InformationWeek
Defining The Business Value Of Technology
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November 6, 2000 |
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Amazon's IT Agenda
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Amazon.com is using E-marketing software from E.piphany to blast product offers out to its customers. The software deal was struck a year ago, but a full-scale implementation didn't begin until a few months ago, when E.piphany delivered an upgraded release of its applications suite, E.5. Amazon.com beta-tested E.5 and was the first company to deploy it broadly.
Amazon.com is using E.piphany's apps for two kinds of E-marketing programs: broad "launch" campaigns that go out to millions of customers, and focused "past-buyers" campaigns that can be limited to a few thousand. On a busy day, Amazon.com may launch as many as 30 campaigns to different customer segments. "I would imagine we'll see that go up substantially," says Phil Fernandez, E.piphany's executive VP of product development. "They're taking traditional campaign-management techniques and moving into a world of doing more targeted, high-velocity campaigns."
The SAS Institute and E.piphany products work in concert, both drawing upon the Oracle data warehouse of customer information that was deployed late last year. "It's sort of the center of the universe there," Fernandez says.
Here's an example of how the systems might work together: Amazon.com decides to offer a 20% discount to 20,000 people in an effort to sell excess inventory on a particular kind of camera. Database marketers at the company use the E.piphany application to identify people who have purchased camera equipment or supplies in the past, while statisticians use SAS Institute tools to rank other customers on their likelihood of buying. The results are combined, and the E-mail offer is sent out. "I personally get messages from them telling me about a new CD to come out," Fernandez says. "And they're scarily right in terms of matching my preferences with what I'd like to see."
E.piphany also specializes in capabilities for managing customer contact via Web sites and call centers, but Amazon.com isn't using E.5 for that part of its CRM strategy. Apparently, Amazon.com is using internally developed software for such a critical business application, something VP Bell would confirm only indirectly. When it comes to customer-contact applications on the site, he says, "that would be the last place" Amazon.com would look for packaged apps.
All the touchy-feely, give-'em-what-they-want service in the world counts for little if a retailer has problems getting merchandise into consumers' hands. Amazon.com last year poured millions of dollars into distribution centers that were opened around the country to stock inventory, and it's deploying new applications to better manage the availability and movement of the many items it sells.
The improvements were desperately needed. The company was forced to take a $39 million charge against 1999 fourth-quarter earnings because of unsold inventory. "They perfected the part of the system that captures demand," says Bruce Bond, Gartner Group VP and research director. "But they don't have the experience and business sense to know what it takes to meet that demand."
Nor, until recently, the applications. In the spring, Amazon.com disclosed plans to deploy Manugistics' business-logistics software, and it's adding Excelon's Extensible Markup Language-based business-to-business integration software, which it will use to establish tighter and more timely data-sharing with partners. "Some of this stuff actually is rocket science--the algorithms required for effective planning, for example," Bond says. "If they were going to re-invent the wheel, it would take a very long time."
Amazon.com uses two products from the Manugistics NetWorks E-business suite: NetWorks Strategy and NetWorks Transport. The former is used to plan the flow of goods through Amazon.com's transportation and facility network in the United States and Europe, says Terry Austin, Manugistics' executive VP of electronics and high technology. The software was used to determine the locations of Amazon.com's European distribution centers, no small feat given that logistics experts retained by Amazon.com suggested as many as 72 such locations. Manugistics claims to have saved Amazon.com $50 million by reducing that number, though it won't discuss the details. The software is also used to determine what quantity of each item should be kept on hand.
There are other challenges. Amazon.com needs to reduce inventory without running out of stock and store products in such a way that it minimizes so-called split orders, in which items are shipped from different facilities, raising its shipping costs.
Amazon.com has identified 18 "customer regions" in Europe, according to Manugistics. When a shipment crosses a border, NetWorks Transport will be used, along with speciality software that calculates the costs of tariffs and taxes, to arrive at the net landed cost of a particular item. Calculating net landed cost, or total cost of shipping, has been a problem for Amazon.com, says Stacie Kilgore, a senior analyst with Forrester Research, particularly for orders that flow from Europe to the United States. Because net landed cost is not reflected in the prices overseas customers see when they shop on Amazon.com's U.S. Web site, it results in sticker shock when the products actually arrive. According to Kilgore, up to 10 tons of books a day are returned to the United States from around the world.
A large amount of what Amazon.com sells--except for books--is produced overseas. For shipments bound for both the United States and Europe, NetWorks Transport is used to calculate the actual costs of shipping goods from their country of origin to the Amazon.com location where they will be stored. The software also plans shipping loads between a manufacturer and an Amazon.com facility, or between two Amazon.com facilities, taking into consideration the size, weight, and other characteristics of goods and deciding which can be shipped in the same containers. It helps schedule trucks, trains, and planes and track shipments, including expedited loads when, for example, demand peaks for Game Boys and Pokemon toys and air freight is required.
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Photo of Jeff Bezos by Ellen Banner
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