: The Rhapsody data—2004 versus 2005
Strategies to Cope with LargeVarietyBuild-to-order modelConfigurationisdeterminedonlywhentheordercomesinEffectivewaytoimplementthepush-pullstrategy by employing the concept ofpostponementAmazon.comMoving from a pushto a push-pull strategy11-12
11-12 Strategies to Cope with Large Variety Build-to-order model ⚫ Configuration is determined only when the order comes in. ⚫ Effective way to implement the push–pull strategy by employing the concept of postponement ⚫ Amazon.com ⚫ Moving from a push to a push-pull strategy
Amazon.com StrategyInitial Years:Used IngramBooks1999:Establisheditsown sevenfulfillmentcentersToday,there are 16fulfillment centers in theUS.2001:Focus on improvingdistributionoperationsinapushtowardsprofitImproved its fulfillment costs to 9.8% in 2001(Q4) down from 13.5% in 2000 (Q4)11-13
11-13 Amazon.com Strategy ⚫ Initial Years: Used Ingram Books. ⚫ 1999:Established its own seven fulfillment centers ⚫ Today, there are 16 fulfillment centers in the US. ⚫ 2001: Focus on improving distribution operations in a push towards profit. ⚫ Improved its fulfillment costs to 9.8% in 2001 (Q4) down from 13.5% in 2000 (Q4)
Several Initiatives Adopted in 2001Improved sorting order and utilization of sophisticatedpackingmachinesAllowedshippingof 35%moreunitswithsamenumberofworkersUsed software to forecast purchasing patternsAllowedreductionof inventorylevelsby18%Consolidated shippingof 40%goodsintofulltrucksDrivendirectlyinto major citiesBypassingregionalpostalsortingfacilitiesPartneredto sell goods for other companies suchasToys‘R'Usand TargetAdditional$225millioninrevenueAllowedother sellersto offerusedbooksIncreasedsalesduringtheholidayseasonby38%Grossmarginsabout85%11-14
11-14 Several Initiatives Adopted in 2001 ⚫ Improved sorting order and utilization of sophisticated packing machines ⚫ Allowed shipping of 35% more units with same number of workers ⚫ Used software to forecast purchasing patterns ⚫ Allowed reduction of inventory levels by 18% ⚫ Consolidated shipping of 40% goods into full trucks ⚫ Driven directly into major cities ⚫ Bypassing regional postal sorting facilities ⚫ Partnered to sell goods for other companies such as Toys ‘R’ Us and Target ⚫ Additional $225 million in revenue ⚫ Allowed other sellers to offer used books ⚫ Increased sales during the holiday season by 38%. ⚫ Gross margins about 85%