Of all the specters supply chain professionals hope never to encounter, those haunting the chain's last mile to the customer are the most unnerving. So it was with unusual interest — and perhaps concern — that the electronics industry learned last month of a serious dustup between massive online retailer Amazon.com and Johnson and Johnson, the wide-ranging manufacturer best known for toiletries.
What could worry an electronics supply professional about a company that makes baby shampoo? The tiff, which is ongoing, has centered on Amazon's allegedly lax policing of so-called “gray market” goods, sold via third parties. Though the disagreement has begun with a non-electronics industry, it has enormous security implications for electronics OEMs whose supply chains lead inevitably to the Seattle sales behemoth.
J&J's concerns, which led the company to pull thousands of its products from Amazon, included copyright violations, patent concerns, and quality control. If those concerns sound familiar, it's because they're the same ones that many electronics sectors, most famously digital cameras, have been wrestling over with retailers — including Amazon.
The fight couldn't have come at a worse time. With OEMs and Amazon both having calculated their supply relationships months ago, thinking of the current holiday shopping season, doubt is doing no one any good.
A debate in the international financial press about whether an OEM's supply chain really created the product in your online checkout cart is the sort of debate no one wins, least of all the customer. But it's also toxic for OEMs that find themselves defending their various brands, at the height of sales season. Even the suggestion of a retailer's supply integrity creates sudden, sharp fluctuations in sales, and that, in turn, shakes up distribution models. Consequently, that makes it hard to order components six months before. That's what's at stake in an argument that superficially seems to be about soap.
Worse, electronics is particularly sensitive to such debates. Gray market concerns are already high in retail IT, and customers wary. On the one hand, people understand that Amazon (and, to be fair, many other online retailers) is offering OEMs a reliable final destination for mid- to high-ticket items like wide-screen TVs and DSLRs. On the other hand, customers are savvy enough to know that it's also a natural marketplace for counterfeiting, and that electronics has a pre-existing phony problem on its supply lines. Confidence is a fragile thing.
Just days from Christmas, this still isn't resolved. It's a case to watch closely. If Amazon can't negotiate supply chain integrity assurance with a company that makes soap, how will it do so with an OEM producing retail electronics with massively more complex component lists, and much greater opportunities for fakery? For dozens of OEMs and their supply chains, if Amazon starts to seem unreliable, so will everyone upstream along the retailer's supply lines — fair or not.