Supply Chain

This section of the paper focuses on the physical supply chain network that Amazon.com

utilizes to support its different business models.

Retail Outlets

As a pure-play internet retailer, Amazon.com has zero retail outlets. All sales are

generated through the virtual stores created by the Amazon.com website and affiliate websites.

Amazon.com does not have to incur the incremental cost of opening a new physical retail store

to attract new customers. The Amazon.com technology infrastructure and website functionality

creates a personalized storefront for each customer. This technical infrastructure requires a

significant capital investment, but the marginal cost of presenting a storefront to a new customer

is very small. Additionally, there are supply chain benefits to an internet retailing model without

retail stores. In order to ensure product availability, physical retailers have to carry inventory in

each store location as well as in distribution centers. By consolidating inventory at distribution

centers and other inventory locations operated by partners and wholesalers, Amazon.com is able

to carry a much wider selection of inventory while maintaining a competitive advantage over

retailers in inventory turnover.

Distribution Centers (Fulfillment Centers)

Amazon.com operates eight leased distribution centers throughout the United States.

These eight facilities account for a total of 4,465,000 square feet (Amazon.com 2004 10-K

Form). These facilities are large with a square footage generally falling in the range of 500,000

to 600,000 square feet per facility. Location decisions are made based on proximity to customer

concentrated areas and tax implications. Note that Amazon.com has three facilities in Nevada

and Delaware, which both have no state income tax. Amazon.com has also taken advantage of

unique opportunities to grow its distribution network, such as the abandonment of a large facility

in Kentucky by another retailer that