How do the location and size of warehouses affect the performance of a firm such as Amazon? What factors should Amazon take into account when deciding where and how big its warehouses should be?

Amazon has built new warehouses as it has grown. How does this change affect various cost and response times in the Amazon supply chain?

McMaster-Carr sells MRO equipment from five warehouses in the United States. WW Grainger sells products from more than 350 retail locations, supported by several warehouses. In both cases, customers place orders using the Internet or on the phone. Discuss the pros and cons of the two strategies.

1. Consider a firm such as Apple or Dell, with very few production facilities worldwide. List the pros and cons of this approach and why it may or may not be suitable for the computer industry.                                                                                            

Discussion 1:

The geographical setting and size of a company’s warehouses will have a direct determination on the company’s efficiency and responsiveness. This also includes facility costs, transportation costs, and inventory utilized by the company. The dispersion of Amazon’s warehouse allows the inventory to ensure a steadier supply of stocks to meet customer’s demands efficiently at a shorter time. Generally, having more warehouses at strategically locations increases higher service levels at a fair cost as well as reducing transportation costs. Although, this adds higher inventory cost results in a greater fixed cost for constructing the building facilities and maintenance costs for the warehouses such as variable cost.

Amazon should consider various accounts to effectively balance their responsiveness and overall efficiency such as:

• Economical Factors (land, labor, taxes, construction costs)

• Technological Factors (best options for warehouse organization and implementation)

• Infrastructure factors (ease of transport, accessibility to shipping couriers)

• Strategic Factors (best trade-off practices)

Discussion 2:

The increased number of warehouses has provided the fixed cost which is the warehouse to minimize the costs such as transportation costs. The organizational strategy allows an easy pull-out of the products and instantly moves them for delivery. The demand will be efficiently met if the warehouses are strategically located in population hubs and spread throughout several distribution areas. This will allow warehouses to be internally optimized and consequently sustain responsiveness at reduced cost and/or raise responsiveness given with a similar cost. Inventory costs as well will change as the number of warehouses increases. Therefore, the warehousing strategy ensures product accessibility that is a huge part of Amazon’s success.

Discussion 3:

The chief benefit regarding McMaster Carr’s approach is that the customer’s demand can be settled with a lesser size of supply inventory due to the “pooling effect” in which stored supply is accessible over a wide range of the supply chain setting. Thus, this allows the facility costs to be reduced. In the case of WW Grainger, the company will undergo higher transportation costs, and might likely incur slow down and impede shipments. It will also be difficult for WW Grainger to keep interconnected with their customers such as in case such as shipment problems occur where the product needs to be refunded or returned.       

Discussion 4:

The production facilities of Dell and Apple are relatively similar with regards to the different regional markets, and the company requires indispensable costly technologies. This resulted in the purpose of the company to have concentrated productions to some of their facilities, such that the company can benefit from any obtainable economical scale. Thus, these companies have a minimal concentration of their production to few geographical locations that provide quality infrastructures, and inexpensive yet experienced employment labor, that can sustain the needs of its production. The future developments are facilitated by the matter in which their final products are not too delicate and bulky for the economy of fast shipping over long-distance regions.