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Amazon: more like Toyota than Tesco

Posted by Michael Ross on

Part I: Planning

Amazon has been a pioneer in many areas of eCommerce – from technology and operations to site experience and pricing. But at the core of its success has been the reinvention of retail management.

Amazon has recognised that eCommerce has more in common with manufacturing than traditional retail. It has learnt more about management from Toyota than Tesco.

Online retailing is like a production line, with interrelated processes, waste, inefficiency and statistical outliers. This challenge is very familiar in manufacturing. In fact, the entire development of Kaizen/Lean (The Toyota production system) was focused on eliminating inefficiency and waste from car production.

In this four part series I take a look at how Amazon has applied manufacturing philosophy to online retail across four aspects of its operations: planning, action, measuring and reviewing.

Planning

This quote from Jeff Bezos’ 2010 letter to shareholders illustrates the focus on planning at the input level.

“For 2010, we have 452 detailed goals with owners, deliverables, and targeted completion dates…..Taken as a whole, the set of goals is indicative of our fundamental approach. Start with customers, and work backwards. Listen to customers, but don’t just listen to customers –also invent on their behalf.”

There are complex interactions between customer, site, product and marketing decisions.  Planning based on outcomes, like conversion rate and average order value, makes it impossible to work out exactly what each team needs to deliver.

I can’t count the number of trading meetings I have observed where people debate why –as an example- average order value (an output!) went down last week. This typically triggers a flurry of in-meeting opinions and post-meeting analysis to hunt the culprit. By the time the answer is found, it is typically too late to take action.

For more information on Amazon’s approach to managing online retail, download the latest edition of Decision Intelligence here

About the author Michael Ross

Michael co-founded eCommera with Andrew McGregor in 2007. Prior to eCommera, Michael was CEO of Figleaves.com, the world's leading online retailer of multi-brand lingerie, and swimwear.

Michael is the force behind the Trading Intelligence Quarterly and regularly presents at eCommerce events across Europe. Michael also works very closely with our team of analysts developing formulas, models and algorithms that solve the challenges of online retail.

In 2011 Michael  ranked number 27 on Retail Week’s ranking of the 50 most influential people in retail.