Amazon Supply
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With new entrants like Amazon Supply, MRO sourcing got murky.

MetalMiner, in conjunction with Spend Matters, took a good look at how Amazon Supply would affect MRO sourcing for those distributors and manufacturing organizations in the supply chain without severely formalized sourcing processes, back when Amazon Supply came on the scene.

Now, Jason Busch, Executive Editor of Spend Matters, gives us a deeper look at maintenance, repair and operations (MRO) sourcing solutions in this latest report: Everything You Wanted To Know About MRO Sourcing But Were Afraid to Ask.

Since the line between MRO and direct materials/supply chain spend can be blurry (same with the line between MRO goods and services), the number of models, different approaches and new market entrants, such as Amazon Supply, create a complex environment for even seasoned plant managers.

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My other half just penned a piece about a new B2B service offering likely to create substantial disruption in industrial manufacturing supply markets – Amazon Supply. That’s right,, that place we have all grown accustomed to purchasing a broad array of goodies (we actually buy all of our office supplies from Amazon) has now dipped more than its toe in industrial MRO.

SpendMatters provides an exceedingly detailed analysis of the offering along with what they have identified as potentially the most disruptive aspects of the offering here. From our perspective, we believe Amazon Supply, applying its lessons from the B2C world, will have an enormous impact on smaller to mid-sized organizations and organizations with less formalized sourcing processes.

Less formalized sourcing processes – surely not

Companies already actively managing their MRO, fleet management and related supplies purchases through a GPO (group purchasing organization), strategic supply contract (e.g. an aggregated volume contract) or through p-cards or other sourcing processes may not find this offering initially attractive.

But for organizations whose spend, shall we say, “follows a less rigorous sourcing process” – Amazon Supply will offer compelling value. Rapid fulfillment, free shipping for orders over $50, one-click purchasing have all made Amazon a clear winner in the B2C world and we shouldn’t expect a different result in the B2B environment.

Kitting, VMI, Consignment, Replenishment

But as I mentioned in Jason’s post about the deal, industrial product distributors have spent arguably the last 10 years advancing the value-add nature of their businesses.

Back when I worked at Arthur Andersen, in the wholesale distribution practice (before Enron), organizations like NAW had developed conferences, publications, training programs etc to educate distributors on the potential threat of new e-commerce startups such as Amazon (remember when Amazon was a start-up in 1999?) I believe a colleague even authored a book at that time about the impending threat of an Amazon to the wholesale distribution industry.

So the distributors worked aggressively (I’m speaking in generalities here, so let’s say the top quartile performers) to develop advanced processes and supporting technologies to provide a range of value-added services to make them invaluable to their clients.

To some extent, these initiatives have worked – supply chain processes such as kitting, the notion of postponement (e.g. light late stage manufacturing and/or assembly processes), vendor managed inventory, implementation of kan ban systems, etc., have created real competitive barriers to entry.

If we look within the metals distribution industry, many of the distributors provide a broad range of value-add services such as: slitting, fabricating, machining and also VMI, pull systems, etc. These processes and capabilities will give distributors some wiggle room as the proverbial 800-pound gorilla starts pounding his chest.

In the meantime, smaller- to middle-market industrial manufacturers will likely embrace Amazon Supply. They will, after all, use their personal B2C Amazon experience as the reason for doing so.