Featured Call: (AMZN, GWW, FAST, MSM) – AMZN Disruption Impacting Multi-Million $ MRO Spend with Incumbent Vendors
The landscape of industrial supplies distribution is facing something of a backroom revolution. From screws and pumps, to safety gloves and office equipment, keeping businesses across America supplied with everyday items is a critical necessity. Amazon has turned its sights precisely on this maintenance, repair and operations (MRO) sector, announcing $1 billion in sales for Amazon Business in its first year and surpassing 1 million customers after only 2 years. In a recent conference call with a Coleman Expert, (AMZN, GWW, FAST, MSM) – AMZN Disruption Impacting Multi-Million $ MRO Spend with Incumbent Vendors, it was highlighted that merchants are not only attracted by Amazon’s lower prices, but also the promise of relieving themselves of complicated, long-term contracts associated with incumbent, catalog-based suppliers.
Price will always be a defining factor when choosing suppliers, but for the more technical MRO components, such as valves, pumps and circuit boards, suppliers are also expected to bring a technical understanding of the sizings of these devices and how, for instance, they are integrated and hooked up. Businesses looking to source classes of products critical to the manufacturing process need to ensure that a supplier has both technical support and drawing specifications covering the industrial, electrical, and mechanical aspects. This is about supplying a “value add” and, when it comes to technical products, every supplier has traditionally occupied their own respective niche – an element in the purchasing process that Amazon has yet to mature into.
To niche, or not to niche?
On non-technical, non-key areas such as office and cleaning supplies, however, Amazon has been pricing competitively which may lead to long-term leverage on contracts. Further, because noncritical items are not as time sensitive by nature, Amazon can offer to both stock these items and guarantee shipping within 2 days, reducing inventory overheads.
Going forward, the value-add aspect of expertise provided when purchasing technical components will be key. If Amazon were to eventually beef up their technical capabilities, their lower pricing strategy combined with an extensive inventory could decisively disrupt the MRO supplies market. What remains to be seen is if Amazon will focus on specialized niche areas, or rather aim high and excel in areas across the board. Traditional suppliers would do well to sit up and take note.
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