Monday, February 25, 2019
Amazon: the Brink of Bankruptcy
Since its incorporation in 1994, Amazons business model had spread out from offering a simple internet marketplace for books to providing web run to online retailers, storage solutions and a dramatically expanded product line. Neverthe little, despite colossal sales the company failed to produce a profit for shareowners and Amazon was on the brink of bankruptcy at the get under ones skinning of 2001. If I were a shareholder who received the companys 2000 annual report, I would have powerfully agreed with CEO Jeff Bezos that the company must achieve profitability by year-end 2001.I would advocate that the company accomplish this by cutting cost related to fulfillment and inventory and by increasing taxation by capitalizing on the previous years investments in infrastructure. slice many expenditures in 2000 were related to Amazons efforts to go across its schema for growth, operating cost had also increased. Amazons fulfillment costs were 11 percent of sales in 1997 and 199 8, ballooned to 14 percent in 1999, and further increased to 15 percent in 2000.Because e-Commerce was still recent and just beginning to establish customer trust, its critical that these costs be reduced without negatively impacting quality, speed of delivery or customer service. Because of Amazons large scale and repeatable processes, I would recommend a continuous improvement strategy such as run for Six Sigma. Another area of operational cash drain is inventory. after adding multiple new product lines and distribution centers in 2000, inventory charge became a challenge for Amazon. In 1999, inventory turnover was 20% that of enemy Barnes and Noble and contributed to negative cash flow in 2000.Amazon would be well advised to use IT technology such as an advanced(a) ERP to better estimate the inventory needed to meet demand without overstocking. In addition to cutting costs, Amazon must increase revenue. While it may be tempting to suggest the company completely abandon mos t of its less profitable products and international endeavors, I think this would be curt advice. Many of these areas have just been developed and hold potential for emerging profits in the wake of the past years investment. Instead, I propose Amazon focus on their efforts to leverage existing infrastructure.For less profitable verticals such as consumer electronics and home and garden, the company should reproduce the Toys r Us model and partner with established, brick and mortar organizations that can benefit by exploiting Amazons ability to handle high volumes while simplification their risks of taking operations online. In return, these companies offer Amazon a stableness that other online retailers of the dot com era lack. It would be critical that Amazon implement these recommendations immediately in order to become profitable in 2001. Amazon. om must prove to Wall Street and investors that it is capable of generating a profit.Through 2000, oftentimes of Amazons growth was funded by investors and the debt market. The environment generated by the dot-com crash and Amazons plummeting credit rating will importantly limit access to new capital. Since the company will almost sure have to dip into existing cash reserves in the offset printing quarter of 2001 to pay suppliers for 2000 Q4 inventory among other obligations, Amazon must begin replenishing cash reserves through its operations in the next quaternity quarters.