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Amazon Invades the Supply Chain

Like the serpentine river from which it got its name, {complink 11480|Amazon.com Inc.} 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.

38 comments on “Amazon Invades the Supply Chain

  1. rohscompliant
    May 8, 2012

    Yes! Absolutely!

  2. bolaji ojo
    May 8, 2012

    rohscompliant, Amazon would be thrilled by that enthusiastic endorsement. It also tells me they are filling a niche or providing a service that may be sorely needed. Could you please help expand on why you are supportive of this service?

  3. Cryptoman
    May 8, 2012

    I would also use Amazon for parts procurement. I have been using Amazon mainly for books over the last 8 years on a regular basis and I have been very happy with their service. I do appreciate that electronics parts is a different kettle of fish, however, “Amazon” as a successful brand name does make a difference in making a purchase decision I believe. If one had a positive experience with Amazon, it makes it easier to give a shot to “Amazon Supply” as well.

    If their information support with the parts will be as good as what they have for books, I can easily become a regular user of Amazon Supply as well.

    Furthermore, if Amazon Supply heats up the competition in supplying parts, I am all for it because the buyers are the ultimate beneficiaries of such healthy competitions in the market both from cost as well as quality perspectives.

     

  4. bolaji ojo
    May 8, 2012

    Cryptoman, Hear, hear! I wonder what the competition is thinking, though.

  5. dalexander
    May 8, 2012

    Bolaji, Speaking as a component engineer, this prospect is disconcerting. The best distributors have Product Managers, Application Engineers, Technical Sales, and Quality Assurance to guard against things like counterfeit parts, obsolesence management, and now we see the beginning of environmental compliance management. If Amazon is going to be anything but a middleman for sales, they have to staff up with technical people before they will gain my business. How are they going to manage returns to guarantee they are not taking in untested garbage parts and restocking them into their live supply inventory. Will their incoming inspection know how to test for genuine, working parts before passing them onto their customers? Will they be versed in special handling requirements like ESD shipping materials. If they get ESD sensitive materials returned in non-ESD safe packaging, will they scrap the parts or try to repackage? If they will be non stocking and just run all inventory direct from OEMs or other distributors, do they even know what safeguards are required to ensure product integrity?

  6. Anand
    May 9, 2012

    Would you use Amazon Supply?

    @Bolaji, thanks for the post. I just visited the website, seems like they already have pretty good collection of items. I really hope Amazon will give some kinda of quality assurance so that buyers dont have to worry about the quality.

  7. bolaji ojo
    May 9, 2012

    Douglas, These are very valid concerns that you raised. However, don't forget this company has been in the business of managing sensitive items and materials for quite a while and may have answers to some of your questions. Plus, when an engineer like yourself submits a purchase order, you can bet they would also ask for verification information.

    I am not advocating for Amazon in this case. They've thrust themselves into this market and the industry should respond by holding them to the same standards expected of companies that handle such sensitive materials.

  8. bolaji ojo
    May 9, 2012

    Anandvy, Your concern is the same others have raised. I guess we'll have to wait and see how and if Amazon is able to satisfy these demands. What's clear is that they have a wide — and growing — range of products. Many of these may not be of interest to electronics component buyers but some of the parts I've seen there could be used on the manufacturing floor and cost-conscious buyers will be poking around the Amazon site.

    If the company passes the price, quality and delivery tests, it will win many purchasers' business.

  9. t.alex
    May 9, 2012

    It is surprising to hear about this move from Amazon. What would be the advantage of Amazon over others like Avnet, Arrow, Farnell..?

  10. bolaji ojo
    May 9, 2012

    t.alex, Arrow and Avnet would be far ahead in terms of operating advantages vs. Amazon. What the online trader offers that may be different is its instant name recognition and the ability to serve a wider market with a wide range of products.

    Amazon Supply is being aimed at businesses generally and not just at a segment of the economy. Both Arrow and Avnet serve the IT and electronic markets whereas Amazon is open to anyone who needs a fastener. Interestingly, purchasers at electronic companies buy more than components. They also run factories that require general parts and may find some of these on Amazon.

  11. Jay_Bond
    May 9, 2012

    I would definitely use Amazon for parts. I have used them for years for other items and have not had any complaints. It does not surprise me that Amazon is venturing into other areas. This sort of thing is only going to help Amazon get stronger.

  12. ahdand
    May 9, 2012

    I personally feel it will do a loads of good to amazon and it's business processes. This will help them to streamline their processes accordingly

  13. David@Dartmouth
    May 9, 2012

    Amazonsupply.com was Smallparts.com, a well established company I have been using for years.

  14. bolaji ojo
    May 9, 2012

    Hi David, That's correct. I omitted this in my report and should have added it. Amazon didn't just stumble into the supply chain business. It came in by buying smallparts.com and got the endorsement of people that have used the site in the past.

  15. _hm
    May 9, 2012

    This is very interesting news! Yes, I would like to have many parts from Amazon and their combo delas are very good. But alas, they do not many items outside USA, not to Canada too. If they include this, it will really be very good.

     

  16. Daniel
    May 10, 2012

    Bolaji, Amazon is expanding its business across different domains and categories. Starting with books, now they are selling almost all electronic and computer items. AWS and Amazon supply are other examples. Moreover now they had started online business for local markets also. Junglee.com is one of such site for Asian countries.

  17. Daniel
    May 10, 2012

    Anandvy, am a regular customer for Amazon.com and I brought many items by online including my laptop and Tablet. So far I hadn't faced any problem and issues. But the quality of products purely depends up on the manufactures and not by the vendors. Amazon is only an online facilitator and in case if we are not satisfied with the quality of product, Amazon have a return and refund policy also.

  18. Anand
    May 10, 2012

    But the quality of products purely depends up on the manufactures and not by the vendors.

    @Jacob, agreed but I feel Amazon should make sure that the manufactures who are selling through the portal should meet some basic quality criteria. This would greatly increases the buyer confidence because they know that the products they are buying through the portal have passed quality tests. Re turn and refund policy is great but that will mean lot of effort and waiting for the buyer.

  19. bolaji ojo
    May 10, 2012

    I forgot to mention this in my blog (thanks to the EBN reader who reminded me) but Amazon Supply is not entirely a new service. It is new to Amazon but the company is leveraging an acquisition it made earlier. It got into the business by buying smallparts.com, which apparently was already a reputable firm selling components and equipment to manufacturers.

    What Amazon has added is its incredible reach and marketing savvy (we are discussing the operation, now for instance, because of Amazon.) It is also adding to the service. As you noted, previous customers of Amazon will check out this new service and try it out based on their positive experience with the company.

  20. bolaji ojo
    May 10, 2012

    Anandvy, Amazon itself has a reputation to protect. The company is not a manufacturer itself but it has built a business on selling original items to customers and cannot afford to damage this reputation. It is also not an open market where anybody can sell whatever they like before it is vetted so it is highly unlikely that it will pass on substandard parts. Still, buyer beware. Right?

  21. Wale Bakare
    May 10, 2012

    Amazon has marked itself in this business – online retail. I think, handfull of online purchasers would give vote of confidence in patronise Amazon including myself. In the past, totally OKed with products bought at Amazon, no regret or return of materials though. I wouldnt say whether that would remain as it's spreads to electronic components.

  22. Wale Bakare
    May 10, 2012

    It is also not an open market where anybody can sell whatever they like before it is vetted so it is highly unlikely that it will pass on substandard parts.

    Selling components/parts, responsibility should be both Amazon and suppliers/contractors/manufacturers. I think.

  23. tioluwa
    May 11, 2012

    I really don't know how far amazon can take this, but i don't think this can get as far as components sale can it?

    I checked out the site and their stock is amazing, and i can just imagine the groups increasing from 14 in the near future, you can even place orders by phone internationally and get technical product support.

    I think they are off to a good start.

     

  24. Ariella
    May 11, 2012

    Amazon has established itself as a pretty reliable company. Its setup and good name has even attracted a number of online suppliers who have their own portals to set up storefronts through it. So it should be able to have quite an impact on the supply chain.

  25. t.alex
    May 12, 2012

    This is very useful indeed. I used to think of ebay if i wanna search for some trivial stuff. Perhaps amazon supply will be another alternative.

  26. itguyphil
    May 12, 2012

    I guess they have to grow organically and improve their processes before they make their expansion to other areas.

  27. bolaji ojo
    May 14, 2012

    Ariella, Your comment is spot on. Many companies fail to take advantage of the goodwill generated in good times to advance their operations into new areas and increase sales. As you pointed out, Amazon has a good reputation in the market already and if it can leverage this now to expand into new areas the better for the company. As several other folks have commented, many people are already using AmazonSupply. It may be a new service to many of us but for those who are quicker this is already an old service that seems to be getting better in meeting their goals.

  28. Barbara Jorgensen
    May 14, 2012

    The real test for Amazon will be the next shortage market. When things get tight, suppliers dole parts out to their biggest and most strategic customers and distributors. If Amazon hits a certain level of volume with suppliers, they might make the cut. But we can be assured that if that happens, we will hear a lot of noise from the electronics supply chain. Amazon doesn't provide the kind of training, product support and sales services that electronics distributors and even online sales sites provide.  But if you are a casual buyer, Amazon's service is awesome, and no matter where it comes from, a sale is a sale.

  29. Mr. Roques
    May 15, 2012

    I agree with you that what Amazon is doing is disruptive. The hurdles you mention in the end are normal and expected but I believe that traditional companies will have to deal with it in order to survive. 

    I keep thinking about Dell and how they changed the PC market, if others hadn't followed, Dell would have taken control of it. 

    Amazon is “outsourcing” the manufacturing, just like any other company, and then selling it to customers. 

  30. Daniel
    May 16, 2012

    Anandvy, Amazon, eBay websites are like an interface between the manufactures are the customers. So they cannot assure any quality in products from any of the third service providers because they are not handling any products. They are just collecting the order and payments from customer side and finally transferring the orders to the vendors for delivery. But they are frequently collecting feedback from customers about the delivered products and hope they are passing these product feedbacks to the vendors for improving the products.

  31. itguyphil
    May 17, 2012

    Most 'disruptive' companies are the ones who STAY successful. I guess they are following that trend.

  32. Mr. Roques
    June 22, 2012

    The companies that aren't afraid to shake things up, and when doing it, do it smart and have some luck are the ones that stay successful.

    How to be successful in the first place? that a whole different story.

  33. itguyphil
    June 23, 2012

    The short answer to your question: 'Start by doing what successful people do!'

  34. Mr. Roques
    July 11, 2012

    Well, thats a LOT easier said than done. I read, a few years ago, a book called “built to last”, an economist analyzed hundreds of companies and determined what made companies last (I think it was more than 50 years, and with revenues higher than X… etc). The results where somewhat expected but still a very nice work.

  35. ahdand
    July 14, 2012

    Ohh ok. I havent heard of it. Thats why I thought its not the ight one as such. But Amazon has the skills and if they are aleady using it then its a good sign.

  36. itguyphil
    July 22, 2012

    Mr. Roques,

    Just to confirm, was it this book:

    http://www.amazon.com/Built-Last-Successful-Visionary-Companies/dp/0887307396

    If so, I'm interested to browse through it for that statistic. Do you recall what that revenue ballpark number was?

  37. Mr. Roques
    August 26, 2012

    Yeah, that's the one. 

    I don't recall, sorry. I know they set a few rules (yearly revenue, amount of years running, etc.) you can probably find it online.

  38. itguyphil
    August 28, 2012

    Np. That's what the internet is for!

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