Amazon Business does VMI
Tech Monopoly wants to do Manual Services?!
Happy Columbus Day,
It was over a 100 years until the Mayflower set sail after Columbus’ voyage – 128 years to be exact in 1620. It’s remarkable to think about the rate of change in today’s world compared to our ancestors. As one of our speakers mentioned at the Innovators Summit, AI is making monumental leaps in a matter of weeks, not months or years or decades – but weeks.
That said, the rate of innovation for the subject of this week’s newsletter is much slower. That company is Amazon Business.
This past week they announced a groundbreaking new product announcement … drumroll please … a vending machine!
Yes, that’s right folks – distributors beware. Amazon Business is launching a vending machine.
And, not just any vending machine – this vending machine leverages Amazon’s “Just Walk Out” technology, so it automatically tracks what you take off the shelf. Wait – actually, that’s not true. This just a plain old vending machine – and as Mike Hockett from MDM reports, “If you’re Fastenal or another distributor with a robust vending platform, you can shrug this off since your offering is far superior.”
But, wait, it gets better – the vending machine is going to launch in 2025!
Here’s the full article from Amazon Business on their announcement of Amazon Business Restock.
Why VMI?
Why does the world’s 5th largest company by market cap care about launching unsexy, manual services?
The easy answer is their customers want it – so they are answering the call. And, as we’ve written about previously, vendor managed inventory is a big business. In June of this year we wrote an article “Vendor Managed Inventory - Distributors’ Bread and Butter".
So, logically, it makes sense why Amazon would expand into this solution offering. And, despite my poking fun at Amazon in the introduction of this week’s newsletter, industrial and MRO distributors should not take this lightly. Having an easy, seamless tech experience for VMI is a great value proposition to the business customer.
A lot of distributors struggle to provide customer portals with accurate order status information, easy payment options and administrative features. Amazon Business has all of that and now with Amazon Business Restock, they are going to expand on those existing capabilities. If you’re an MRO distributor without a good customer portal, you should get that fixed ASAP.
Amazon Business is ready for Trench Warfare
Amazon does not usually break from their traditional way of doing things. For example, that’s why their expansion into liquor delivery never worked – they wanted to do it the Amazon way and not adapt the model. So, liquor delivery failed and Amazon continued to do just fine.
However, for Amazon Business, VMI marks the second departure from the “Amazon Way” – the first being eProcurement which we wrote about in March of 2023.
Their expansion into VMI and stockroom management is a sign that they are ready to get their hands dirty. The gloves are coming off.
On one hand, it shows that Amazon Business’ ability to grow is being challenged – they don’t want to have to change their ways. They don’t want to do unsexy, manual services. But, they want to win above all else – and this shows their conviction to win in B2B distribution.
Vendor Managed Inventory = Marketplace 1.0
A lot of vendor managed inventory programs closely resemble marketplace dynamics. Just like a marketplace has a winner-take-all dynamic with its customers, the customer of a VMI program commits most, if not all, of their spend to one vendor. Just like a marketplace goes direct to manufacturers cutting out the middleman, the VMI vendor of record tries to source as much supplies directly from the manufacturers.
Historically however, VMI has been run as an analog business. Well, that’s clearly starting to change.
The reason why we at Applico like VMI is because it’s also a trojan horse. If the VMI vendor has a good digital experience, we think it’s a trojan horse to capture non-committed, spot-purchase spending.
There’s a lot of ad-hoc, unplanned spending from industrial customers that doesn’t flow through a VMI or integrated supply program. VMI vendors who provide a delightful digital experience can position themselves to also capture the higher margin, lower velocity uncontracted spend.
Here are four examples where technology can provide that differentiated experience: