Amazon has shown impeccable growth over the last decade, with evidence showing that the company is bound to continue growing over the coming years. The company was explored within the context of how its supply chain operates to establish the trends that have been realized over the years and to give recommendations on the future. From an analysis of past reports, it has been shown that the number of Amazon subscribers has been increasing annually, with an estimated CAGR of 4.1% in the Middle East and Africa where the subscription is slightly low. In the U.S., the growth in subscription to Amazon Prime currently stands at a CAGR of 56%. The company has used a combination of excellent customer service and sound supply chain practices to ensure sustainability in growth. It can, however, be even more sustainable by becoming more proactive in preparation for a more competitive and dynamic online retail market in the future.
Amazon: Growth and Supply Chain Management
Introduction and Background
Amazon is widely recognized as a rapidly growing online company with a significant focus on customer service and the value chain as a whole. For the company, changes in the retail market have been met with innovative strategies that counter challenges and result in continued profitability. The company has grown into a leader in the retail market due to its creativity, with lessons that other players in the market can learn and use to develop their strategies for growth. Amazon has strengthened every piece of its supply chain from warehousing through to the inventory management, with important connections to third-party distributors such as FedEx. Currently, the company has plans to develop its delivery networks, and evidence shows that through the same avenues that the company manages smaller volume deliveries in close localities, it can manage larger deliveries and in off-show locations. The success of Amazon is based on the ability of its leaders to initiate progress towards directions that other retailers would not want to move in.
Amazon’s recognition as a leader in the retail sector and particularly in the online retail space is founded on various premises. Its business model contributes significantly to its growth through fast adaptability, frequent contact with customers, a customer-centric approach to handling operations, and continuous research and development. Investment in new technologies has also enabled the company to reduce its expenses significantly and thus making it possible to increase the cumulative profit margins even though the unit profit margins for the products sold are low. In the ensuing article sections, the objective will be to explore the operations of Amazon, particularly through an examination of its supply chain and its plans for the future. The paper is divided into various sections, each with a particular subject. The analytical results section presents a summary of previous data on the growth of the company. The conclusions present lessons that can be adopted from the company performance by other companies; the recommendations section presents the action plan that could be taken to make Amazon’s performance even better, while the future issues section gives a projection of expected future outcomes.
Trends in online commerce in recent years have shown that with access to the internet, more people realize the potential for greater business profitability through online marketing and even e-commerce. Amazon has proven to be a market leader in this sector as a result of continued expansion and multi-customer reach. As more people recognize the flexibility and efficacy with which they can obtain products they require across all categories, there has been increasing trends in Amazon subscriptions as well. The chart below can give an overview of the subscription growth at Amazon over the last few years. From the chart, the percentage of subscribers by monthly income is indicated, showing that up to 70% of individuals who shop online with a monthly income of $150,000 are Amazon subscribers (Columbus, 2018). The percentages reduce as the monthly income reduces, probably as a result of dwindling disposable incomes. These percentages are, however, growing yearly as more people discover the benefits of Amazon. Accordingly, Columbus (2018) reported a compounded annual growth rate (CAGR) of 56% for Amazon between 2016 and 2018.
Chart 1: Amazon Subscribers by Monthly Income Levels
(Source: (Columbus, 2018))
The subscriber base for Amazon Prime is projected to grow by 122 million within the next four years, an indication of the company’s sustainable growth. It is also approximated that up to 45.9% of the increased subscribers will be from the U.S alone. In the chart below, Amazon Prime subscriber base is shown for the years 2013 to 2018. The increasing numbers of subscribers can be deduced to result in increasing profit margins for the company.
Chart 2: Amazon prime Subscriber base from 2013 to 2018
(Source: (Columbus, 2018))
The outcomes from the observed Amazon growth rates are inarguably associated with increased profitability for the company. Amazon has been registering increased profits as a result of increased purchase volumes from both Prime and non-prime subscribers. This is attributed to the finding that customers increase their purchases on Amazon upon subscribing to either service. Amazon’s business strategy is to offer customer-centric service that delivers value at a lower price. The company promises to avail anything needed by a customer. The high-quality customer service encourages customers to make more purchases hence the increasing profitability. The chart below describes the expenditures incurred by customers on Amazon based on their years of subscription.
Chart 3: Average spend on Amazon per customer
From the results presented above, Amazon’s growth can be understood as a function of its dedication to high-quality customer service and willingness to provide customer value at lower prices. The motivation to continue and to grow expenditure is motivated by the high-quality service, which is reflected throughout the entire supply chain. From the warehousing to manufacturing, the company incorporates different strategies to ensure that customer needs are met. For instance, Johnson (2018) reports that the company’s warehousing strategy involves ensuring that products are easily accessible from anywhere across the world, which is achieved by placing warehouses close to population hubs and big metros and spreading inventory across them to meet demand. In smaller areas, the company has mini-warehouses that help in ensuring that consumer demands are met.
The company also has one of the best delivery plans across the world in comparison to other retailers. The combination of traditional and super high tech delivery systems such as drones helps to address the delivery challenges that are commonly faced by retailers and other online companies, thus realizing greater value addition. Due to the accessibility of Amazon products, other companies such as Google Shopping have found it significantly hard to compete with Amazon. Additionally, the company capitalizes on technologies such as artificial intelligence to ensure that the customer demands are met.
Amazon has consistently proven that it is capable of competing favorably in the online retail market by satisfying customer needs and meeting industry growth demands. From the analytical results presented, it is clear that Amazon is solidly set on the path of growth, with a focus on customer service as the driving force behind the growth. Focus on the customer has also proven to be an effective motivation not only for subscriptions but also for incremental purchases.
Amazon is consistently making headlines as a leader in the retail and online market segments. Through its customer centeredness, technology use, and the early entrant advantages, the company is respectably a growing giant. However, it is questionable how long Amazon can maintain the same growth patterns. The company should continue to focus on its customers and work more towards providing entertainment options for the subscribers. While Amazon Prime offers great entertainment opportunities, it mainly targets people with high monthly income levels. The company should, therefore, come up with different subscription levels that would offer those of lower income an opportunity to access other services under Amazon Prime. This could be done through grading and offering service bouquets. Additionally, offering such opportunities can inform clients on the availability of low-cost products through Amazon since most of the low-income earners may be limited by the perception of high subscription costs, which discourage them, hence preventing them from getting access to other products as well.
Amazon is growing in an industry whereby technology is increasingly playing an important role in businesses and companies. Any organization intending to grow sustainably in such an environment has to be proactive in developing its people towards better customer service, as well as ensuring that the technologies in use offer a competitive advantage to the company. For instance, Amazon currently has a competitive advantage over most other online retailers due to its robust distribution strategy, in which the company uses even drones to do deliveries. In the future phases of growth; therefore, the company is expected to invest more in research and development to understand what would help in addressing customer needs in the context of growing technical competitiveness. Moreover, the company will face the challenge of competition from new entrants into the market. With worldwide access to the internet and multiple opportunities for e-commerce, competition is bound to increase even within the internet space. However, the growth projections for Amazon up to 2025 show impeccable growth, and this period is sufficient for the company to foster on how it will address its challenges post-2025.
Columbus, L. (2018, March 19). 10 charts that will change your perspective of Amazon Prime’s growth. Enterprise CIO. Retrieved from www.enterprise-cio.com/news/2018/mar/19/10-charts-that-will-change-your-perspective-of-amazon-primes-growth/
Cook, J. (2016, June 15). Here’s how much Amazon Prime customers spend every year after they become members. Business Insider. Retrieved from www.businessinsider.com/how-much-amazon-prime-customers-spend-every-year-after-they-become-members-2016-6?IR=T
Johnson, T. (2018, July 25). How the Amazon supply chain strategy works. CPC Strategy. Retrieved from www.cpcstrategy.com/blog/2018/07/amazon-supply-chain/