Amazon: the Brink of Bankruptcy

Since its incorporation in 1994, amazons business model had expanded from offering a simple internet marketplace for books to providing nett services to online retailers, storage solutions and a dramatically expanded product line. Neverthe little, despite massive sales the come with failed to produce a profit for shareholders and amazon was on the brink of bankruptcy at the beginning of 2001. If I were a shareholder who received the alliances 2000 annual report, I would have strongly hold with CEO Jeff Bezos that the company must(prenominal) achieve profitability by year-end 2001.I would recommend that the company accomplish this by cutting costs connect to fulfilment and inventory and by increasing tax by capitalizing on the previous years investments in infrastructure. While many expenditures in 2000 were related to viragos efforts to implement its dodging for growth, operating costs had also change magnitude. Amazons fulfillment costs were 11 percent of sales in 1997 an d 1998, ballooned to 14 percent in 1999, and further plusd to 15 percent in 2000.Because e-Commerce was still new and just beginning to establish customer trust, its lively 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 im certifyment strategy such as lean Six Sigma. Another area of operational cash drain is inventory. afterwards adding multiple new product lines and distribution centers in 2000, inventory management became a challenge for Amazon. In 1999, inventory turnover was 20% that of competitor Barnes and Noble and contributed to negative cash flow in 2000.Amazon would be well advised to use IT technology such as an advanced ERP to better melodic theme 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 ab andon some of its less profitable products and international endeavors, I think this would be poor advice. Many of these areas have just been positive and hold potential for future profits in the wake of the past years investment. Instead, I propose Amazon focus on their efforts to leverage quick 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 win by exploiting Amazons ability to handle high volumes while reducing their risks of taking trading operations online. In return, these companies offer Amazon a stability 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, much of Amazons growth was funde d by investors and the debt market. The environment generated by the dot-com crash and Amazons plummeting credit rating will significantly limit access to new capital. Since the company will almost certainly have to dip into existing cash reserves in the first 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 four quarters.