Analysis of Amazon's Use of Diseconomies of Scale in Operations

This report examines Amazon's strategic application of diseconomies of scale to minimize production costs and maintain competitive growth. It begins with a background on Amazon and its operating environment, highlighting the company's goals and competitive landscape. The core of the report focuses on the concept of diseconomies of scale, contrasting it with economies of scale and explaining its causes, such as communication challenges and management inefficiencies. It explores how Amazon utilizes diseconomies of scale in its production and distribution processes, including the use of drone delivery and e-commerce to reduce labor and transportation costs. The report analyzes the performance of Amazon through the lens of diseconomies of scale, citing its market value and revenue figures as evidence of effective strategy implementation. The report also includes a literature review, summarizing various perspectives on the subject and the rationale for adopting these theories, as well as limitations.

Running head: Operation Management 1
Operation Management – Economic of Scale
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Operation Management 2
TOPIC
The topic of investigation will focus on how Amazon will use dis-economies of scale concept
in archiving minimal production cost as the size of organization grows. The research study
will compile technological research, innovations idea, and other business strategies which
will facilitate competitive growth.
COMPANY BACKGROUND
Amazon was derived from river Amazon, which is the biggest river over the world, where
the first letter “A” which was to establish the organization to be seen as the superior among
other competitors. Through Jeffrey P. Bezos Amazon was established in 1994. The Company
(Amazon) headquarters are in “Seattle Washington United States”, this is the central point
where cloud technology services are originated. Amazon was famous to the world because of
the books which were published having great information about Amazon as a company to be
unique with its products and services. Its stock was put in place around 1997 through the
supervision of NASDAQ as the symbol of AMZN at the value of $18.00 per share. After that,
the value of stock duplicates over the past ten years of production and supply in the market
(Althafairi et al. 2019).
With time the Company advanced to more adoption of the new Artificial Intelligence (AI)
technology aiming to increase sales, and own large market over the global. This technology is
to have drone delivery within a month after purchase of Amazon products.
OPERATING ENVIRONMENT OF THE COMPANY
Amazon’s environment for business operation is very competitive due to the internal and
external environment surrounding the organization and the market. The main Amazon's goals
are to become the digital company which will have a large market, grow simultaneously with

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high market demand. This is achieved through having successful low output cost, which will
maximize sales. The environment of the Amazon is divided into three sectors, namely
general, industries, and competitive environment. From the general environment, the
organization is associated with threats, opportunities, and strength and weakness to utilize the
market. Technology is growing; therefore, from the industry, Amazon is one of the famous
company using technology knowledge and skills in providing its services and products to the
customers through the drone (Onyusheva & Seenalasataporn, 2018). This allows having a
competitive advantage to face local and international competition in the market.
DIS-ECONOMIES OF SCALE CONCEPT
The concept, diseconomies of scale is the contrasting of economies of scale which are cost
disadvantages that a company accrues due to the growth in size and production of the
organization. Normally, diseconomies of scale facilitates future growth at average costs
which favours the organization operation. It is caused with high communication costs
because when a firm has many workers, it will need many channels of communication as
compared to that one of few workers who will need only one or two channels of
communication. Many employees, at some point one-way communication becomes an
impractical, leading organization to experience some incompetence due to the poor
communication techniques has been reduced (Schor & Cansoy, 2019).
To deal with adverse influence of diseconomies of scale within a company results to minimal
production cost. Also by having reduced production cost, the firm needs to expand globally
thus increasing the demand of products to the world market. The company should pursue new
potential markets through developing and launching new product and service using current
technology (De Propris & Pegoraro, 2019). The company should hire new personnel in the

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organization system of management through input of new investment in the area of concern.
This will lead to an increase in productivity. Also, well-improved management leadership
system, effective and efficient control of labour, and operations within the organization lower
overhead.
HOW AMAZON USES DIS-ECONOMIES OF SCALE
Amazon utilizes this concept in both production and distribution of products and services in
the market. Amazon uses dis-economic of scale in minimizing the cost per unit in production,
like distributing the cost of producing one video which is created once, thus one-time cost
distribution. This has increased the efficiency of increasing the net profit. Also, Amazon used
technology by having drone delivery and other e-commerce which reduces labor and
transport cost incurred. Therefore, this improves the way things are done by Amazon inside
and outside the organization, thus increasing the scale of dis-economies (Córdoba et al.
2019).
PERFORMANCE OF AMAZON THROUGH USE DIS-ECONOMICS OF SCALE
Amazon is one of the global organization which is struggling to use the benefits of dis-
economies of scale in the market. For example, according to Wiwad et al., (2019), the
following are a clear indication of ways in which Amazon utilizes the concept of scale, thus
doing well in the market environment.
 Amazon's rolling stock price currently places to be the second most valuable company
around the globe based on value Enterprise.
 The operating expense and margins indicate annual revenue of $ 178 billion in the
absence of economies of scale, meaning concept of dis-economies was available.

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 According to 2018, guideline indicates explosive growth revenue, but lack of profit
while the organization is performing well in the market.
REFERENCES
Althafairi, B., Alhoumaida, N., Saxena, M., & Almsri, Z. (2019). Case study-
AMAZON. Journal of the community development in Asia, 2(2).
Córdoba, D., Juen, L., Selfa, T., Peredo, A. M., de Assis Montag, L. F., Sombra, D., &
Santos, M. P. D. (2019). Understanding local perceptions of the impacts of large-scale
oil palm plantations on ecosystem services in the Brazilian Amazon. Forest Policy
and Economics, 109, 102007.
De Propris, L., & Pegoraro, D. (2019). Technological Disruptions and Production Location
Choices. In The Changing Strategies of International Business (pp. 221-240).
Palgrave Macmillan, Cham.
Onyusheva, I., & Seenalasataporn, T. (2018). STRATEGIC ANALYSIS OF GLOBAL E-
COMMERCE AND DIVERSIFICATION TECHNOLOGY: THE CASE OF
AMAZON. COM INC. The EUrASEANs: journal on global socio-economic
dynamics, (1 (8)), 48-63.
Schor, J. B., & Cansoy, M. (2019). The Sharing Economy. The Oxford Handbook of
Consumption, 51.

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Wiwad, D., Mercier, B., Maraun, M. D., Robinson, A. R., Piff, P. K., Aknin, L. B., & Shariff,
A. F. (2019). The Support for Economic Inequality Scale: Development and
adjudication. PloS one, 14(6), e0218685.