Operations and Supply Chain Management The Core

markets. The firm has invested heavily in technology, including 30,000 robots that
roam its warehouses storing and picking items 24 hours a day, 7 days a week.
More than 25 percent of American households
have Amazon Prime memberships, entitling them to
free 2-day shipping on products, free videos, and
free streaming music. The company keeps growing
and innovating. It produces its own film and TV
shows, has developed the amazing Alexa voice service,
and is now disrupting food retailing through
its Whole Foods stores. When Amazon decides to
move into a market, existing companies are forced
to take notice.
Inventory management is the unsexy nitty-gritty that makes Amazon successful.
The giant retailer sells products from inventory managed at its own warehouses, or
from the inventory of third-party partners. The game of managing millions of orders
needs to be done accurately and optimized for maximum efficiency. How much
should be ordered from its vendors? When should the orders be placed? These
are the two fundamental questions that Amazon needs to answer millions of times
each week.
This chapter is about managing inventory. The statistics, the mathematical logic,
and the management processes make up the main topics. The concepts in the
chapter are vital to the success of virtually all companies that consume or sell
things. You should visualize inventory as stacks of money sitting on forklifts, on
shelves, and in trucks and planes while in transit. That is what inventory is—money.
For many businesses, inventory is the largest asset on the balance sheet at any
given time, even though it is often not very liquid. It is usually a good idea to try to
keep inventory levels down as far as possible. Because inventory is money, having
too much may leave the company with too little money to operate.