Amazon Invades the Supply Chain

Like the serpentine river from which it got its name, Amazon.com Inc. (Nasdaq: AMZN) is weaving itself into more segments of the economy. Now it has focused on bringing its cost-reduction powers and pricing visibility into the industrial and manufacturing supply chains. Though it hasn't happened yet, I can imagine a future when equipment vendors may submit bids for components on www.amazon.com/supplychain.

I hope you didn't try to click on that site. It doesn't exist. Yet. What does exist is a service called Amazon Supply, a venue for buyers to source a wide range of components and finished industrial and manufacturing products. Many of the products are of limited interest to electronic companies, but purchasing managers and their colleagues at OEMs, EMS providers, and test and measurement companies will find some of the items they order occasionally or frequently.

The company breaks Amazon Supply products into 14 groups: Hydraulics, Pneumatics & Plumbing; Materials; Lab & Scientific; Occupational Health & Safety; Fasteners; Power & Hand Tools; Janitorial & Sanitation; Power Transmission; Test, Measure & Inspect; Cutting Tools; Abrasives & Finishing; Material Handling; Office; and Fleet & Vehicle Maintenance. Each group has at least eight subgroups, which take you to listings for hundreds or thousands of products. For instance, the Fasteners group offers the anchors, bolts, nuts, pins, rivets, screws, threaded rods, studs, and washers you'd find at your local Home Depot or Lowe's.

I was dumbfounded and fascinated. Amazon said it has more than half a million parts in its warehouse with "more added every day!" I can just imagine the size of the warehouse where it keeps all these and the logistics involved in getting them to customers promptly. If you supply products to the electronics industry, the archrival you should be concerned about may no longer be the company you've competed against for decades. It's Amazon. A buyer in the electronics industry can peruse items in the Materials section, for instance, and find bronze, ceramics, copper, plastics, rubber, and stainless steel, all of which are used in one form or another in the production of high-tech equipment.

The Test, Measure & Inspect category is even wider -- tens of thousands of dimensional measurement, calibration, motion, speed and force, and pressure and temperature devices. I don't know whether these are of value to folks in the procurement department at electronic companies, but soon some purchasers from the industry will be poring through Amazon's offerings or asking the company directly for help in sourcing these products. What Amazon Supply doesn't have today for the electronic procurement audience, it is highly likely to add eventually.

Amazon's pricing information is open to everyone. This is probably one of the more intrusive and disruptive impacts Amazon Supply is likely to have on the electronics supply chain -- the idea of making pricing transparent and furthering the convenience of "no haggle" negotiations. On Amazon Supply, the price you see is the price you pay. Of course, the company may offer a large volume buyer better pricing concessions in direct negotiations, but not through the Website.

I see two potential problems with Amazon Supply, though. One is that quality may not be guaranteed. That's a factor of extreme importance to the electronics industry. I am assuming Amazon has taken steps to ensure the products offered on its site are not only genuine but also come with reasonable, competitive, and acceptable warranties. The second potential problem is related to volume. Buyers in the electronics industry often purchase parts in the tens of millions and need to be assured of pricing consistency and part availability. Neither of these issues are deal killers, though. Amazon Supply will likely find satisfactory solutions to the challenges.

If Amazon can resolve these potential hurdles, the electronics industry may be entering another disruptive phase in part procurement.

Would you use Amazon Supply? Let me know.