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MGMT 364 Midterm Exam Spring 2021
Problem 1: Amazon – Online Sales
Amazon sells books, music, and many other items over the Internet and is one of the pioneers of online consumer sales. Amazon, based in Seattle, Washington, started by filling all orders using books purchased from a distributor in response to customer orders. As it grew, the company added warehouses, allowing it to react more quickly to customer orders. In 2009, Amazon had about 20 warehouses in the United States and another 30 in the rest of the world. It uses the U.S. Postal Service and other package carriers such as UPS and FedEx to send products to customers. Outbound shipping-related costs at Amazon in 2009 were almost $2 billion.
With the Kindle, Amazon has worked hard to increase sales of digital books. As of 2009, Amazon offered more than 460,000 books in digital form. The company has also added a significant amount of audio and video content for sale in digital form.
Amazon has continued to expand the set of products that it sells online. Besides books and music, Amazon has added many product categories such as toys, apparel, electronics, jewelry, and shoes. In 2009, one of its largest acquisitions was Zappos, a leader in online shoe sales. This acquisition added a lot of product variety. According to the Amazon annual report, this required creating 121,000 product descriptions and uploading more than 2.2 million images to the Web site! In 2010, another interesting acquisition by Amazon was diapers.com. Unlike Zappos, this acquisition added little variety but considerable shipping volumes.
Several questions arise concerning how Amazon is structured and the product categories it continues to add:
1. What advantages does selling books via the Internet provide over a traditional bookstore? Are there any disadvantages to selling via the Internet?
2. Should Amazon stock every product it sells?
3. What advantage can bricks-and-mortar players derive from setting up an online channel? How should they use the two channels to gain maximum advantage?
4. What advantages/disadvantages does the online channel enjoy in the sale of shoes /diapers relative to a retail store?
5. For what products does the online channel offer the greater advantage relative to retail stores? What characterizes these products?
The Green Company is a retailer of gourmet bottled pickles that purchases its products from Whole, a gourmet food manufacturer. Green buys units (from Whole) at a price of $15 per unit and sells them to customers at $45 per unit. Currently Whole produces to Green’s order and delivers all requirements at the start of the period. Leftover inventory at the end of the season will be donated to a charity organization for free. The demand is lost when Green does not have inventory. Whole’s production cost is $10 per unit.
1. Given the current information, how many units of products should Green stock to satisfy demand? What is the associated profit for Whole and Green and for the supply chain in total?
2. If Whole and Green were one integrated company, how many units would be stocked? What is the associated profit for the supply chain?
3. Why is there a discrepancy between the previous two questions? What steps would you recommend to coordinate this supply chain?
The First Bank of Lafayette has a common office for mortgage and commercial credit processing. The process involves several departments: data collection, data verification, loan pricing, loan closing, and loan maintenance. For each of the departments, there are a number of clerks working in parallel. All requests pass through each of the 5 stages.
|Stage||Number of Clerks||Set-up Time||Processing Time|
|Data Collection||6||20 minutes||10 minutes|
|Data Verification||4||25 minutes||3 minutes|
|Loan Pricing||4||15 minutes||10 minutes|
|Loan Closing||4||4 minutes||20 minutes|
|Loan Maintenance||6||10 minutes||20 minutes|
Data Regarding orders received shows 40 orders per day for mortgage processing and 20 orders per day for commercial credit. Given that all orders are processed in order of arrival and that every order has to go through all 5 stages, provide the average lead time for First Bank to complete the process. Assume 8 hours of work per day, 5 days per week, and 50 weeks per year.