AmazonSupply: Competitive Implications (Quick Take — Part 2)

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.

- Jason Busch

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Voices (4)

  1. down under, way down, down down ...:

    Amazon really does not know what they do not know yet about this area from what i have gathered. That is either really good or really bad. As the analyst notes, Amazon could do better simply by not following what others have done. They will eventually get this right if they are serious one way or another. This should give pause to many bigger names in software and industrial distribution.

  2. The unnamed source:

    What traditional P2P vendors need to fear most, is that AmazonSupply may establish the required 20% functionality for 80% of the market in the same way that established the most important 20% of CRM that enabled them to take down Siebel.

    I mean, my God, in all the P2P systems that I know, a lot of those (single customer-/bastard-process/RFP-requested) features never ever get used, but they sure do win the RFP beauty contest.

    This is going to be fun.

  3. Anonymous:
  4. Dan Roehrs:

    This is a great series! Although it would take a mountain of development for Amazon to get into the same space as the traditional e-proc market, reality is that these guys have deep enough pockets to make it happen. However, I think the more near-term play that does what it is your saying Amazon could potentially do is that of BuyerQuest. Having taken a look at their offering recently it’s clear this is the only provider addressing the issues of P2P; rip and replace is getting annoying. By allowing customers who have acquired other P2P solutions and have multiple environments, or for those customers who have spent (some say "wasted") millions of dollars on expensive licenses that IT won’t allow them to switch or for those who just don’t want to throw away all the work and effort that they’ve put into their P2P solutions, the BuyerQuest front-end allows them to COMPLIMENT/AUGMENT/LEVERAGE existing investments. Brilliant! This also brings the same kind of Amazon concept to reality as opposed to something that may or may not happen. Either way, exciting times in our space! Thanks again for this article!

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