“It’s a jungle out there.”
Most automotive parts distributors wouldn’t argue with the point of view in trying to describe the affect Amazon has on the parts distribution business. Once considered a weak competitor, or to be generous, a nuisance, Amazon has proven to be a legitimate mover of parts to both consumers and to automotive repair shops. As an agent of disintermediation, which is disruptive in a business where three-step distribution is sacred, Amazon now is being watched closely by the traditional and retail aftermarket distributors, who both have e-tailing aspirations.
Presently, the threat to distributors comes from the e-tailer’s Fulfillment by Amazon service because it can manage inventory for manufacturers as well, if not better in some cases, than traditional distributors. Product storing, picking, packing and shipping are all included at a lower cost because Amazon is performing these tasks at highly efficient facilities using highly efficient and sophisticated software, which frees manufacturers from a costly expenditure either directly or indirectly through their traditional distributors. What’s lost is any value-added service that automotive distributor specialists can offer, such as down channel training.
Not satisfied with grabbing market share from the parts distributors, it appears that Amazon may be out to challenge its delivery partners, FedX and UPS. Amazon’s ambitions were recently brought to light by Bloomberg News after Amazon was asked about some curious shipping behavior. More questions arose when Bloomberg examined a copy of Amazon’s 2013 senior management report.
Bloomberg reported that Amazon’s odd behavior — leasing planes and registering an ocean freight booking business — was downplayed by Amazon as ways “to supplement its delivery partners…during peak periods…” Well, OK, everybody understands crunch time and you have to do what you have to do to fulfill customer obligations.
But it is the senior management report that may be the more reliable source in helping to determine Amazon’s motives. The report describes a new venture called “Global Supply Chain by Amazon,” a title that is anything but subtle in its intent, but world domination rarely is.
In essence, Bloomberg says that Amazon wants to be the (my emphasis) logistics hub and, as such, wants to control the flow of products worldwide. To achieve this, it appears that Amazon wants to build an inclusive shipping network, which by definition means shunning all other product brokers, large and small. Although this seems to be overreaching, it looks like Amazon is betting on its ability to accumulate such a large number of merchants offering enormous inventories so that it will have the leverage to control the cargo space on all major carriers. By doing so, the cost of handling goods and paperwork will be greatly reduced.
The punchline to this plan is that the cargo space can be reserved by merchants online, thereby morphing e-commerce into e-shipping. According to Bloomberg, Amazon describes this scenario as “one click-ship for seamless international trade and shipping.”
Depending on what part you play in parts distribution, the adjective you choose to describe Amazon’s plans may be seamy, rather than seamless. I have a pretty good idea of which one FedX or UPS would choose. The third-party carriers that Amazon needs to execute its plan may feel the same way because, according to Bloomberg, the Amazon senior management report says these “partners” (my quotation marks) also would be abandoned after Amazon builds volume and gets up to speed on critical market intelligence.
More than anything else, Amazon’s direction underscores just how competitive the supply chain is. At the end of the day, it can’t really be deemed a villain when it is just looking for a competitive edge, as long as it does everything above board. Hopefully, when Bloomberg initially reported on Amazon’s plans, it was not news to its shipping partners. But even if it was, should we expect companies to telegraph their growth plans, especially when it means breaking some relationships?
Forming partnerships and breaking them is not by itself a nefarious activity. Partnerships can only last when both parties have the same goals and objectives and can provide each other with something each needs. Any savvy businessperson knows that partnerships are a means to an end and usually run their course over time. I certainly applaud those who can maintain and grow a lasting relationship with a partner — I just don’t think anyone should expect it.
In automotive parts distribution, a successful launch by Amazon of its global plan will open markets not yet reached or ones inadequately served. This could be good news for manufacturers, especially for those that have been trapped serving mature markets.
All things considered, Amazon’s global supply chain news shouldn’t surprise anyone. After all, Amazon has never followed a conventional path in growing its business as evidenced by the fact that it also wants to use drones for last-mile delivery. If that becomes a reality and you’re in the business of selling or reselling automotive parts, you might need your own fleet of drones just to keep up.
Subscribe to Aftermarket Business World and receive articles like this every month….absolutely free. Click here.