Please click here for our initial coverage of the AmazonSupply launch and the first post in this series looking at the potential competitive implications of the announcement). You can also read MetalMiner's coverage here.
In today's post, looking at Amazon's entrance into the industrial distribution marketplace, we'll consider a range of implications impacting the general market plus provide some industrial/MRO and eProcurement/P2P competitive market takeaways. Please note that this rapid-fire analysis represents a down and dirty reading of the news. Subscribers to our new premium content service (launching next month) will get a deeper look at the implications of this announcement and those like it in the future.
Competitive and Market Implications (in no particular order):
- The launch of AmazonSupply represents the first major strike in the battle to define the future of industrial supply for small and middle market manufacturing -- the last partially or inadequately served market segment in this area, depending on perspective (the one caveat here is that Amazon must be serious in following up initial Tomahawk marketplace missiles with subsequent moves -- ultimately, the metaphorical industrial supply equivalent of infantry, sea and air power combined).
- Industrial distributors should treat what Amazon is up to as a potential disruptive technology (ref: Innovator's Dilemma, Clayton Christensen). Those who dismiss this initial AmazonSupply offering as an incomplete substitute should read the case studies of hard drives and steel manufacturing that Prof. Christensen made so famous in his analysis of industries that were reshaped by creative barbarians while Rome slept (and was ultimately conquered).
- The derivative products and services that AmazonSupply could enable either organically or through partners (leveraging Amazon's service-oriented architecture (SOA) approach) are significant and include on the procurement side: eProcurement, e-invoicing, supply chain finance (beyond basic 45-day terms offered for credit worthy buyers today), leveraged contracts, rebate programs (for multi-tier buying programs) and supplier/vendor management programs focused on lower-tier supply quality as well as compliance.
- Derivative products on the operations/distribution side include a wide range of services (e.g., VMI) that Amazon could provide directly or through partners -- and could possibly enable through disruptive technologies that replace warm bodies with predictive intelligence that goes beyond monitoring replenishment signals. We previously quoted MetalMiner's Lisa Reisman on the subject (Lisa is a Six Sigma Black Belt): "the real value-add though for the distributors in the B2B world comes from the other facets of distribution -- kitting, consignment, tool crib management, VMI, replenishment etc. ... [however] companies that operate fully-integrated vendor replenishment businesses will not be so quick to switch to Amazon."
- Amazon's offering for lab and scientific equipment could provide much needed competition in both higher education (research) and clinical/hospital environments if they get it right (a big if, mind you). On a P2P managed catalog basis today (systems that integrate directly into eProcurement systems in these verticals), SciQuest is the largest provider in North America, largely because they do a sufficient BPO-like job in managing catalog and vendor information and customers play follow the leader in these verticals like no other. But with true competition from Amazon, the market could change very quickly, especially because research, higher education and clinical settings typically have only limited abilities to mandate buying from specific suppliers or through specific channels. SciQuest, Science Warehouse, Unimarket and others in the sector should pay close attention to the investment Amazon makes in this area.
- The degree to which Amazon opts to play ball with providers that already have existing catalog content-focused supplier connectivity or networks (e.g., Ariba, Crossgate/Hubwoo/SAP, SciQuest, Rearden/Deem, Coupa) remains to be seen, but all of these providers should pay close attention to the deal. There is no doubt that Amazon has a more proven set of underlying capabilities than all of these players combined in merchant/supplier services including self-service capabilities. But the nuances of a Global 2000 P2P buying environment can bring their own set of challenges, including managing complex pricing arrangements, approvals/workflow (buyer and supplier), exception handling and the like. If we were Amazon, we would co-op this market by ignoring what others have and starting over. Then we would focus most of our efforts on the network, search, connectivity and catalog management side of the equation, building a better mousetrap that is unencumbered by closed architectural stacks. After all, if SAP, Oracle, PeopleSoft, JD Edwards, Ariba, Workday, Microsoft Dynamics, Sage, Unit 4 Agresso, Intuit and others end up owning the transaction and buying approvals themselves, who cares? This is what Ariba realized a few years back with its network vision, but Amazon is in a far better position to capitalize on it if they know what to do (another important "if").
- P2P providers without a core focus on supplier network enablement inclusive of catalog management and vendor search should extend their business development/corporate development arms to Amazon to explore strategic partner options, including leveraging Amazon's underlying IP (and possibly even making their tools available to Amazon customers for internal buying controls, workflow, compliance, etc.) We would also encourage competitors in this market to do the same.
Stay tuned for our take on the customer implications of the AmazonSupply announcement in the coming weeks.