In order to manage its capacity efficiently, Amazon has also employed drop shipping technique which is a technique of supply chain management that help business organisations in reducing their inventory level by transferring the orders of the customers directly to the manufacturer or a wholesaler, who further ship the goods to the ultimate consumers.
However for Amazon, there was a huge risk involved in outsourcing its inventory, but in 2001 the company decided to outsource its inventory and by doing so the company has managed its inventory even more efficiently while continuing the provision of superior services to its customers.
In this regard, O’Connor (2013) stated that Amazon did not outsource its every inventory as the company stocked the items that were popular and their demand in the market was high. For example, if any book is not much popular and a customer orders it from Amazon then Amazon requests the item from its distributors, who ship the desired items to the company where they are unpacked and then shipped to the customer who ordered the product (Kiran 2015).
Fundamentally it can be stated that the company served as a transhipment centre and ensured the efficient delivery of the products to the end consumers efficiently. According to Kiran (2015), some of the main distributors of Amazon include Cell Star who handled cell phone sales, while Ingram Micro handled the distribution of computers and books for the company.
O’Connor (2013) stated that Amazon entered into a contract with Ingram Micro Inc for distribution of the laptops, desktop computers and other computer-related products. Bezos believed that the drop shipment model was very successful for the company and then he decided to employ this model to all other categories as well. However the only and major disadvantage of this model for Amazon was when a customer orders two different items, for
instance, a book or a CD and if the book is stocked by Ingram and CD is stocked by Amazon then Ingram will send the book to Amazon and then the company will pack the book with CD and then the parcel will be sent to the customer, this was a time-consuming task. Hence Kiran (2015) concluded that the drop shipment model was not very effective for Amazon as more than 35 % of the orders placed at Amazon were of different categories.
Kiran, B. (2015). Inventory Management at Amazon, Available online at:
[Accessed on 03/01/2019].
O’Connor, S. (2013). Amazon unpacked, Available online at: