We’ve heard much wailing and gnashing of teeth about the potential impact of Amazon’s move into the industrial supply (MRO) business with its Amazon Supply (AS) site. What’s going to happen to all of those poor industrial distributors? Will they go the way of the buggy whip, typewriter, and bookstore, or will they survive the onslaught of the feared Amazon machine? Well, although it’s early and little is known of Amazon’s specific plans for this market, I’d like to offer a couple fearless predictions for your reading pleasure.
- Amazon Supply will succeed. The Amazon brand is strong, they’re operationally tight, pricing is good, and there will always be a segment of business purchasers attracted to their offering.
- Distributors who can deliver value will survive. It’s that simple.
Not all business purchasers buy on the basis of price. Many have contracts with suppliers for categories of MRO. They often depend on services like VMI and vending machines, technical support, reporting, and websites optimized for the market. They also like the ability to walk into a store to pick up a product that’s needed immediately, since after all a significant percentage of MRO purchases is unplanned. They understand the difference between ‘price’ and ‘cost’. The Amazon brand and pricing may be enough for price-shoppers, but they have a lot of ground to cover to compete on the wide range of value-adds provided by best-in-class industrial distributors.
So, let’s get more specific and take a look at a company that’s expected to be affected by the Amazon Supply announcement, Grainger (disclosure: I retired from Grainger after 37 years and own a little stock). Grainger offers well over a million (and growing) products across many categories, technical expert availability, hundreds of physical locations in North America (and a growing presence overseas), thousands of sellers who ‘touch’ customers, corporate account programs, many product and technical services, rock-solid operations, and one of the most successful B-to-B websites on the internet. Amazon can compete with some of that, but realistically they appear to be going after a buyer with who is only a sporadic purchaser from Grainger.
The business-to-business MRO market is highly fragmented and the products aren’t ‘sexy’, but that doesn’t mean purchasers are unsophisticated. Procurement processes have become more transparent and complex, as we’ve read in several Supply Chain Buzz articles on this site. Purchasing professionals crave information about their purchases so they can streamline processes and reduce their vendor population. Grainger has been a leader for years in responding to these changes in the purchasing process. Their sellers can use customer-specific analytics to ‘teach’ purchasers about the MRO products they buy and how they buy them. In fact, a recent Harvard Business Review article used Grainger’s approach as an example of how the selling process is evolving in response to new purchasing environment. Again, some customers don’t fit this mold and will opt to buy from the lowest price seller, and Amazon Supply will certainly be a strong performer for these purchasers.
So, if you want to continue to fret about distributors, feel free. Personally, I have confidence that distributors who add value will continue to get their fair share of the pie from business purchasers who understand how to meet their product and process requirements most economically.