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AmazonSupply Alert is Orange (High)

AmazonSupply Alert is Orange (High)

June 20, 2014

As a service to our readers, MDM will provide a five-tier, color-coded advisory system, patterned after Homeland Security’s system, to advise of the current hype levels surrounding AmazonSupply.

Not really. But it’s starting to feel as though it is warranted, based on recent articles, industry coverage and more than a little Chicken Little Syndrome. (Symptoms include statements like “We’ve got to get an e-commerce site live ASAP!”)

I submit the latest entry from the investment advisory empire of The Motley Fool: “Can This Leading Industrial Distributor Stop the B2B E-Commerce Juggernaut?” Great headline, but what exactly is a juggernaut?

The article launched off the profile in the May issue of Forbes, “Amazon’s Wholesale Slaughter: Jeff Bezos’ $8 Trillion B2B Bet.” No hyperbole there either…

To be clear, I am not suggesting that you ignore these articles nor how AmazonSupply is impacting traditional distribution models. Every aspect of e-commerce should be carefully researched and integrated into every company’s strategy.

My concern is that companies are reacting and investing defensively before fully thinking through a complete strategy appropriate for their specific product/service mix and end-markets served. MDM has consistently covered e-commerce development in wholesale distribution since the mid-1990s, and we will be providing much more over the next 12 months.

Here are a few key takeaways from watching AmazonSupply evolve the past eight years:

  • AmazonSupply did not emerge from the smoke of the Internet two years ago. Amazon acquired Smallparts.com in 2005 and changed its name in 2012 to AmazonSupply.
  • Wholesale distribution executives are putting too much weight on AmazonSupply’s impact in the short term, and probably not enough in the long term. The vast majority of distributors won’t experience a direct assault from AmazonSupply. But just about every distributor will feel a “death-by-a-thousand-paper-cuts” impact, where many easy-to-ship and commodity items will be increasingly price-shopped.
  • As the Motley Fool article hints at, the nuclear warfare the next few years will be conducted against Grainger, Ferguson and other B2B … what was that word again? … juggernauts who have already developed strong multichannel strategies that include e-commerce. This will increasingly include retail juggernauts (it’s growing on me) as B2C realizes the size/potential of fishing the B2B ocean.
  • A well-founded concern about AmazonSupply is not their stellar logistics or supply chain expertise at this point, but the depth of their pockets and seemingly endless free hall passes from Wall Street.
  • Their current build-out in industrial and construction verticals is similar to the strategy they started with books, music, toys, gifts, video, etc. This strategy is outlined in Jeff Bezos’ 1999 letter to shareholders (archive of shareholder letters at this slideshare.net link. Note the key points in the section, Goals for 2000. The company has not changed significantly in its approach to each vertical, and while hugely successful in some sectors, has faced challenges in others.
  • A positive impact of the recent hype-fest has been to get the industry’s attention. But it’s important to focus on a single word: multichannel. Search and research it on our site. Be concerned if managers in your company are still saying, “Our customers aren’t shopping or buying with apps or mobile sites, email or Web; we serve them personally between the hours of 7 a.m. and 5 p.m.” These are the companies Amazon is targeting with its brand of customer service.

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