Skip to Content

In the year since Amazon Supply opened in April 2012 offering a new channel for industrial B2B products, the industry “buzz” has gotten louder as time has gone on.  I can’t recall a conversation with a wholesale distribution company over this time frame that has not touched on this subject. These conversations center on what they can do to compete with Amazon, a company with a track record of success in the distribution business. In a recent development, Google has entered this segment with “Google Shopping for Suppliers”, now undergoing Beta testing. The impact of these two online giants has changed the face of the industrial segment of the wholesale distribution industry.  Here are some things that existing industrial distribution companies will need to address to compete with these two new players.

The most obvious place to look at the impact of Amazon Supply is price.  With Amazon Supply posting their prices on the Web for all to see, each wholesale distribution company can expect to face questions about their prices from even their most loyal customers.  This means that industrial distributors will need to look at each product they stock and what service level they offer for that item. This may be little more than giving greater visibility to ongoing reviews of stocking and service levels. In some cases, upgrades to supply chain planning software may make this process easier and faster. For example, do they want to stock 100% of their catalog in each branch?  Alternatively, do they want to stock slow moving or high value items at one branch and serve customers via two-day parcel delivery?  And what will they do with items that are too large for parcel and need to be shipped via less than truckload carrier? And, of course, how do they do this profitably?

Every industrial wholesale distribution company needs a world class Web presence.  Since Amazon Supply offers retailers and resellers the opportunity to become “Professional Sellers” on their site, they have the opportunity to use Amazon’s infrastructure as an additional channel or to reach markets that were previously out of reach. The argument against teaming up with Amazon Supply is that this gives them access to your customer, product and price data. While this is true, it is also true that U.S.-based auto companies converted their Japanese competitors into suppliers and were able to maintain market share. For wholesale distributors, the jury is still out on this.

Many wholesale distribution companies tell me that they offer services that bind their existing customers to them and that these services cannot be matched by a remote company with an online catalog and low prices on fast moving items. While there is some truth to this, it is also true that Amazon Supply now offers free two-day shipping and a 365 day return policy.  How will other industrial wholesale distribution companies react?  Perhaps by offering same day delivery, or, for local customers, same day pick up. For customers who are farther away from a wholesaler’s branch, will they match the free two-day shipping offer? As for Amazon Supply shipping only fast moving, low cost items, let us note that the UPS/FedEx duopoly took the parcel business from the USPS with a similar approach and were able to turn that slice into a profitable business. At a minimum the services offered by wholesale distributors and the prices charged for these services will need to be re-thought.

After decisions are made about what products to carry and where to stock them, warehouse operations and order fulfillment speed and accuracy, functions that are at the heart of every wholesale distribution company, will become more important than ever before.  Amazon has built a solid reputation for their ability to build and manage warehouses.  Smaller industrial distributors will need to step up to meet the challenge by either improving their operations or by upgrading their warehousing and transportation systems.

You can expect the buzz about Amazon Supply to continue.  If you are still not convinced that Amazon Supply is going to continue to shape the agenda for the wholesale distribution industry take a look at current research on Amazon by the staff at Supply Chain Digest: Understanding Amazon.com –  By the numbers. Also worth your time is the commentary of Dan Gilmore on this research. Amazon Supply has a staggering infrastructure behind them and a long runway ahead of them.  Expect more change and reactions to them in the coming year.

—————————————————————————————————————

Mike Thornton is a Solution Manager with SAP’s Wholesale Distribution Industry Business Unit.  He writes on Supply Chain Management issues. (mike.thornton@sap.com)

To report this post you need to login first.

2 Comments

You must be Logged on to comment or reply to a post.

  1. Mike Wise

    Great points.  I see a big challenge for amazon is to compete with industrial distributors on service.  Distributors offer services that amazon will most likely not offer.  Sure there are products that don’t require service, but that begs the question, will companies purchase items from two different sources?  I’ll guess we’ll see how loyal they are to their distributor.

    (0) 
  2. Werner Baumbach

    Very interesting points. Seeing how Amazon has evolved over the 15ish years is breattaking. I think especially for smaller companies (but probably also for most others) it is almost impossible to compete purely on price. If price is the only selection criteria, I think loyalty is non existent. Even when we inlcude things like delivery times, shipping costs and easy returns Amazon does these things really well. So, yes, I think it comes down to doing something better than Amazon for not dramatically higher prices. I think to Mike’s point, it will not only be interesting to see how loyal the customers are, but also what “price” tag they put on service. Unfortunately business and consumers are very short-term thinking these days. A while ago a colleague complained that there is hardly any great book stores any more. When asked what percentage of her books she did buy at her local store, she had to admit that the lion share now goes to Amazon.

    (0) 

Leave a Reply