Amazon Business, the B2B unit of Amazon.com, attended this year’s EDS conference for component manufacturers, distributors, and manufacturers’ representatives for the first time, driving a few distributors to tackle the issue of channel disruptors. Clearly, e-tailers like Amazon Business and Alibaba are a concern to the distribution channel as they directly compete with them. Authorized electronics distributors have faced pressure from unauthorized channels such as brokers for many years but these new disruptors bring a whole new level of buying and logistics ease.
Earlier this year, Matt Clark, global head of eCommerce and digital marketing for Newark element14, told EPS News that merchants like Amazon and Alibaba are moving into the B2B commercial landscape using their B2C strategies to deliver a more responsive customer experience.
“Using their B2C strategies as a precedent, they are implementing a more agile and responsive customer experience in a market not known for being particularly adaptive to changing preferences. At the same time, customers are blurring the lines by bringing their B2C shopping preferences into the B2B space, placing pressure on the electronics and components distribution market as a result.”
The question the supply chain should ask is ‘what is the value these e-tailers bring to the distribution channel and component vendors,’ said distributors. Clark, and his distribution colleagues, agree that these companies can’t match the “deep-rooted industry knowledge traditional electronics merchants offer their customers.”
“There is a lot of experience and tribal knowledge passed down over time that you can’t buy and strong arm yourself into. You can’t just deem yourself a distributor without that experience,” said Brian Ellison, president, America II Electronics Inc., at EDS.
However, the distribution channel acknowledges the logistics prowess of Amazon.
“We all share the same perspective that from a logistics standpoint, Amazon Business could be a competitor,” Ellison said. “But what’s missing is that there is a whole lot that goes on between the time you engage with a customer; get an order and ship the order out the door, and maintain that customer relationship.”
“There is a lot involved with being a distributor that isn’t just going online, buying a part number and shipping a part out to you. There are supply chain programs, handling inventory returns, and providing design services,” he added.
America II, like most leading authorized distributors, are engaged with their customers at all levels from engineering to purchasing. In fact, Ellison has seen an uptick in supply chain programs, including in-plant stores and bonded inventory. There also has been a resurgence in supply chain services considered old school such as vendor managed inventory (VMI) programs, he said.
“The customer base wants the inventory closer to them and that requires a lot of service and a lot of hand holding,” Ellison continued.
This is something that e-tailers aren’t equipped to offer. Other electronic component distributors agreed. “At the end of the day, it’s very difficult to see how they can add value to our industry,” said Michael Knight, senior vice president, TTI Americas, during an EDS presentation.
Knight considers companies like Amazon Business and Alibaba one of two segments of “non-productive disruptive forces” in the distribution channel.
It’s very hard to see how they add value to the distribution channel and to suppliers, said Knight. While companies are smart to explore these channel alternatives, they also need to keep in mind several issues, he said.
A few questions Knight recommends they ask include: are they solving a problem, are they doing something that the channel can’t/won’t/isn’t doing for them, are they creating design wins, are they selling the value of your product or are they just selling solely on price, and are the gains truly incremental to your company or just channel shifts.
Knight’s final word on disruptors at the gate: “Just say [hell] no to non-productive disruptors.”
But as my colleague, Barbara Jorgensen, noted in her blog, What Amazon Business Means to EDS, “it is unclear how much impact Amazon Business has had on electronics distribution. Sources in the industry suggest that Amazon Business could be a partner, rather than a competitor, to electronics distribution. If so, disruption in the electronics supply chain is just beginning.”
We’ll have to wait and see.