The following guest blog is based on a video produced by Randy MacLean of Waypoint Analytics. Watch the full video or read the transcript with his take on AmazonSupply’s impact on the distribution industry here.
A lot of people are talking about the entry of Amazon into the wholesale distribution marketplace with AmazonSupply.com. This doesn't need to be a big deal for most companies if they're well-run, but if you don't have your act together, watch out!
The core challenge of the entry of Amazon, or any other large competitor, will be predictable using basic competitive strategy. Whether your customers stay with you, or go with the incoming player, comes down to the five elements of the relationship they have with their vendor – that’s you.
They want one-stop, convenient ordering. They want high fill rates with high accuracy. They want delivery that meets their needs. They want fast problem resolution when something goes wrong. And they want all this at an acceptable total cost of procurement. Your company's competence in these five areas will be the determining factor of whether customers go with the new player, or stay with you.
If your company operates on a business model that hasn’t had a radical change in a decade or more, you’re in trouble because you’re probably not at the top of the game in the five important elements today’s customers expect.
If you move now to be the best in all five areas, no incoming competitor – not even AmazonSupply – can win your customers away.
Here’s a closer look at those five areas:
The first thing customers want is one-stop convenient ordering.
In Amazon's case, they're unlikely to carry the entire breadth of your product line (and maybe you shouldn't either). But for the bulk of the things that your customers want to buy, Amazon is unlikely to have the entire gamut, and so that means that as long as you have the right array of products for your customers in your market, it can be very hard for Amazon to get parity. In terms of convenient ordering, Amazon's already very good at it, so unless you have a recent system or you've done work to upgrade your system to make reordering very, very convenient for customers, it can be very hard for you to compete with Amazon. I recommend that you give some careful consideration to closing that gap. Get some customer input. Speak with your software provider and make sure that you are up to the minute on the convenience of ordering.
The next thing customers want is high accuracy of orders and high fill rates.
You can easily beef up your line for the best products – the most popular, most important products for your customers. Make sure you have fill rates that are competitive with Amazon, so that they can't possibly beat you. You also have to do a lot of work on making sure that your order fulfillment is 100 percent accurate and that you have a goal of zero errors.
The third element they want is on-time delivery. On this, you can almost always win, because your local DCs you already have logistics in place, and you already have an ability to get product to them. In most cases you’ll be as good as anything Amazon can achieve. The place most distributors are weak is that they don’t provide an array of delivery times, and they tend to give delivery away. This has a real impact on profitability and severely restricts flexibility on profitable pricing. Amazon provides a continuum of delivery choices and never gives away delivery. Customers can choose if they want to pay a lot for delivery right away, or if they don't want to pay much, can get it next week. That is an intelligent process and most wholesale distribution companies don't have that yet. If you’re one of them, you should seriously right now consider putting that into place.
The next thing that you have to compete on is problem resolution. Amazon's customer service is incredibly good. Within seconds, you can get somebody on the line who will take your side and will get your problem resolved in one way or another, and they're willing to do whatever it takes, including issuing credits or other things to make sure that you continue to be happy using their service. If you haven't taken the time to institute that level of service, if you haven't trained your people to recognize that they’re customer advocates and it's their job to take the customer side against the company, not the other way around, and if you haven't given them the authority to make choices that will help the customer feel like they're important, then Amazon will certainly beat you in customer service. It's another element of the customer service model that you have to consider carefully to make sure that you cannot be beat.
The last thing is acceptable TPC (total procurement cost).
Amazon's not a discounter. You don't need to be, either, and you don't need to discount in order to keep the business even though some of your less sophisticated customers will tell you that you do. No customer will leave to get poorer service with lower delivery rates and have their business at risk for not being able to perform to get a lower price. The fact that product price element is the least important of all will be, I know, music to your ears. I know the salespeople have a hard time understanding this because buyers are always pressing on price. This is the one thing they can universally press on, but the other elements are much more important.
Even if you never have to face Amazon in the market, updating your business model to excel in these five areas will give you solid profit and market dominance.
Randy MacLean is the founder and president of Waypoint Analytics, an online system that provides distribution companies with detailed profitability information. He is also a featured speaker at the Advanced Profitability Innovation Conference. Contact MacLean at firstname.lastname@example.org.