Amazon disrupts distribution

Amazon Supply site grew out of Small Parts, a supplier of equipment for science labs, Amazon bought in 2005. Amazon Supply offered 500,000 products. In 2015, Amazon Business replaced Amazon Supply as the marketplace for industrial products and supplies. Amazon Business is expected to reach $10 billion in sales this year and some analysts believe that Amazon Business could become bigger than the consumer marketplace.

Amazon is disrupting the distribution business, and this is how it is doing it.

Amazon Business offers access to nearly 150,000 US business sellers – hundreds of thousands globally – and hundreds of millions of products.
Amazon Business is now live in eight countries, including the United States, Germany, United Kingdom, Japan, and India.
Amazon Business generated more than $10 billion in sales volume in 2018, a huge jump from $1 billion 3 years ago. For the sake of comparison, America’s largest industrial distributor, W.W. Grainger Inc., made $10.4 billion in sales in 2017.
Third party sellers make up more than 50% of the $10 billion in global sales allowing customers to buy from new sellers which otherwise they would not have discovered.
To give some context, it took seven years for Amazon’s consumer marketplace to go from $1 billion to $10 billion, and Amazon Web Services didn’t hit $10 billion in revenue until 2016.

Disruption – Amazon Style

Amazon innovates both on the technical as well as on the business front. The four main factors that contributed to its growth are

Breadth of customers
International expansion
Innovation
Growth of third-party sellers

Other innovations

Amazon has been working on its own logistics business for some time, and the business-to-business market is an excellent testing ground for an Amazon delivery fleet.
It has continuously innovated on behalf of the customers – e.g. Business Prime Shipping, Curation, and Workflow Approvals.
It offers ‘Purchasing Insights’ through ready-to-present graphics, extended payment options, Free Two-Day Shipping on more than 100 million items for business prime members

Are distributors upto the challenge?

A recent survey by MDM shows that distributors are making little progress in digitalization.

Key takeaways from the survey

The percentage of distribution companies with a comprehensive digital strategy is the same as in 2015
Half of the respondents have a “general strategy” with some innovation and investment
Despite a constant series of technology product innovations and increasing disruption, distributors are making little progress in digitization.

What must distributors do?

Independent distributors can also provide the prime benefits that Amazon provides.
Better technical support and expertise provides an opportunity for independent distributors to go above and beyond Amazon.
When customers know exactly what to buy including the part number and other details, then Amazon Business is the place to go. But if the customer does not know exactly what to buy for a specific application, then an independent distributor would be better, because he can provide that value addition. Amazon, as of now, lacks that expertise.
Solving problems through personal touch by phone or email or in-person. This is something that Amazon cannot easily mimic.
Independent distributors have the edge over Amazon because of their product knowledge and application expertise. Distributors can be product experts.
Distributors also have the expertise to compare similar products. Amazon has only limited comparison capabilities because it does not have data to drive those capabilities.
Distributors must not wait any longer. Millennials are joining the workforce.
They must respond to changing needs, adopt digitalization and take steps to move online.