Amazon, supply chain power and supplier networks

We wrote yesterday about Amazon putting up prices to the merchants who sell through their website and the furore this has caused. It’s all about power in the supply chain, we said, and recommended Professor Andrew Cox to anyone who isn’t familiar with his work on this very issue.

Now Amazon has got itself into a dominant position in many supply chains where they almost control the destiny of at least their smaller merchants. Those firms cannot live without Amazon. And there is a read-across here to our world of B2B supplier / buyer networks.

What would happen if any of the supplier networks in our B2B world – still fairly nascent by the standards of Amazon – got themselves into a similar position of power? Well, I suspect Professor Cox would confidently predict that we would see similar behaviour by those networks,  looking to grow profits by taking the maximum value from their position.

That wouldn’t be good news for smaller players in particularly who found themselves in those supply chains or networks, firms who have little power with which to fight back.

Now you might immediately be thinking of the Ariba network as an example of one such entity, where already the suppliers are paying to be part of that network. Indeed, other network providers such as Hubwoo and Coupa position themselves as being the “good guys” because they don’t charge suppliers in the same manner.

But this is not particularly knocking Ariba - if any of the networks got into a really dominant position, would they really be public-spirited enough not to exploit that? Or would the temptation, and the shareholder demands, be simply too much to resist?

We would therefore suggest that having an Amazon equivalent  in the supplier network arena would probably not be a good thing. Whilst CPOs I’m sure can see some benefits if we had a single network, the downside would be that huge power they would hold over suppliers, and eventually over buyers. And at that point, as Professor Cox would say, the fun really starts.

So it is probably in our professional interests that no single network gets too powerful. Competition will keep the providers honest, and keep a reasonable balance of power between the various players.   I’m not suggesting we make any structured attempt to ensure that, but it is worth thinking about when you hear providers talking about their ambition to rule the networked world.

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First Voice

  1. chabannes:

    Definitely yes and the situation can be worse in fact. Supplier Networks attract any venture capital thinking about Ariba story and how IBM, Oracle…late in the field, will acquire some success story. A bubble will rise, software features are not at stake serving buyer organization. Increase the Supplier Network is the new financial paradigm….

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