AmazonSupply: Competitive Implications (Quick Take — Part 1)

Yesterday, Amazon announced the launch of AmazonSupply, a B2B offering designed to provide another choice in the market for buyers of industrial and research supplies, equipment and materials. Spend Matters covered the news in a dispatch earlier today. While at first glance, the marketplace approach might seem complementary to indirect P2P providers that cover MRO areas such as Ariba, SAP, Oracle, Rearden, Coupa and others. No doubt that theoretically, AmazonSupply could become a simple punch-out site or managed catalog service that compliments existing solutions. But we believe that the ultimate "game over" play for Amazon is to both compete and complement legacy players in the space.

If AmazonSupply can provide a set of capabilities that underpin the core of indirect eProcurement such as enabling a range of hard dollar cost reduction benefits by decreasing off-contract purchases, lowering purchase volume in general, improving operating efficiency, increasing PO throughput per FTE and bringing greater spend under management and lower contract rates, they'll succeed at not only becoming a preferred distributor, but embedding their service in the daily buying, asset management, inventory management and vendor management of their customers. The middle market (and smaller manufacturers, universities and others) are clamoring for this type of capability. And Amazon could give it away for free, or even encourage the distribution of third-party solutions in a manner that also benefited Amazon.

Foundational eProcurement is fairly basic stuff (to be honest) aside from managing supplier connectivity, catalog content and the overall user experience. The technology to support eProcurement for buying MRO and related supplies includes supplier onboarding, catalog management capability, supplier portals, workflow/process management, requisitioning, approval/status, order management/visibility, inventory/asset management, supplier connectivity and related areas. Amazon could build a rudimentary eProcurement capability for areas that they do not already support in a matter of months (they do the hard stuff already in the area of catalog management, for example).

At the same time, AmazonSupply could simply opt to become another supplier on supplier networks, including Ariba's (not to mention the competing services of many others). This is a likely scenario as well, especially as Ariba, Coupa and others increasingly move down market and work with buying organizations that are unlikely to have all of the direct/integrated supply, vendor management inventory (VMI), just-in-time (JIT) Kanban and related capabilities and relationships of middle market and larger manufacturers. It is these smaller organizations and manufacturers with less sophisticated procurement and production processes (e.g., P2P alone) that are the best fit with AmazonSupply's marketplace and basic distribution/fulfillment offerings.

Ironically, the head of AmazonSupply's new offering undoubtedly knows this (and the very large gaps in the value-added services they're offering initially compared to industrial distributors like Grainger, Wesco, Graybar and DSSI). A quick scan of Prentice Wilson's LinkedIn bio suggests an impeccable pedigree in working with companies with reputations for ruthless operational efficiency in the direct supply chain. Moreover, Wilson could not have helped but become a true expert in his past roles -- VP, Sourcing and Supplier Management at Cisco Systems, VP, Product Operations at Cisco Systems, VP, Advanced Manufacturing Engineering at Honeywell International.

In Part 2 of this post, we'll continue to explore the potential competitive implications of this move. And in the coming weeks, after we've have the chance to do more research on the offering, we'll tackle the most important subject: customer implications. Be sure to follow our industrial-focused coverage of the news on our sister-site MetalMiner as well (authored by my better-half ...)

- Jason Busch

Voices (2)

  1. Anonymous:
  2. Brady Behrman:

    Good Story Jason. I am quite sure Amazon will indeed look to Punchout. My Gut says that many buyers would rather purchase from a direct company they have a relationship with, that can provide punchout. At PunchOut2Go.com, we have come up with Punchout Solutions that are indeed affordable and can be adapted quickly by smaller direct companies. I feel that the Procurement world is a good-ol-boy network with handshakes and face to face time and as such, smaller companies can maintain their strengths in this network to compete with their blue chip neighbors. I look forward to part 2.

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