A Bloomberg report indicates that Amazon has suddenly stopped buying from many of its manufacturers and wholesalers in order to boost profits. Supply Chain Matters provides its perspectives to this move.
A published Bloomberg report last week has captured the attention of quite a number of consumer goods and other B2C or B2B focused manufacturers. The report. Amazon Suppliers Panic Amid Purge Aimed at Boosting Profits, indicates that the online retail giant has abruptly stopped buying products from many wholesalers and manufacturers, instead encouraging them to directly sell their products on the Amazon platform.
In essence, Amazon is declaring that the online retailer wants to avoid its own direct costs related to ordering and managing distribution and customer fulfillment center inventories. Instead, manufacturers and wholesalers will have to directly list their products on the Amazon platform, and take responsibility for inventory, logistics and transportation expenses. Amazon can charge for these services ad reap the benefits of a commission for each sales transaction.
According to this report: “Amazon is determined to boost profits at the core e-commerce business, even if that means disrupting relationships with longtime vendors.” The effort is seen as reducing Amazon’s direct expenses while pushing more suppliers to automated self-service systems requiring less Amazon management oversight. According to this report, many suppliers had no warning of the move, only to discover an abrupt lack of Amazon purchase orders.
Hence the Amazon “shock factor.”
Supply Chain Matters Perspective
We generally agree that for Amazon’s B2C or B2B product suppliers, the risk dramatically increases for planning, inventory and parcel transportation service needs. Companies not prepared with advanced technology focused on retail channel management supply, inventory, logistics and transportation management will be scrambling. Some were rather comfortable with traditional supply network practices of responding to either Amazon or other retailer purchase orders without the need for detailed demand and fulfillment planning capabilities. Now, such capabilities are paramount as is the exposure to additional cost burdens and their impact on product margins.
In parallel, the online giant continues to build out its logistics, parcel and last-mile delivery capabilities that can also be provided to hosted sellers. That adds to transfer of existing cost to added revenue streams, and at the same time, attempts to cutoff other potential competitors.
With Amazon Prime membership now surpassing 100 million members in the U.S., and with a flurry of desktop and mobile apps supplemented by buyer-assisted electronic devices, the online provider’s buyer reach is significant and not to be ignored. Other online retailers that might be close to that scale are Walmart and Alibaba. Regarding the former, thousands of new third-party merchant offerings have been listed on Walmart.com, many with two-day shipping options. That could be an alternative option, but also requires augmented supply chain planning execution and transportation management capabilities.
A broader implication is the increasing market power of Amazon driving such arrogance. Lately, there have been quite a number of general and industry media reporting indicating Amazon’s efforts in high-profile lobbying of legislation, the online retailer’s continued competitive thrust into new retail areas. If you have not noticed, companies and the increasing market influencing power of players such as Amazon are on the debate stage of certain U.S. Presidential candidates, not to mention the current Presidential Administration.
All of this will not be solace to those manufacturers and wholesalers now caught flat-footed by these latest Amazon actions.
Supplier loyalty seems to have little dimension in this new world of E-tailing.
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