BST561-Purchase&Supply Chain Management An analysis of sustainable supply chain and eProcurement. The Amazon case study.

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BST561-Purchase&Supply
Chain Management
An analysis of sustainable supply chain and
eProcurement. The Amazon case study.

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Summary



Nowadays, practices of sustainable Supply Chain management and E-Procurement are
becoming a central topic of discussion and research. It is argued that sustainability can be
achieved by a good internal management of a firm’s resources and capabilities, combined with
external performance which influence the environmental, social and economic context where
the organisation is involved (Carter and Rogers, 2008). E-Procurement merges well with the
concept of sustainability because it helps the organisation to reduce wastage and costs related
with the internal processes, and helps an organisation to create a good information exchange
network with the external environment in order to establish future beneficial relationships
(Ronchi, 2003).
A good application of these concepts is given by Amazon, which managed to create a
sustainable Supply Chain that is making an important impact especially in the Macroenvironment,
thanks to Amazon’s social, environmental and economic performances. In
particular, the economic performances are enabled by an efficient E-Procurement strategy.
Indeed, thanks to this system, the organisation developed a business model that reduces costs
related to transactions and administration, combined with the creation of mutual and
beneficial relationships with its Supply Chain. In this way, thanks to E-Procurement, Amazon
can obtain not only an increase in the revenues, but it can make the business sustainable.



Introduction
Amazon is an American electronic commerce company founded by Jeff Bezos in 1994.
The company started as an online bookstore, however soon the product offer became much
more diversified with the introduction of software, video games and electronics products.
Today, Amazon is the largest online retailer in the United States and in other world’s major
countries (Barney, 2011).
The success of the company derives not only from the optimal business model adopted,
but also from an effective Supply Chain management. With reference to the triple-A Supply
Chain theory of Lee (2004), Amazon’s supply chain is not only fast and cost effective, but is
also Agile because it responds quickly to the changes in supply and demand in the market. It is
Adaptable, because it evolves in relationship to changes in the external environment of the
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firm, and it is Aligned because Amazon can coordinate the interests of all the firms, which are
part of their Supply chain, with their own.
The focus of this piece of work will be placed on the relationship between the
sustainability practices of Amazon’s Supply Chain and its E-Procurement strategy. In the first
part of this essay there will be a detailed literature review of the mentioned topics focus on
benefits, limitation and possibility of implementation. It will follow a critical analysis about
how Amazon integrates strategies such as sustainability and E-Procurement. This analysis
shall include an in-depth examination and review of both internal and external factors related
to each strategy. Finally, the author of this piece of paper will present a set of
recommendations about the future of Purchasing and Supply Chain management of the
organisation.
Literature Review
Sustainable Supply Chain Management
Carter and Rogers (2008) defines sustainable Supply Chain management as “the
strategic, transparent integration and achievement of an organization’s social, environmental,
and economic goals in the systemic coordination of key inter-organisational business processes
for improving the long-term economic performance of the individual company and its supply
chains”. As reported by this definition, it is deductible that a good framework of sustainability
can be achieved by looking both at the internal environment of the organisation and at the
external one.
As is shown below in the framework in Figure 1, internally an organisation should look
at the integration of sustainability with the firm’s strategy, organisational culture, risk
management and transparency. Externally, sustainability can be achieved by activities, which
influence both the environment and the society, but these activities need to be finalised to bring
a long-term economic return to the firm (Rogers, Carter 2008).
[ANGELO GUIDA C1432680] 5
According to Pagell and Wu (2009), the bedrock of a sustainable Supply Chain is the
orientation or mind-set of an organisation. Therefore, a company who wants to achieve a
certain degree of sustainability needs to integrate the principles of sustainability in the overall
corporate strategy and be fully committed to them. By doing so, the organisation can
potentially obtain a good competitive advantage (Markley and Davis 2007) or a good public
image. Indeed, especially over the past decades the issues linked with environmental, social
and economic sustainability became a popular topic of research and discussion in our society
(Azadi et al., 2015).
However, it is not an easy task to achieve a truly sustainable Supply Chain, because it
highly depends on how the supply chain is managed internally and how the organisation can
influence the external environment where it operates (Pagell and Shevchenko, 2014). Barney
(1991) in his Resource-based view theory argues that the organisation is a cluster of resources
and internal processes, and the success of a company depends on how managers and other
stakeholders manage and control these. Therefore, the risk involved in the internal stage of the
supply chain relies on the ability of the management to maximise organisation’s resources and
internal processes. However, the external stage of the supply chain is more difficult to manage.
Indeed, the shift to a sustainable environment is complex because of the high numbers of
parameters involved and the limited decision making of the different business actors (Matos
and Hall 2007). A further issue is linked to the different and variegated set of goals or ideas
Figure 1. “A framework of sustainable supply chain
management” (Carter and Rogers, 2008)
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that all the stakeholders involved in the supply chain have, called by Hall and Vendrenburg
(2005) “stakeholder ambiguity”.
Yet, not many firms fully underwent this process because it requires a high degree of
efforts, and only the firms who have sustainability as core value in the strategy of their Supply
Chain will make the step between conventional supply chain to sustainable supply chain, and
use this opportunity to gain a competitive advantage (Harms et al., 2013).
E-Procurement
E-Procurement is defined as the use of information technology for facilitating B2B
activities of purchasing and payment of goods and services (Panayiotou et al., 2004). In this
context, Internet technologies platforms are used as a solution in order to manage the day-today
and the strategic business activities (Caniato et al., 2010). The final aim is to implement
the organisational processes and structure, in order to make the traditional purchasing
activities and procedures more efficient and cost-effective (Wu, 2007). However, the
description offered so far is a limitation for the potential opportunities that E-Procurement can
offer. Indeed, the key strategic application of this process lies on the facilitation of the
exchange of information between buyers and suppliers, which will eventually lead to the
creation of long-term beneficial relationships between these organisations (Ronchi, 2003).
According to Presutti (2003), there are other benefits associated with E-Procurement such as:
reduction in labour and material costs – which are not only cost-effective, but they can be
considered beneficial also in a dimension of environmental sustainability – more control on
inventory levels and on material expenditures. Overall, E-Procurement can highly contribute
to add value to the organisation, which it entails revenues boosting, operational time
reductions and system control and simplification (Vaidyanathan and Devaraj 2008).
On the other hand, there are also some risks and limitation associated with EProcurement.
According to Arbin (2008), there is an important number of issues which are
linked to E-Procurement, such as: lack of system integration and standardization, the market is
not ready, end-user refusal, maverick buying persistence and difficulty in integration with other
systems.
However, not every firm can afford to develop or built an E-Procurement process.
According to Tastis et al. (2006), before starting an E-Procurement strategy, a firm should
consider three main elements:
[ANGELO GUIDA C1432680] 7
1. Firm’s size – Larger organisations use it more than SME because they have
more information and skills (Haig, 2002).
2. Type of industry – For example IT and manufacturer organisations adopt this
system more often that other firms (Batenburg 2007).
3. Firm’s geographical location – According to Hofstede (2001) the usage of EProcurement
is lower in countries with high uncertainty avoidance.
Nonetheless, since that E-Procurement is still in on-going development, there are
enormous margins for a continue implementation of the process. However, there is not only
one way to implement it, but it depends from what are the driving characteristics and the
principal needs of the organisation (Cainato et al. 2010). Consequently, it is possible to build
an effective eBusiness strategy by specifying the company’s objectives, align them with the
decisions of the management and integrate them with the organisational processes (Harland et
al., 2007).
Analysis
The analysis part of this review concerning Amazon will be subdivided in two sections,
each focusing on one particular strategy of the company. The first section will be a study of the
sustainability of the Amazon’s Supply Chain, followed by observations on the E-Procurement.
With reference to the framework of sustainable supply chain management of Carter and
Rogers (2008), the analysis of sustainability of Amazon should be viewed as two parts: internal
and external factors. The internal factors – referring to inner processes of the company
themselves, could be criticised as followed (as developed on the Amazon website):
a. Strategy – Amazon created a business model based on
online transactions, which see the reduction of paper
and natural resources, with shows that sustainability is
at the centre of the strategy. However, Amazon do not
publish any sustainability report and there is no track of
a CSR policy on the website.
8 [ANGELO GUIDA C1432680]
b. Organisational Culture – with the introduction of Kaizen programme, Amazon
employees are working together to implement environmental and energy
initiatives across all parts of the company (Amazon website). Arguably, the
working rhythms that workers have to keep are not sustainable.
c. Risk Management – online transaction and databases involving sensible data are
well protected against leaking or frauds, thanks to the establishment of a
Transaction Risk Management team (Amazon website). However, there are
issues regarding the memorisation of the card details and personal information
on user accounts.
d. Transparency – Amazon’s corporate headquarters in Seattle is made up of
sustainable, energy-efficient buildings (Amazon website). The offices in
Germany were Gold-certified as environmentally friendly as well. Yet, not many
offices are equipped and certified in this way.

 

On the other hand, there are also external factors playing a role in the sustainability of the
Supply chain, which are developed below:
a. Environmental performance – Amazon packaging paper material are 100%
recyclable and are made from 50% of already recycled materials (Amazon
website). However, there is no guarantee that the customers will continue the
recycle process after the opening of the package.
Figure 2: “Amazon corporate headquarters”
Source: www.amazon.com
[ANGELO GUIDA C1432680] 9
b. Social performance – Amazon CEO Jeff Bezos provided different donations to
museums, universities, schools and to social campaigns (Gunther, 2012). Yet,
poor amount investments were made in the local communities where Amazon is
based, in relationship of the volume of its revenues.
c. Economic performance – the actual strategy brought the company to be the first
online retailer in major countries and to be placed first in the Gartner Supply
Chain Top 25 for 2015 (Gartner.com, 2015). However, the dynamism of the
market can be a challenge for Amazon.
Figure 3: “Amazon kindle donation to Western Springs Primary School,
Rugeley”
Source: www.amazon.com
Figure 4: “The Gartner Supply Chain Top 25 for 2015”.
Source: www.gartner.com
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With reference to Tastis et al. (2006), Amazon matches the three criteria of a good EProcurement
business, since the organisation is large enough to have the information and skills
necessary to develop such a system. In addition, the IT industry where Amazon is operating
allows the business model to be successful in the countries where is located, such as USA and
major European countries, where there is low uncertainty avoidance, therefore customers are
more likely to trust this system. Thanks to a total integration of the E-Procurement systems
with ERP applications, it was possible to introduce the procure-to-pay. This innovation
internalises the payment system of Amazon, with several advantages for the firm itself, since
they receive the money directly from suppliers. However, there are advantages for suppliers as
well, since that they have to relate directly to the firm for the payment and not to third parties,
making the company more trustworthy.
Overall the E-Procurement of Amazon is really efficient, mostly proved by the results
that the company achieved so far. Nonetheless, the dynamism of the market can offer different
challenges, since E-Procurement is still in on-going development. There is the possibility that
in not so long another company can create a better and more innovative model, which will
surpass Amazon’s one.
Recommendations
To conclude this piece of work – in this final section – the author will give his personal
recommendations on how Amazon could improve its sustainable Supply Chain and its EProcurement
strategy, drawing recommendations from the prior analysis.
Previously, it was argued that thanks to a business model based on online transactions,
Amazon managed to be sustainable thanks to the reduction of costs related to transactions and
administration processes. Therefore, it was assumed that the idea of sustainability was a core
part of the company’s strategy. However, online there is no track of sustainability report about
Amazon. This can be an issue for an organisation, which is carrying on different projects about
environment and sustainability like the “Frustration-Free Packaging”, that eliminates the
plastic package around the item at the moment of the shipping, reducing the usage of nonrecyclable
packaging.
[ANGELO GUIDA C1432680] 1
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The issues are related to the credibility and to the public image of the firm, which is loosing an
opportunity of creating more awareness on its sustainable practices. Indeed, they could be used
as a tool for obtaining a better public image, and improve the environmental performance.
Additionally, it was mentioned that the organisation is trying to create a strong
organisational culture based on sustainability with the “Kaizen Programme” (Amazon
website). However, the working conditions that the employees in the warehouses have to
handle are not sustainable at all. For example, the employees in a warehouse in Pennsylvania
had to work in a hot environment without air condition for a long period of time before
receiving an air condition system (Soper, 2011). Therefore, the organisation should create
better working conditions for employees by investing in sustainable work facilities for gaining
two major benefits. Firstly, it will contribute positively on the workers productivity because
they will have better working conditions. Secondly, the infrastructure and the processes will
have also a sustainable impact on the environment.
Investing in a sustainable supply chain and creating a strong CSR policy is important
for Amazon also in order to maintain the advantage against other competitors and especially
getting near to better competitors. For example, Apple competes with Amazon’s on tablets,
and they publish each year precise sustainability report about their products, which Amazon
does not. In addition, customers nowadays are really close to environmental and sustainability
issues, so Amazon could take this option as an opportunity to enhance the satisfaction of its
customers.
Figure 5: “ Amzon Frustration-Free Packaging advantages”
Source: www.amazon.com
12 [ANGELO GUIDA C1432680]
On the other hand, it was argued that Amazon’s E-Procurement system is one of the
best on the market, due to the success that the company gained in these years, until that
became the top online retailer in one of the most important countries on our planet (Barney,
2011). However, since that E-Procurement’s development is still on going, the risk for Amazon
is that other competitor will build other systems, which will be more efficient. Therefore, in
order to do not loose the competitive advantage gained in the last decade, Amazon should
continue to invest highly in research and development. Especially if a competitor like
Alibaba.com will decide to go out from the Chinese market and compete with Amazon in the
countries where they operate. Consequently, investing in R&D is the most recommended way
for the organisation to keep the pace with the current market progress and to maintain its
competitive advantage.
Another possibility of maintaining the competitiveness in the marketplace for Amazon
will be the research of new e-procurement partnerships. In this way, the company can engage
numerous e-procurement providers, which operates in different markets and trades different
product or services, which can be added to the Amazon’s offer. However, the online retailer is
already moving is this direction, because recently they decided to close Amazon Supply –
which was the platform used for B2B activities – in favour of Amazon Business. According to
Clare O’Connor (2015) “Companies that register for an Amazon Business account will have
access to business-only products from IT and lab equipment to education and food service
supplies, with bulk discounts and free 2-day shipping on orders over $49”. With this solution,
Amazon is moving towards a global partnership in the market, which will put its competitor in
serious troubles, because it will be hard for them to match the Amazon’s offer for companies
that cannot afford to give so many advantages to their business partners. In addition, with
Amazon Business, most of the e-procurement companies will be more willing to join
Amazon’s network because they will have more business advantages in doing business with
them.
[ANGELO GUIDA C1432680] 1
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References
• Amazon.com, (2015). Amazon.com: Amazon & Our Planet. [online] Available at:
http://www.amazon.com/b?&node=13786321 [Accessed 6 Jun. 2015].
• Arbin K., (2008). “The road towards successful e-ordering implementation: success
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• Barney J. (1991). “Firm Resources and Sustained Competitive Advantage”. Journal of
Management. Vol. 17, p. 99-120.
• Barney J., (2011). “Amazon urges California referendum on online tax”. Financial
Times.
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• Haig M., (2002). “The e-commerce report”. Internet Works, p. 8.
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