AMAZON
BUSINESS:
THE CHALLENGE FACING
WHOLESALE DISTRIBUTION
AND MANUFACTURING
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AMAZON BUSINESS:
THE CHALLENGE FACING
WHOLESALE DISTRIBUTION
AND MANUFACTURING
The Rise of Amazon Business
In September 2018, Amazon revealed
that its burgeoning Amazon Business B2B
marketplace reached more than $10 billion
in annualised sales. It now serves millions
of business customers and hundreds of
thousands of business sellers around the world.
markets and sectors, not least in retail. And
now Amazon is targeting the B2B market. It
has used more than a decade of research into
B2B and distribution verticals to develop a
rapidly-accelerating and self-improving model
that partners and competes with traditional
distribution models at the same time.
Amazon Business customers range from sole
proprietors to large enterprises with tens of
thousands of employees on a single account,
including hospitals, universities, government
agencies and some of the world’s largest
organisations. Items traded on Amazon
Business include everything from paperclips
and office supplies to industrial machinery
and medical equipment.
If B2B wholesalers and manufacturers
thought their industry was immune to the
online and technological disruption that has
impacted other industries, then Amazon
Business is a gigantic wake-up call.
It’s a rapid rise for a B2B business that has
evolved out of Amazon’s acquisition of
Smallparts.com back in 2005 and the
emergence of AmazonSupply in 2012. Out of
this, Amazon Business launched in April 2015
and hit $1 billion in sales in its first year alone.
But this should be no surprise to anyone. The
so-called ‘Amazon effect’ of disruption and
domination is well-known in many traditional
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And this isn’t just about the US market. Amazon
Business has committed to an aggressive
international expansion plan that is now
targeting Europe. In 2018, Amazon Business
launched in France, Italy and Spain. That’s in
addition to earlier European market launches
in Germany in 2016 and the UK in 2017. In
the first 12 months of availability in the UK,
Amazon Business says it served more than
100,000 business customers, ranging from sole
proprietors to FTSE 100 companies, as well as
universities, hospitals and charities. And market
analysts expect this European expansion of
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Amazon Business to reach 10 countries by
the end of 2019.
Amazon Business: A
Growing List of Powerful
Capabilities
It’s not hard to see why Amazon Business
is targeting the European wholesale and
manufacturing, spare parts and aftermarket
sectors so heavily. Across the European
Union, wholesalers create €593 billion
of gross value added (GVA), according to
a study by the Oxford Institute of Retail
Management at the Saïd Business School
and the University of Oxford.¹ This value is
spread evenly across micro, small, medium
and large wholesale businesses, ranging
from niche players to mass operators. And
the manufacturing sector contributes around
€7.4 trillion to the global economy.²
The Amazon Business value proposition
is extensive and growing. Here’s some
of what Amazon Business is offering your
customers today:
• Free, two-day shipping on orders of
eligible products through Business Prime.
Amazon has tiered annual pricing plans
for Business Prime for organisations with
up to 10 users, up to 100 users and large
enterprises with more than 100 users.
• Inside sales reps.
• Search pages tailored by industry.
• Offers from multiple sellers on one page.
The time to act is now. It’s critical for distributors
and manufacturers to build a customised
response based on known facts, the history
of Amazon’s exploitation of other mature
industries and a strategic calculation on
how they can continue to grow as Amazon
Business pushes into B2B procurement.
• Pricing and products available only to
registered Amazon Business users,
including quantity pricing.
• Amazon.com corporate credit.
• Detailed customisable analytics with
information downloadable and sorted by
user, organisation, product category.
From a broader industry perspective, many
executives have adopted a wait-and-see
approach to Amazon’s potential impact,
which has been appropriate until now, as
there has been relatively little circumstantial
evidence to do otherwise.
But the industry as a whole now has to shift
quickly from a fear-based, defensive position
to a more proactive stance. The industry has
to find ways to proactively address Amazon’s
displacement strategy.
Someone was going to disrupt distribution,
as has been the case in many other mature
industries. The riskiest strategy is to maintain
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• Easier VAT invoice management. Compare
VAT-exclusive prices and filter sellers with
downloadable VAT invoices. Find invoices
automatically populated in your account,
available to download in bulk.
• Punchout support for at least 54 purchasing
systems. Integration is configured via a
drop-down menu and instructions walk the
user through the process.
the status quo by underestimating the fastdeveloping threat of Amazon Business. This
is the time to be proactive and aggressive in
your strategy, not reactive.
https://www.eurocommerce.eu/media/87967/eurocommerce_study_v2_hd.pdf
https://www.themanufacturer.com/uk-manufacturing-statistics/
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TABLE OF CONTENTS
Introduction
Page 2
1
The Amazon
Business Dilemma –
Partner or
Compete?
Page 5
2
What are the
Options for
European Wholesale
Distributors and
Manufacturers?
Page 6
3
The Time to Act
is Now
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Chapter 1
THE AMAZON BUSINESS DILEMMA –
PARTNER OR COMPETE?
As Amazon expands into the European
B2B distribution market, wholesalers and
manufacturers are left with a tough dilemma.
Try and resist and compete with Amazon
Business or sign up to be a part of its
supply network?
The case for collaboration with Amazon
Business is compelling, particularly in
the short term. Amazon has unbelievable
momentum in B2B distribution due to its
unmatched capabilities in technology, ease
of use and distribution.
Amazon says that third-party sellers make
up half of its current $10 billion global sales
total for Amazon Business. Analysts predict
that global revenue will reach $25 billion
by 2021.³ If third-party sellers continue to
make up half of those sales that’s potentially
a huge market European wholesalers and
manufacturers can reach by supplying to the
Amazon Business marketplace.
But there are substantial risks to this approach
too. Not only is it expensive, but as currently
structured, Amazon Business owns the
relationship with its end customers; thirdparty suppliers face tight restrictions over
how they market to and communicate with
marketplace customers.
As Amazon Business says on its company blog:
"Our focus is on improving
suppliers’ ability to reach more
customers, and to make it
easier for customers to buy from
suppliers. Wholesale suppliers
and distributors are just as much
our customer as the end buyer."
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Perhaps the biggest risk is giving Amazon
the data to ‘go direct’ on much of what you
sell by analysing your transactions. In the
retail space, Amazon has a track record of
using this data to identify the most lucrative
parts of markets and then start offering
and promoting its own white label products
above those of third-party sellers.
https://www.bloomberg.com/news/articles/2018-09-11/amazon-says-business-sales-reach-10-billion-annualized-rate
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Chapter 2
WHAT ARE THE OPTIONS FOR
EUROPEAN WHOLESALE DISTRIBUTORS
AND MANUFACTURERS?
Amazon has moved swiftly to understand
B2B distribution and expand its capabilities
and footprint in the European market.
Distribution leaders can no longer afford to
wait and see what the impact of Amazon
Business is. They must act now and respond
to this new competitive landscape. Here
are some of the key ways wholesalers and
manufacturers can adapt, survive and thrive
in this evolving market.
Strength in numbers – a new alliance?
Amazon Business is not a single company; the
third-party marketplace makes Amazon simply
the lead partner in an alliance of thousands of
suppliers, including many distributors, that are
empowering it to execute this strategy. That
means Amazon Business is like an entirely new
competing industry of companies. Therefore,
the distribution industry needs to build a
competing alliance to the Amazon Business
industry model.
Alliances are nothing new for this industry.
From co-marketing to purchasing alliances,
various distributors have decided to join
forces to gain advantages in the marketplace.
Responding effectively to Amazon Business
will likely require a more aggressive approach
to collaboration. Because Amazon is many
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things—a software development company, a
logistics powerhouse, a retailer and a worldclass user of data and artificial intelligence—
the distribution industry may need to enlist
companies with those capabilities in its efforts
to compete in the long term.
For example, combining assortments with
major retailers may be required to build out
a marketplace with a competitive product
selection. An industry collaboration with
leading software companies would provide
for faster and more robust development
of online capabilities than any individual
distributor could build on its own. “The
enemy of my enemy is my friend,” is an
expression dating back to the 4th century
B.C., but it’s perfectly relevant when it comes
to building an alliance that can compete with
Amazon Business in the European market.
It’s hard not to respect what Jeff Bezos
is building with Amazon Business—the
company has developed a strong and new
business model that threatens to disrupt
distribution because many customers value
its capabilities. But no industry is best
served by one dominant player; it’s time to
consider an industry response to Amazon
Business because it appears to be an
unprecedented challenge.
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Quantify your exposure to
Amazon Business
It’s important to gain as much understanding
as possible about the level of threat to your
niche of B2B distribution and manufacturing.
Transactions that will be more difficult for
Amazon Business to displace (for now)
include customer-specific products, private
brands, orders that are difficult to deliver
via common carrier, products that require
significant technical expertise, training,
consultative selling, fabrication, customisation
or maintenance, and products sold through
consignment or vending. If you have
distribution rights to certain brands that refuse
to sell through Amazon, that’s obviously a
strong layer of protection if you can retain
your exclusivity.
Next, look at sales from rentals and services,
which may include configuration, engineering,
design, repairs, long-term financing and other
difficult-to-digitise services (but not ‘open
account’ sales—Amazon Business now offers
that). Whatever is left over is most at risk; this is
your exposure to Amazon Business.
The process of defining your exposure will
allow you to identify the capabilities you
need to compete with Amazon Business and
other online players. More importantly, it will
also help you identify the protected revenues
you enjoy so that you can invest in growing
those capabilities.
As technology and Amazon’s capabilities
evolve, update your calculated risk exposure
on an ongoing basis to understand how it
is changing. This will also provide insight as
you update your strategy to react quickly to
the changes.
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Invest in research and analytics
Amazon pioneered the responsive, personalised
customer experience that’s now commonplace
in B2C online commerce. Take Amazon’s
recommendation engine, for example, and its
use of algorithms and browsing and purchasing
behaviour to deliver a more personalised
customer experience and boost sales.
Amazon will aim to bring that same level of B2C
experience into the B2B wholesale market.
B2B buyers now have the same expectations
of a highly personalised omnichannel customer
experience that consumers have in the B2C
retail market. To compete at this level,
wholesalers need 360-degree visibility of the
customer to drive a deeper understanding
of buyer behaviour and deliver a more
personalised and connected experience. This
requires an integrated business intelligence
system with real-time data visibility and
customer analytics.
One of the advantages you enjoy as a
distributor or a manufacturer over Amazon
Business is that you are closer to your
customers. Exploit these relationships by
getting input on a regular basis on how
your best customers are incorporating
Amazon Business into their supplier base. A
combination of good, ongoing quantitative
feedback and regular, anecdotal input from
major customers will give you invaluable
insight into how to respond to the Amazon
Business threat.
In addition, couple this research and
feedback with good data analysis. Once
you calculate your risk exposure, monitor
how customer purchases are changing
across your product line, including those
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you believe are not particularly at risk to
Amazon Business. An analysis of multiple
years of transaction history, broken down
by customer segment and product subcategory, will give you a baseline to compare
against current sales data.
There are other approaches of course, but
in any case, replace speculation about the
threat from Amazon with real data from your
own customers and sales history.
with other entities, you cannot sell online
effectively without robust product data
management processes.
Define your new model
This isn’t a battle between the traditional
approach of outside reps versus new online
tools. The question is whether you also
need other sales capabilities like account
managers and inside sales reps.
Build a future-facing digital strategy
Whatever happens in the future, state-of-theart online capabilities are essential. Yes, this
is difficult and expensive, but it’s much easier
and cheaper than ever before. Take advantage
of new technologies and an abundance of
available talent to accelerate your plan.
It is likely that there will remain significant
benefits for distributors wielding a strong
sales force and offering great service over
the phone and at the counter. Quantifying on
an ongoing basis how your customers value
(and are willing to pay for) those resources is
vital to effectively adjusting your investments
by channel over time.
This should be a top priority for virtually
every distributor. If you can’t develop a
business case that supports this initiative,
question your assumptions about the
potential sales losses you will face if you
don’t build online capabilities. Too many
companies try to justify the investment
based on projected new revenues alone.
As millennials become the predominant
part of the workforce, it’s likely you will see
declining utilisation of sales channels other
than the internet. Determine what mix of
capabilities you need today; then make
incremental adjustments over time as the
competitive landscape and your customer
segments undergo generational changes.
Bring the same rigor to managing your
product data that you use to manage your
sales force and inventory. Robust product
data is the foundation to effective online
selling and marketing.
Invest in a modern integrated
technology platform
Amazon’s Bezos lives by his ‘day one’ motto
that the company should always act like a
start-up, with a relentless focus on innovation
and improving the customer experience.
You must have a defined taxonomy, a
product information management system
and processes to manage data flows from
suppliers to customers on an ongoing basis.
Strong digital capabilities are mandatory
today regardless of your strategy: whether
you build your own capabilities, decide to
collaborate with Amazon Business or work
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That’s because today’s customers expect
seamless integration across online, call
centre and physical locations. And that goes
for B2B as much as it does for B2C. Meeting
these expectations requires tight integration
between all of the systems involved, across
all channels, on both the front-end and
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back-end. This means wholesalers and
manufacturers can’t afford not to invest
in new, modern, cloud-based technology
platforms in order to compete and deliver a
superior customer experience.
Underpinning the latest technologies and
tools, such as data analytics, the Internet of
Things and Artificial Intelligence, should be
a tightly-integrated technology platform that
can provide consistent, real-time data from
across the supply chain, from manufacturing
to warehousing and logistics, distribution and
inventory management.
Companies in the sectors under threat
need a central data source—an ERP
system—with robust, accurate information
before they can start plugging in analytics
tools and AI software. The easiest way to
collect the data that powers personalised
experiences and new supply chain efficiencies
is a unified solution that brings together
financials, ecommerce, customer relationship
management (CRM) and order and inventory
management. A unified platform provides a
single source of the truth, not multiple sources
of conflicting data. It powers seamless crosschannel experiences that increase average
order value and inspire loyalty.
For example, order and inventory management
integrated with commerce allows organisations
to track inventory across all channels so that an
AI application triggers reorder thresholds at the
right time. AI-driven intelligent order fulfilment
is only possible with real-time information
about incoming orders and inventory levels
from across your supply chain.
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Intelligent inventory management enables
organisations to dynamically manage item
reorder thresholds and preferred stock levels,
reduce lag time with real-time alerts whenever
stock falls to predetermined levels, and avoid
‘stock outs’ to maintain continuity. Inventory
management goes from reactive to proactive.
When it comes to the factory floor and
production line, manufacturers have
traditionally taken a preventive approach to
maintenance, with regular check-ups at predetermined intervals based on maintenance
history for that piece of machinery. This has
two disadvantages. The first is that some
of those checks might be unnecessary and
the second is that unplanned failures can
still occur, causing downtime and disruption
to the manufacturing process. Faulty
machinery still accounts for the loss of three
percent of all working days each year in the
manufacturing sector.⁴
However, the IoT means that sensors can
now collect valuable performance data in
real time from these machines right across
the production line. AI provides the means to
analyse that data to move from a preventative
to a predictive maintenance approach.
Algorithms can identify potential problems
before a machine breaks down and brings the
production line to a halt. Maintenance can also
be scheduled for the quietest times.
Ultimately, a single integrated technology
platform is key to competing with Amazon on
customer experience, from back-end inventory
management, logistics and financials right
through to front-end personalised omnichannel
customer service and delivery.
https://www.themanufacturer.com/articles/machine-downtime-costs-uk-manufacturers-180bn-year/
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Chapter 3
THE TIME TO ACT IS NOW
Don’t wait to get started. Your company’s
future may depend on how well you protect
your revenues from Amazon Business by
developing capabilities that deliver more
sales from hard-to-digitise product
categories and transactions. In addition,
you will need advanced online selling and
marketing capabilities no matter if you try to
go it alone or end up selling through Amazon
Business or a new alliance that may develop.
Distributors and manufacturers face some
tough choices—join Amazon Business,
help to build a competing alliance or
continuously build out your own defences
and capabilities. Each path requires nontraditional investments because these are
unprecedented challenges in the history of
wholesale distribution.
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Amazon Business will be a formidable
competitor to established companies in the
wholesale distribution and manufacturing
sector. The stakes are high but leaders in
these sectors must embrace the challenge.
That means not only building on the
strengths that have made them successful
today but also forging new alliances,
delivering a more personalised customer
experience, developing digital capabilities
and investing in a modern integrated
technology platform as the foundation for
competing in this brave new world.
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