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Top 20 Stories of 2014: #4 Amazon: Friend or Foe?

Every weekday in December, tED magazine is counting down the Top 20 Stories of 2014. Below, the #4 story of 2014, originally posted on February 21, 2014.

By Jack Keough

While most distributors are watching with a wary eye the entrance of AmazonSupply.com into the industrial marketplace, one industry expert says distributors can actually benefit from the e-commerce provider.

Charles “Chuck” Bennett is the president of Business Data Links, a leading IT provider for the wholesale distribution and manufacturing industries. He has been studying the distribution sector for many years.

Bennett points out that Amazon can be a valuable tool for distributors beginning with helping sell their C and D items. He says that Amazon can provide distributors with their inbound logistics, outbound logistics, marketing, and sales and service programs.

“By successfully turning inventory on Amazon, the distributor takes advantage of Amazon’s ability to market and advertise the products and who supplies them. The reason it is important to start with C and D items is that the profit margin is much higher, or non-existent in dead stock items and this enables the distributor to compete on price,” Bennett says.

“When the distributor begins to turn inventory on Amazon, it’s granted the benefit of superior listings through the Amazon search engine. This is also how the distributor can connect with its first customer base within the e-commerce realm.”

Bennett adds that a distributor’s existing customer base is not shopping online for the same product that it is buying on site. This means that once a customer base is built and the position in searches is optimal, a distributor can then offer A and B items at a lesser discount. He explains that it all begins with the C and D items.

“At this point given a higher degree of customer base loyalty, competing on price alone is not necessary,” Bennett says.

Bennett also emphasizes that Amazon offers distributors more than just being a sales platform. “There is intrinsic value in streamlining processes such as inbound and outbound logistics that have nothing to do with sales itself,” he says.

He says that distributors should take advantage of the “fulfilled by Amazon” feature. This allows a distributor to order products from the manufacturer and have the items shipped directly to an Amazon warehouse.

“When the item sells, Amazon will automatically box and ship the products to the customer. What this means for distributors is that they will have savings in the form of inventory storage, order fulfillment time and shipping of delivery of items to the customer,” he says. “Essentially, the distributor is outsourcing these tasks to Amazon at no additional charge, doing very little work and collecting on sales. With a strong ERP system, this process can be completely automated.”

Bennett agrees that Amazon can be a threat to some distributors-but not to distributors who use the giant e-commerce provider to their advantage.

“Amazon is not in the wholesale distribution industry; it is a service provider,” he declares. Amazon, he says, is now devoting its resources to discover what the customers of the wholesale distribution industry want and need.

He compares what Amazon has done in the publishing sector as to what it will do in the industrial business.

“Think of the Kindle and the revolution in how we consume books and magazines. Amazon did not buy all the book stores and publishing houses but instead simply devoted a new way to provide that material to the end customer. As a result the country went from 4,000 plus bookstores to around 1,900 today.

“The book stores, those with the capacity to store hundreds of thousands of titles and ship them to individual customers upon receiving the order from Amazon are still around. That is exactly what Amazon intends to do for the wholesale distribution industry,” he says.

For that reason-and others- Bennett believes Amazon will not be a threat for early adaptors who will gain a competitive advantage over those distributors that do not.

“The adopters, given what we’ve seen Amazon achieve in other industries, will reach a wider customer base, accept payment in a more streamlined fashion, and will deliver goods to the end user faster and in the most efficient manner possible,” he says. “The distributor will also reduce their storage costs and be able to apply software to automate as their sales through Amazon increase.”

Bennett adds that not everyone can be a winner and not all losers will lose right away.

“But,” he warns, “if Amazon’s history repeats itself, the amount of players will be greatly reduced.”

Bennett offers some interesting viewpoints and his past experience indicates his words should be considered.

He was formerly the IT manager for one of the nation’s largest premier apparel distributor firms before later founding his company that is located on the campus of Cal Poly Pomona.

Business Data Links was recently awarded a Channel Partner designation by Infor, one of the largest software firms servicing the distribution sector.

Bennett has been a speaker at many industry seminars including ones sponsored by the National Association of Electrical Distributors. He covers topics ranging from making your IT department a profit center to selling products on Amazon.

Jack Keough was the editor of Industrial Distribution magazine for more than 26 years. He often speaks at many industry events and seminars. He can be reached at john.keough@comcast.net or keoughbiz@gmail.com

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