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OM in the News: Amazon’s Attempt to Upend the Parts Supply Chain

August 23, 2017

“A growing number of plumbers, electricians and other contractors starting to buy industrial parts online,” writes The Wall Street Journal (Aug. 22, 2017). As part of its business-to-business marketplace offering, Amazon now sells everything from light switches to hydraulic valves, and last month boasted it had one million customers across fields that also included health-care and office supplies.

Amazon is joining a host of online sellers shaking up the $130 billion U.S. market for items that keep factories humming and the plumbing working. They threaten a business largely still conducted via salespeople and national distributors that cater to large businesses, as customers are lured away with instant comparison shopping and free delivery. While parts accounted for a sliver of Amazon’s $136 billion in 2016 sales, the company is a proven disrupter of industries ranging from apparel to video to cloud-data services.

Like retailers before them, industrial suppliers risk getting caught in a race to the bottom on prices, where online-only sellers have an advantage because they don’t maintain costly networks of branch offices and salespeople. Amazon is shaking up the traditional format for selling industrial parts by allowing distributors and manufacturers to sell products directly to businesses on its marketplace, eliminating middlemen and often undercutting traditional local suppliers. It also offers one-click ordering and transparent pricing, features that are the norm in online retail but less common in the industrial world.

Industrial distributors do offer extra services, which would require significant investment from Amazon to match. For example, United Electric Supply will work off a customer’s blueprints to determine the parts needed to build a $10 million electrical system. W.W. Grainger embeds employees in manufacturing plants to manage inventory. MSC Industrial cuts or dyes metal to meet customer specifications.

Classroom discussion questions:

  1. Why is Amazon a threat to traditional supply chains?
  2. What are the advantages that traditional distributors like Grainger have?
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