The statement of the problem is that Amazon's high rate of product returns is affecting the company's profitability and customer satisfaction.. Problem Identification: One of the main pr
Trang 1NATIONAL ECONOMICS UNIVERSITY
BUSINESS SCHOOL
OPERATIONS MANAGEMENT GROUP ASSIGNMENT TOPIC:
High Product Return Rate
in Amazon’s Operations Management System
Lecturer: Prof Dr Sanjeev Phukan
Prof Dr Nguyen Quốc Duy
Students: Nguyen Duc Huy - EMBA21032
Nguyen Phuoc Long - EMBA21036 Tran Anh Dung - EMBA21001 Nguyen Thị Hoang Yen - EMBA21047
Hanoi, May, 2023
Trang 2
TABLE OF CONTENTS
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6 Statement of the Problem: 00 ố 4
7 Possible Causes of the 0 5
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2 Data collection and anaÌySIS: - - - SH xxx HH HH KH HT HT TT TT TT TH 7 ko 1 9 C2s7/1//12772107/08.18/712/5)x7/7/2/1000000n0n0n0n0n0n8nẺẺ0606 6 eee 10 1.Improving product quality €onr0Ì: - - 5c 2s TY HT HH TY HH TY Hành nhe HE 10 2.Enhancing the delivery DFOC€SS: - Q QQ ĐÀ QQ HT nọ HH ke kikg 10 3.Managing cus(omer ©€XD€CfẠOTS: - Q- nọ Họng HT ki n n x 11 4,Potential benefits received by the organization if it makes these changes: 11
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In today's competitive business environment, companies must optimize their
Trang 3operations management to remain competitive and profitable This report analyzes a practical problem in a real-world company in the area of operations management The company
chosen for this analysis is Amazon, the world's largest online retailer Amazon has
revolutionized the retail industry with its efficient and innovative operations management system However, despite its success, Amazon has faced numerous operational challenges over the years This report aims to identify a specific problem in Amazon's operations management system, analyze the problem, and provide recommendations to address the issue The existing system and identifying problems:
1 Amazon's operations management system
It is a complex system that involves various subsystems such as inventory management, logistics, supply chain management, and customer service The company's performance indicators include customer satisfaction, on-time delivery, inventory tumover, and profit margins Despite its success, Amazon has faced numerous operational challenges over the years One significant problem is the high rate of product returns, which has negative implications for the company's profitability and customer satisfaction The statement of the problem is that Amazon's high rate of product returns is affecting the company's profitability and customer satisfaction Possible causes of the problem are the quality of the products, issues with the delivery process, and customer expectations
We suggest that Amazon cooperate with the government to promote more trading and buying on the platform It is also extremely important to properly allocate traffic on waterways, roads, railways, and air routes to help the commerce industry in general and the Amazon empire flourish beyond the United States
2 Short Overview of the Existing System:
Amazon is one of the world's largest online retailers, offering a wide range of products to customers around the globe Its operations management system involves various sub-systems, including inventory management, logistics, supply chain management, and customer service Amazon's system is designed to provide customers with fast and efficient delivery, a wide range of products, and a seamless online shopping experience
We recommend that Amazon open at least 2 more complaint handling offices in 200 countries worldwide; located in 2 main cities for the most convenient customer experience This will cost about 400 people worldwide but will raise the competitive level of AMZ to multi-continental and extremely popularize the shopping behavior of local people
Trang 43 Roles and Functions of SubéSystems:
® Inventory Management: responsible for managing and tracking inventory levels, ensuring that products are available for purchase, and avoiding stockouts
Logistics: responsible for order fulfillment and delivery to customers
Supply Chain Management: responsible for managing suppliers, ensuring timely delivery of products, and maintaining quality control
® Customer Service: responsible for handling customer inquiries, resolving issues, and managing product returns
4 Indicators of the System's Performance:
e@ Delivery speed and efficiency
Online shopping today has too many conveniences to mention However, a major inconvenience is that instead of going to buy and pick up items at a brick-and-mortar store,
we have to wait a few days for the online item to be shipped
But that all changed three years ago At the end of May 2015, online retail giant Amazon launched the Amazon Prime service - allowing customers to order and receive goods within the same day:
“+ Amazon has huge warehouses called "fulfillment centers"
«* Amazon has a team of "pickers" - as the name suggests, these are people who specialize in picking up, wrapping and delivering to drivers
«* The delivery team includes both Amazon employees and professional shipping services that Amazon works with
The task of the delivery team is to bring the product to the user as quickly as possible
So they combine walking, bicycle, public transport, car and truck - as the case may be So with a clear regulatory policy, a vast warehouse, a professional "picker" team, and a flexible delivery team, Amazon has significantly shortened its shipping time However, they also met many failures as well as many formidable competitors such as Google Express, Walmart, local companies,
e@ Product availability and inventory turnover
Amazon is currently the world's leading e-commerce group, with sales in the fourth quarter of 2022 amounting to 125.6 billion USD One of the key factors to Amazon's success
is its superior inventory management, which helps drive business growth That's also the key
to Amazon's unique value: wide selection, low prices, fast and convenient delivery
e Successfully building a modern warehouse system
Trang 5Globally, Amazon operates more than 175 warehouses with 150 million square feet of space and is equipped with more than 200,000 robots that help deliver more than 350 million different products in billions of non-stop deliveries every day Amazon's largest warehouse is
located in Phoenix with an area of about 111,500 square meters, equivalent to 28 football fields Each warehouse is closely linked from manufacturers, distributors to customers The
warehouses are located in strategic locations, located near major consumption centers with convenient transportation systems, meeting the ability to quickly distribute goods
In order to effectively operate its "huge" warehouse system, Amazon has had superior inventory management methods, contributing to its success at the present time
e Customer satisfaction ratings
The latest results from ACSI (American Customer Satisfaction Index) show that Amazon still holds an undisputed monopoly This is possible because Jeff Bezos, the CEO of Amazon, has brought the philosophy of dedicated customer care into the digital age Bezos has built from a small, anonymous company into a large company based entirely on a solid and never compromise philosophy: focus on customer care across all
departments With 164 million Amazon customers as a result, Bezos is the main "architect"
building a customer-centric company
e Amazon's Secret to Success: Quick Return Policy
According to a recent survey by StellaService, the average time it takes Amazon to
reach customers is only about 30 hours, the fastest among the 40 US e-commerce services
surveyed This marks a dramatic change in Amazon's refunds, which are almost four times faster than they were a year ago In addition, while many other companies only accept refunds when a customer has returned the item, Amazon is willing to accept refunds as soon
as requested and give customers 30 days to return them
5 Problem Identification:
One of the main problems in Amazon's operations management system is its high product return rate According to a report by Feedvisor, a software company that provides e- commerce solutions, the average return rate for e-commerce companies is around 30%, while Amazon's return rate is as high as 35-40%,
6 Statement of the Problem:
Amazon's high product return rate is affecting its profitability, operational efficiency, and customer satisfaction levels The company must address this problem to remain competitive in the retail industry
Trang 67 Possible Causes of the Problem:
® Inaccurate or incomplete product descriptions: Customers may return products because the product description did not accurately reflect the product's features, size,
or quality
e@ Poor quality control: Products may be returned due to poor quality, damage, or defects, which could have been prevented through better quality control measures
e Inefficient logistics and delivery systems: Late or inaccurate deliveries may result in customers returning products due to frustration or dissatisfaction with the delivery experience
@ Misaligned customer expectations: Customers may return products because their expectations were not met, such as the product not performing as expected or not meeting their specific needs
Problem analysis:
1 Problem Analysis of High Product Return Rate in Amazon's Operations Management System:
Amazon is one of the world's largest e-commerce platforms, and its operations management system plays a critical role in its success However, one of the biggest challenges that Amazon faces is a high product return rate In this assignment, we will use root cause analysis and fishbone diagram to analyze the high product return rate in Amazon's
operations management system
To analyze the problem, we will use the following tools and techniques: Root Cause Analysis (RCA), Data Collection and Analysis, and Fishbone Diagram RCA is a problem- solving method that aims to identify the underlying causes of a problem Data Collection and Analysis will help in understanding the rate of product returns and the reasons behind them The Fishbone Diagram will help in identifying the potential causes of the problem
® Root Cause Analysis:
Root cause analysis is a technique used to identify the underlying causes of a problem In this case, the problem is a high product return rate The first step in root cause analysis is to gather data We need to know how many products are being returned and what the reasons are for the returns We can also collect feedback from customers to understand their expectations and reasons for returning products
We can use the 5 Whys technique to identify the root cause of the problem This involves asking "why" five times to dig deeper into the underlying causes of the problem Let's take a look at an example of how this might work:
Problem: High product return rate
Question 1; Why are so many products being returned?
Trang 7Answer: Because customers are not satisfied with the quality of the products Question 2: Why are customers not satisfied with the quality of the products?
Answer: Because some of the products are not as described or are damaged during shipping
Question _3: Why are some of the products not as described or damaged during shipping?
Answer: Because there is a lack of quality control during the product listing and shipping processes
Question 4: Why is there a lack of quality control during the product listing and shipping processes?
Answer: Because there are too many products and not enough staff to handle quality control effectively
Question 5: Why are there too many products and not enough staff to handle quality control effectively?
Answer Because Amazon is growing rapidly and has not been able to keep up with the demands of its operations management system
e Fishbone Diagram:
A fishbone diagram, also known as an Ishikawa diagram or cause-and-effect diagram,
is a visual tool used to identify and organize the various factors that contribute to a problem The fishbone diagram helps to break down a problem into smaller, more manageable
components
© The first factor is about people The people factor includes employees who are responsible for quality control during the product listing and shipping processes The lack of staff and training can lead to a lack of quality control and, ultimately, high product return rates
© Next, the process factor includes the steps involved in listing and shipping products The lack of standardization and communication between departments can lead to errors and ultimately, high product return rates
© Thirdly, the product factor includes the quality of the products being sold on Amazon Poor product quality can lead to customer dissatisfaction and ultimately, high product return rates
© The fourth one is packaging The packaging factor includes the quality and effectiveness of the packaging used to ship products Poor packaging can lead
to damage during shipping and ultimately, high product return rates
© Finally, the technology factor includes the systems and tools used to manage operations at Amazon Inefficient or outdated technology can lead to errors
Trang 8and ultimately, high product return rates
Causal factors as learned from the subject matter: After conducting the RCA and Fishbone Diagram, we have identified the following causal factors that contribute to Amazon's high rate of product returns:
® Quality issues with the products: Amazon's vast product inventory and third-party sellers may result in lower-quality products
Delivery issues: Customers may receive products that are damaged, defective, or late
Customer expectations: Customers may return products due to wrong size, color, or
different from expectations
2 Data collection and analysis:
Internally, we will analyze Amazon's sales and return data to identify patterns, trends, and specific product categories with high return rates Externally, we will gather customer feedback, product reviews, and other qualitative data from online sources to understand customer perceptions and expectations
e Gathering Customer Feedback and Product Reviews
To understand customer perceptions and expectations on Amazon, we will gather data
from a variety of online sources, including social media platforms, online forums, and
product review websites These sources will provide us with a diverse range of opinions and feedback from customers who have purchased products on Amazon
The first step is to identify common themes and topics that customers frequently mention in their feedback For example, customers may comment on the quality of the product, the accuracy of the product description, or the speed of delivery We will use natural language processing techniques to identify these themes and group customer feedback accordingly
On Amazon's website, customers can leave feedback and reviews on individual products they have purchased This feedback typically includes a rating out of 5 stars, as well
as a written review detailing their experience with the product By analyzing this feedback,
we can gain insights into the most common issues customers have with certain products, as well as their overall satisfaction levels
In addition to analyzing customer feedback on Amazon's website, we can also gather customer feedback from other online platforms Social media platforms such as Twitter and Facebook can provide valuable insights into customer perceptions and expectations, as customers often share their experiences and opinions about products on these platforms Forums and review websites such as Reddit and Yelp can also provide valuable insights into customer opinions and experiences
Next, we will analyze product reviews to gain a deeper understanding of the reasons behind product returns Reviews that mention product defects, sizing issues, or incomplete
Trang 9orders can provide insights into specific product categories that have high return rates We will also pay close attention to reviews that mention issues with shipping or packaging, as these may contribute to product damage or loss during transit
e Analyzing Customer Feedback and Identifying Patterns and Trends
Once we have gathered customer feedback and product reviews, we will analyze the data to identify patterns and trends By grouping feedback according to common themes, we can identify areas where Amazon may need to improve its operations or address customer concerns For example, if a high number of customers mention issues with the accuracy of product descriptions, Amazon may need to improve the quality of its product information or provide additional product details
We will also use sentiment analysis to gain insights into overall customer satisfaction
By analyzing the tone and language used in customer feedback, we can understand how customers feel about their overall experience with Amazon Negative sentiment may indicate areas where Amazon needs to improve its operations or customer service, while positive sentiment may provide insights into areas where Amazon is excelling
e Identifying Specific Product Categories with High Return Rates
We will use our analysis of customer feedback and product reviews to identify specific product categories with high return rates on Amazon By grouping reviews according
to product categories, we can identify areas where Amazon may need to take action to reduce the rate of returns For example, if we find that a high percentage of reviews for clothing items mention sizing issues, Amazon may need to improve its sizing information or provide more detailed measurements for its clothing products
Gathering customer feedback and product reviews can provide valuable insights into customer perceptions and expectations on Amazon By analyzing this data, we can identify patterns, trends, and specific product categories with high return rates This information can help Amazon improve its operations, address customer concerns, and reduce the overall rate
of returns
Trang 10Clothing
e Possible Causes of High Return Rates:
Now that we have identified specific product categories with high return rates and common issues mentioned in customer feedback and product reviews, we can investigate the possible causes of these high rates For example, in the case of electronics, we may find that certain brands or products have higher return rates than others due to quality or functionality issues In the case of clothing, we may find that there are issues with sizing or material quality
In the case of jewelry, we may find that customers are returning items due to incorrect sizing or dissatisfaction with the appearance of the item This may be due to a lack of product information or poor product photography on Amazon's website
e Addressing High Return Rates:
To address high return rates, we can take several actions For example, we can improve the quality and functionality of our products, provide more detailed product information and high-quality product photography, and offer better customer service and support We can also identify and address any issues with product sizing or material quality Another way to reduce return rates is to implement a more stringent product selection process This can involve evaluating potential suppliers and products based on quality and performance criteria, as well as monitoring product performance over time to identify any issues
We have analyzed Amazon's product return rate, customer feedback, and sales data
The analysis reveals that the product return rate is relatively high, and a significant number of returns are due to quality issues, delivery problems, and customer expectations