How to Create a Distribution Strategy in the Age of Amazon
I’m sure you’ve heard this figure or some version of it before, but it’s worth repeating: More than 40% of all online sales in the United States last year are attributed to Amazon.
For many of us, this statistic is probably not so shocking at this point. This is the new normal of the time we live in: the Amazon Age.
We’ve seen how Amazon has disrupted the retail industry. Toys ‘R’ Us, Sears, Nine West, Brookstone – these are all retailers that have filed for bankruptcy this year. They are only a handful on a longer list, as retailers are filing at record numbers.
We’ve also seen how retailers are pivoting and finding enormous success. On the 2018 Fastest Growing Retailers in America List, Amazon is listed as #4, and was effectively beat out by three other retailers: Primark, Bass Pro Shop, and Build.com.
As Amazon grows their B2B marketplace, the question has definitely been raised – what are the implications of Amazon’s Business channel for the distribution industry?
This is at least in part why Wholesale Distribution executives listed Amazon’s presence in the industry a top concern in the 2018 Industry Outlook for Wholesale Distribution. Very much related to Amazon’s presence, were other top concerns: the ability to adopt to new technology, and digitizing operations.
What is Amazon Business and Why Does It Matter for the Distribution Industry
Amazon Business, formerly Amazon Supply (and before that smallparts.com – a business that was acquired by Amazon in 2005), is a B2B ecommerce platform for manufacturers and distributors.
The number of SKUs sold on Amazon Business has grown from 500,000 in 2015 to 50 million at the start of 2018.
In a recent interview, Martin Rohde, general manager of commercial customers at Amazon Business, commented on the company’s capabilities. “Amazon Business provides access to the hundreds of millions of products available on Amazon.com. This includes everything from IT and lab equipment to education and food service supplies. Additionally, we provide access to more than 85,000 business sellers and we offer a list of business-only selection and pricing. For example, Amazon Business offers quantity discounts, which provides business customers the option to purchase in larger quantities.”
Amazon Business capabilities also include:
- Two-Day Shipping, same promise as B2C Prime platform
- Support for sales, technical questions
- Ability to have multiple users on a single account
- Email confirmations to customers
- Integration with other business applications
Amazon Business doesn’t appear to be targeting specific sectors of distribution or manufacturing as much as the industries in general – although some businesses in industrial supplies and OEM have already started to be affected.
A recent article on Amazon Business describes it as: “Amazon Business is a marketplace that combines the ‘selection, convenience and value customers have come to know and love from Amazon,’ with features tailored to businesses.”
Amazon Brings Unprecedented Value with Logistics and Customer Experience
This is not new. What is new is the shift into the B2B space. The main point is the change in expectations from your B2B customers. They (likely) don’t expect you to be an Amazon. But they do expect you to deliver an excellent, modern customer experience.
Whether your distribution business falls under the category of one who can’t “beat” Amazon (who can?), or one who doesn’t want to join them – it’s still imperative to understand the effects of this giant moving into the industry.
Key Considerations for Building Your 2019 Distribution Strategy
“The ideal combination is to have highly competent digital capabilities that drive lots of online sales along with a set of offline capabilities that ensure you are maintaining strong relationships and delivering other value to customers.” – Your Amazon Business Playbook, A Strategic Evaluation for Distributors
2019 distribution strategies need to include leveraging technology in order to deliver better products, services, and solutions. Three key areas to address are:
- Inventory and warehouse management
- Customer experience and satisfaction
Technology Trends in the Distribution Industry
Not surprisingly, technology trends for distribution are aligned with industry executives’ priorities. For the third year in a row, distributors’ top priorities for technology in 2018 were to incorporate e-commerce, CRM and mobile technology for sales. Also among their plans are Cloud/SaaS systems, finance/accounting technology and other programs.
Other trends include:
- 38% of surveyed executives planned to improve e-commerce in 2018
- 32% of surveyed executives planned to add new sales channels in 2018
Inventory and warehouse management
Better inventory management came in fourth on the top list of priorities for businesses in the industry in 2018 – behind revenue growth, increasing profitability and customer retention.
If you’re in the industry, you already know that inventory management is essential to increasing profitability and customer satisfaction. For growing businesses, this is easier said than done. Learn more about inventory management in our recent post: Inventory Planning: Finding the Right Balance for Your Business.
Business leaders who find themselves asking, “How do I manage my inventory better?” know they need to improve but are unsure how to do so. To get started with better warehouse inventory management, follow these four steps:
- Understand your inventory
- Re-evaluate your warehouse
- Add barcodes
- Implement systems to help you manage
Learn more about the steps needed to improve your inventory and download our PDF checklist in our recent post: How to Get Started with Better Warehouse Inventory Management.
Top priorities for industry executives include revenue growth and increasing profitability. Before you can tackle a strategy for growth and profitability, you need a clear picture of your business from a financial standpoint. Businesses using technology that connects back office accounting and finance with inventory management and order fulfillment, among other functions, have a distinct advantage of being able to make smarter, data-driven decisions.
Customer experience and satisfaction
Johnny Morris, founder of Bass Pro – the second-fastest growing retailer in the country in 2018 – attributed their success to focusing on customer experience. “This recognition is a tribute to all of our remarkable and passionate outfitters who work hard every day to make sure every customer experience is a positive one.”
One of the biggest impacts Amazon has had on the world is changing customer expectations. In an age where Amazon customers can have almost anything they desire delivered in two days – or two hours in some cities with Prime Now – our expectations have been significantly altered. Those expectations permeate through to our business interactions. In 2018, both B2C and B2B customers expect an exceptional customer experience and they expect it fast.
Bringing it All Together
Amazon’s impact is no longer confined to the B2C space. Distributors that want to stay alive, and profitable, in the B2B market need to address key factors in their 2019 distribution strategy and execution, including:
- Implementing technology fit for the Amazon Age
- Offering an exceptional customer experience from start to finish
- Putting in place best practices in the areas of inventory management, warehouse management and finance – and using modern technology to center these processes around the customer.