Paper Example on Effects of Oil Spill on Financial Performance of Amazon

Amazon depends on various suppliers for it to fulfill various orders that customers have placed. Some of these suppliers come from overseas countries and rely on sea transport in delivering their merchandise and therefore if there is an oil spill, these suppliers find it hard to deliver such merchandise to Amazon on time. On the other hand, Amazon will also face a challenge in delivering some of the goods, especially to its oversea customers while using sea transport. As a result, the companys financial statement will be affected by this turn of events.

First, Amazon will experience reduced inventory since the supplies from overseas suppliers will not arrive as expected. As a result, the company will have to adjust its figures on the balance sheet especially the current assets that will be affected due to reduced inventory. For instance, in 2016, the balance sheet shows that inventory stood at $11,461,000 as per 31/12/2016 and this figure may reduce as a result of this disaster ("AMZN Income Statement," 2017). Also, the company will not be able to fulfill some of the orders that consumers have placed especially if the orders could only be fulfilled if Amazon could have received merchandise from affected suppliers. As such, the companys total revenue that stood at 135,987,000 in its annual income statement for the year ending 31/12/2016 will reduce. Furthermore, the company will receive a lot of complaints due to lack of order fulfillment which might result in extra charges since some customers will demand compensation. Under the income statement, the company will have to introduce non-operating expenses in its income statement to show the charges that the company incurred in compensation (Florian & Constangioara, 2014)Due to increased pressure from the affected consumer that solely depend on these suppliers, Amazon will instruct the affected suppliers to use air transport to deliver the goods which are more expensive as compared to sea transport. This will result in increased cost of operation thus causing interruptions in our supply chain as order fulfillment cost will rise. Last year, operating expenses amounted up to $43,536,000 according to the annual income statement, and this figure will go up as a result of the disaster (AMZN Income Statement, 2017). At the same time, our companys net income will reduce since the extra cost is subtracted from the total revenue earned. Also, the inventory related cost goes up due to slow moving merchandise that forces the company to incur storage related cost hence leading to increased operation cost (Florian & Constangioara, 2014). Lastly, there will be other charges from the government such marine protection charges that the company incurs that cannot be quantified, and the company will have to consider these as non-operating expenses while preparing the income statement.

Strategies to Use in Addressing the Impact of Oil Spill

Amazon should focus on customer retention and hence the company should ensure that it comes up with a team that offers a solution to our existing customers who are not able to receive the merchandise on time. One way is finding an alternative item which is similar to what the customer ordered and provided an explanation on why what was requested is out of stock. Another solution is being able to find a store in proximity that has the merchandise that the customer is requested. Amazon can also increase its number of retailers who can respond to customer demands on time as the main warehouse struggles to replenish the stock.

References

AMZN Income Statement. (2017). NASDAQ.com. Retrieved 14 August 2017, from http://www.nasdaq.com/symbol/amzn/financials?query=income-statement

Florian, G. L., & Constangioara, A. (2014). The impact of risks in the supply chain on organizational performances: evidence from Romania. Economia. Seria Management, 17(2), 265-275.