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Operations Strategy Comparison Study

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E-Commerce known as electronic commerce or internet commerce is an application platform of information technology between buyers and sellers in recent years. It transforms supply-chain management with potential for manufacturing, retail and service operations. Established online retailers have improved their digital footprint and refined their fulfillment models and are seeing growth in their online offerings.

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Background

Alibaba launched in 1999 by Jack Ma and 17 other founders as a global wholesale market place. Alibaba is china’s biggest online e-commerce company, As of 2018 they have 576 million active users, they enable commercial and social interactions among millions of users, between consumers and merchants, and among businesses every day. Alibaba recorded $25.4 billion worth of orders on November 11,2017 which is the Chinese equivalent of Black Friday called “11.11” or Singles Day.

It has three main sites-Taobao Marketplace which is China’s online shopping destination whereby neither buyers nor sellers are assessed, their 7 million active sellers pay a fee to rank higher on the site’s internet search engine.Tmall.com China’s third-party platform catering for well-known brands such as Nike, Apple, GAP revenue is created by charging retailer’s annual user fees and sales commissions. Alibaba.com a global wholesale platform for small businesses.

Alibaba Cloud Computing (Aliyun), a developer of platforms for cloud computing, data management, and artificial intelligence. Alipay, which is a China’s online and mobile payment solution. Small enterprises leverage on innovation and technology provided by Alibaba to grow and compete more effectively in the domestic and global economies. Since launching its first website helping small Chinese exporters, manufacturers, and entrepreneurs to sell internationally, Alibaba Group has grown into a global leader in online and mobile commerce.

Today the company and its related companies operate leading wholesale and retail online marketplaces as well as businesses in cloud computing, digital media and entertainment, innovation initiatives and others. In addition, ANT Financial, a company in which Alibaba has agreed to acquire a 33% equity stake, provides payment and financial services to consumers and merchants on their platforms. An ecosystem has developed around Alibaba’s platforms.

Alibaba is an institution of public trust, with the mission “to make it easy to do business anywhere,” All stakeholders rely on Alibaba to solve many of their business problems. Alibaba believes that solving people’s problems and doing so ethically is the way to create value for society, and hence derive value for the company and shareholders. An initial public offering was held on September 2014 debuted at $92.70 per share raised $25 billion and gave it a market value of $231.44 billion. Alibaba’s Headquarters are located in Hangzhou, China.

Founded as Cadabra in 1994 by Jeff Bezos. In July 1995, the company changed its name to Amazon and began service as an online bookstore. Amazon started with books and remain core to what they do, with the goal of offering the biggest selection of books, that is where the name came from, they wanted their selection to be vast and wide like the Amazon River. Amazon is an e-commerce company providing a marketplace for consumers, sellers and content creators.

The Company offers its users merchandise and content purchased for resale from vendors and those offered by third-party sellers. It also enables authors, musicians, filmmakers, app developers and others to publish and sell content via its branded websites. Amazon also provides Kindle Direct Publishing, an online platform that allows independent authors and publishers to make their books available in the Kindle Store.

In addition, the Company offers co-branded credit card agreements and advertising services, serves developers and enterprises through Amazon Web Services and manufactures and sells electronic devices. Currently Amazon operates in three segments: North America, International, and Amazon Web Services (“AWS”). Amazon’s initial public offering was held on May 15 1997 debuted at $18 a share, raised $54 million and gave it a market value $438 million.

Amazon’s continuous determination to deliver products to the customer in the quickest time is accomplished through a delivery strategy named Amazon Prime service where customers pay an annual membership and receive a guaranteed same day or two-day shipping on various products.

With the combination of information technology, automation extensive network of strategically placed warehouses, multi-tier inventory management, and excellent transportation makes Amazon supply chain effective. With the usage of its own logistics they are able to deliver third party products with same day shipping. Amazon’s vision and mission is to build a place where people can find and discover anything they want to buy online and to be earth’s most customer-centric company. Amazon’s headquarters are located in Seattle, WA United States.

Strengths and Weaknesses Assessment

Strengths

  • Alibaba helps businesses and branded manufactures to reach consumers, it is the Middle man between sellers and buyers through platforms such as Business to business (B2B), business to consumer (B2C) and customer to customer C2C.Alibaba charges merchants fees to appear higher on its search rankings
  • Amazon refers to three consumer sets customers, seller customers and developer customers, Amazon servers as an intermediary for other sellers, taking a profit out of the sale. Amazon Prime, an annual fee membership program that includes unlimited free shipping on a large number of items and access to unlimited instant streaming of movies and TV episodes and other benefits.

Opinion: that both companies’ product/service design align with the strategy of the companies

  • Alibaba does not own warehouses and holds no inventory instead they have created software platform called Cainiao Network dedicated to meet Alibaba Group’s logistics vision of fulfilling consumer orders within 24 hours in China and within 72 hours anywhere else in the world. It adopts a platform approach to establish a nationwide fulfillment network that leverages the capacities and capabilities of logistics partners to offer domestic and international logistics services and supply chain management solutions, fulfilling various logistics needs of merchants and consumers at scale.
  • The company’s physical footprint comprises of more than 75 fulfilment centers and 25 sortation centers across North America, and data centers in various countries. An extensive logistics network and transportation.
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    Providing fast and reliable fulfilment of customer’s orders, this is what makes Amazon different with online retailers using its integrated fulfilment processes

Opinion: that both companies’s Supply Chain, logistics and Inventory processes align with the strategy of the companies

  • Alibaba uses Data analytics, data mining and behavioral data science capabilities tools that are used to enhance efficiency and optimize supply chain management
    • Amazon uses a culture of metrics, through recording every move, click that a visitor makes. The data is layered into virtual repository of facts and all sort of conclusions can be drawn up such as chimerical nature of the consumer,it focusses on the complete view of the customer experience by offering a wide selection of merchandise at low prices and convenience. The key success for Amazon is achieving customer loyalty through customer satisfaction metrics and repeat purchases, it exercises control over customer experience. Application of human insight and new technologies such as artificial intelligence, data driven automation and machine learning is used to give Amazon a competitive edge

Opinion: with so much data at hand, it is easy for business, to make high impact business decisions, Online shopping Big Data can be used to expand e-commerce and deliver enhanced services to its customers both companies perform this activity well.

  • Financial services Yu’e Bao Fund which has collected $87 billion in assets and the app Ali Pay with 12 years into business, Alibaba’s Alipay has grown into the world’s most valuable financial technology services provider and the unquestionable leader of China’s online payment market. In 2014, Alipay processed 140 million transactions per day, while the banking system in China handled 170 million non-cash transactions on average every day (this includes bills, cards and electronic transfers) Ali pay also protects buyers in the event sellers are unable or refuse to deliver goods sold
    • Amazon Pay accepts credit and debit cards and transfers from your available Amazon Pay account balance. Credit cards currently accepted include Visa, Mastercard, Discover, American Express, Diners Club, and JCB. An Amazon.com store card is available for use with selected merchants.

Opinion: adaptable secure payment options from both companies

Weaknesses

  • Alibaba’s over dependency in China
  • Many brands claim that Alibaba’s websites are rife with counterfeits, as well as lawsuits by luxury brands like Yves Saint Laurent and Gucci. Alibaba spends millions of dollars a year battling counterfeits
  • There are limitations to being a free supplier membership of Alibaba as these suppliers are not verified which in turn reduces buyer’s trust.
  • Delivery time delays as Alibaba itself is not the one shipping to you. If you find a product from a supplier in Alibaba, you will purchase from that supplier directly and provide your desired shipping address for them to ship to you. Alibaba’s logistics has been a disadvantage for the E-commerce giant.
  • Amazon’s Business model can be imitated – An Online retail business has become quite common in this digital world.
  • Amazon’s Tax Avoidance Controversy – Tax avoidance in Japan, UK and US has sparked negative publicity for Amazon
  • Amazon’s Free shipping can lead to profit losses.

Opinion: Both companies can turn these weaknesses into strengths.

Opinion on the appropriateness of strengths and weaknesses on the operations strategy for each company

In my opinion Alibaba designed a service platform product which is created to be an ecosystem consisting of a community of businesses and consumers interacting with each other on online. The platform provides resources or access to the resources that a business would need to succeed.

The platform design was built to be a simple process that linked sellers and buyers of goods but with technology advancing more business functions were performed online such as marketing, advertising, logistics and finance the platform expanded to accommodate these innovations. Alibaba recently is not only an e-commerce company.

The tech-enabled platform whereby operational decisions are made allows companies rapid changes to market and gain a competitive edge over traditional business. Integration of operations with other functions in the organization such as financial strategy is demonstrated through the use of the Alipay which is Alipay wallet and also facilitates mobile commerce and other consumer services. Supply Chain at Alibaba uses an application platform where inventory is managed by their party providers.

By connecting logistic partners and the E-commerce Merchant – Cainiao platform feed real-time information to small merchants to choose the most efficient delivery option within a pool of delivery firms based on its location and type of goods. Alibaba’s operating system is attractive to other businesses as the want to leverage using the company’s data analytics tools to expand.

Human resources All these strengths are appropriate for the operating strategy for Alibaba. The weaknesses listed above for Alibaba showcase the room for continuous improvement of which is an important area of competitiveness worldwide.

Amazon uses advanced information technology and communication to ensure that it’s online services are efficient and convenient for target customers. This technology is used to support maximum efficiency of Amazon’s ecommerce operations.

Amazon’s uses quality management this objective of operations management to satisfy the expectations of customers, this involves continuous improvement efforts in the ecommerce business through user reviews and the organizational structure encourages employees to be bold and pioneer innovations to solve problems and improve the business. Alibaba’s production and monitoring service and inspection services are conducted by third party service providers with a focus on product quality.

Amazon’s process capacity applies extensive automation to streamline its business processes. E.g. considering that the online retail service is the organizations main output, the ordering process is automated in order to increase capacity to accept many simultaneous orders as possible.

Supply chain management is streamlined through automation and enabling suppliers and buyers to assess its IT assets e.g. suppliers adjust supply levels based on demand data forecasting available from the company’s website, this information facilitates the scheduling process accordingly. Warehouse Locations and facilities layout are well thought of. There is an emphasis on Amazon’s strategically located warehouses of fulfillment centers, this type of accessibility for resources and markets is considered a strategic objective to be better, faster and cheaper relative to its competitors.

Optimizing the movement of human resources, materials and information. It has more than 100,000 robots inside its warehouses worldwide. It uses its robots to carry stock around the expansive warehouse floors and group together all the individual items needed for a specific order. “When there are tens of thousands of orders going on simultaneously, you are getting beyond what a human can do,” Tye Brady told an audience at an MIT Technology Review Conference This fleet of automated warehouse robots is working alongside human employees to help meet the e-commerce giant’s massive fulfilment demand.

Amazon uses a finished goods inventory management system that facilitates ordering and holding.it uses the just-in-time inventory management in some areas where when goods arrive at the fulfillment centers are immediately shipped out for customer orders, Similar to the importance of using software to track inventory in real-time, is it crucial to utilize materials requirement planning software.

Whereas inventory management systems allow Amazon to track inventory and sales, materials requirement planning assists with a holistical view at demand, supply, and current inventory in order to plan, organize, and order efficiently.

The key to inventory management is making sure that there are right items available at the right time to fill orders, but without having a surplus of inventory taking up space in the warehouses. Amazon uses project management to design smart shipping solution to create value for the customer, on a daily basis they think about how to deliver more than what they did yesterday by taking ownership of the entire process.

Amazon has dozens of locations around the world. Maintenance of both companies’ technological assets involves various specialized teams. To sum it up both strengths and weaknesses are appropriate in contributing towards the operations strategies of each company.

Opinion on relative competitive strengths of both companies going forward in time

China’s Improvements in online security, product assortment, payment systems and the shift to mobile commerce accelerates average online spending per buyer, therefore, giving Alibaba reason to leverage for higher commission rates. Alibaba is working with partners to improve china’s logistics network, which will imply delivery efficiency and create the ability to cater to large volume of transactions. This relative competitive strength is not transitory but ongoing and sustainable.

Leading international and domestic companies such as Nestle’, Starbucks, L’Oréal, P, Haier, and Easyhome are tapping into the Alibaba’s operating system platform, using its powerful data analytics tool to expand their customer base, and tailor products according to specific customer needs, optimizing supply chain and enhancing efficiency.

Amazon has capitalized on brick and mortar and they are demonstrating their intent to reinvent physical retail, leveraging on data analysis and automation to deliver continuous customer experiences across all channels and maximize operational efficiencies and cost-saving. A constant drive to improve performance and cut delivery time led to Amazon entering the transportation and delivery markets. It’s first branded cargo plane was unveiled in 2016.

Amazon positioning targets a niche market where they have become a brand in their consumer’s mind, they provide greater value at lower prices to customers by a mixture instant access, convenience, and a comprehensive selection. Amazon’s unique set of activities including a customer-friendly 30day return policy, user reviews, customer personalization.

In my opinion, both companies are achieving competitive advantage through providing services similar to their competitors as a lesser cost and also are achieving competitive strengths by differentiation. The role that operations play in each of the companies’ competitive strength and weaknesses.

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