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Manugistics To Help Amazon.com In Global Expansion

Written By: Steve McVey
Published On: June 15 2000

Manugistics To Help Amazon.com In Global Expansion
S. McVey - June 15, 2000

Event Summary

Internet retail giant, Amazon.com announced it would enlist the help of Manugistics Group to support its global expansion and operational improvement initiatives. Manugistics will provide its NetWORKS Strategy and Transport solutions to give Amazon better visibility to its growing global fulfillment network and facilitate the flow of goods from the company's suppliers to its customers.

NetWORKS Transport will be used to plan Amazon's inbound and inter-facility shipments to reduce costs and improve freight management. Amazon will also use Transport to automatically tender loads on the Internet, track inbound shipments, pay carriers, allocate freight costs, and run historical reports for improved transportation planning.

Among Manugistics' more recent offerings, NetWORKS Strategy will allow Amazon to plan locations of distribution centers for its global expansion program to best optimize its business around constraints such as supplier lead times, fixed and variable costs, and tariffs and taxes.

Both applications are intended to give Amazon help in controlling distribution costs.

Market Impact

Amazon.com arguably best exemplifies the companies competing for market share in the new economy. The online retailer of books, CDs, and other goods has $1.6 billion in net sales, over 20 million customers, a $20 billion market cap, and has never turned a profit. Like others of its kind, Amazon is continually looking for ways to improve the efficiency of its operations to forestall the effects of shrinking margins and other competitive pressures.

Amazon's worries are typical of all Internet retailers but the dollar impact is magnified due to its size. Overstocking can lead to inventory mark-downs and write-offs. On the other hand, failing to stock enough products can result in long delivery times and cancelled orders, especially during holiday times when late orders can alienate customers and imperil future sales. Inventory charges contributed significantly to low gross margins for Amazon during its fourth quarter, which in turn was a factor in the company's $720 million net loss for fiscal 1999.

In partnering with Manugistics, Amazon acknowledges the impact that uncontrolled transportation costs have on its business. Though many Internet retailers find it difficult to manage the delivery of goods within one geographic segment, expansion to a global customer base brings a host of new complexities. Strategic network design applications such as NetWORKS Strategy enable companies to plan their supply and distribution networks from scratch, taking into consideration all the variables that can influence costs. Though a great portion of the work can be accomplished in the initial planning phase, a flexible application is required to allow adjustments to changes in suppliers, expansion to new customers and geographic regions, and changes to fixed and variable transportation costs.

User Recommendations

Amazon's move should embolden smaller Internet retailers to seek help in cutting costs and capturing elusive profits. Manugistics NetWORKS Transport offers the most mature functionality of all the transportation planning packages on the market today. Further, its hosted applications available through b-networks.com give smaller companies the opportunity to acquire advanced planning capabilities at lower up-front cost compared to traditional installations. Manugistics also has a strong solution for retail and consumer packaged goods and considerable experience in implementing its solutions.

 
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