Amazon Business is selling electronic components, but it is unclear if the company will become a go-to source for electronics purchasers or be a niche player in the supply chain
By James Carbone
While electronics purchasers buy most of the components that their companies need for production from parts manufacturers or authorized distributors, there are times when buyers use online marketplaces to search for and buy components.
Often buyers search online marketplaces when parts are in short supply or have long lead times. In other cases, they may try to find a better price for a component that they are currently purchasing from a distributor. Buyers use such sites as ECIAuthorized, FindChips, Octoparts, OEMsTrade to name a few. ECIAuthorized lists only parts from authorized distributors, but other online marketplaces may list parts being sold by non-franchised distributors as well as franchise distributors.
Some electronics buyers are using Amazon Business for production parts, including semiconductors and passives, which is causing some consternation in the electronics supply chain, especially among distributors.
Amazon created Amazon Business in 2015 as a dedicated online marketplace for businesses to purchase products needed to run their companies as well as for materials needed for production.
Some view Amazon Business as a threat or a potential threat to distributors. Amazon has proven to be a formidable competitor to brick-and-mortar retail chains often selling merchandise for less than stores resulting in fewer sales and less profit for retailers. As a result, many national retailers have had to close stores as more goods are sold online through Amazon and other online marketplaces. Some electronics distributors are concerned that in the long-term, distributors may face a similar fate if Amazon Business becomes the powerhouse in electronics that it is in retail.
However, others say that Amazon Business is not a threat because distributors provide much more value to both component manufacturers and OEM and electronics manufacturing services (EMS) customers. They point out that distributors assist customers with design, component selection, and provide value-added, inventory management and other supply chain services that help customers reduce cost, mitigate risk and compete, which Amazon currently cannot do. In addition, a relatively small percentage of components are sold through online marketplaces.
Other distributors view Amazon not as a threat but as an opportunity to reach new customers just as other online marketplaces bring some new customers to distributors.
Growing its product offering
However, Amazon Business is different than other online marketplaces. While it has not been selling electronics for a long time, it is a well-known brand and is increasing the number of products and suppliers on the site.
“We have been selling components on Amazon Business for several years, and we are continuing to grow our selection to meet the needs of business customers,” said Prentis Wilson, vice president of Amazon Business.
He said Amazon business has a “broad selection of electronics components, including resistors, capacitors as well as semiconductors such as microprocessors and memory chips in the marketplace. Buyers can purchase a range of quantities
on Amazon Business, from single pieces to packs, bundles and reels.
The parts are offered by both component manufacturers and distributors, said Wilson. Sellers range in size from SBA-credentialed small businesses to large, enterprise organizations, he said.
Wilson said there are advantages for electronics purchasers to buy parts through Amazon Business. “One unique aspect of Amazon Business is the multi-seller marketplace,” said Wilson. Buyers can view multiple offers on a “single product page for price comparisons, as well as find sellers that consistently meet the performance and service requirements that businesses expect,” he said. Buyers can meet specific sourcing requirements by refining their search for sellers with specific quality and diversity credentials, such as ISO:9001, SBA, women-owned, or veteran-owned businesses, according to Wilson.
Amazon Business also provides tools to help buyers manage spend and buy online. For example, business customers have access to Amazon Business Analytics, which provides visibility into purchasing activity at the individual, purchasing group, or type of spend level, said Wilson.
Amazon Business provides free two-day shipping on eligible orders of $49 or more. When customers purchase on Amazon Business, “they have access to features such as the Pay-by-Invoice program, which provides terms to support businesses’ primary payment processing needs,” said Wilson.
A cautious approach
Some buyers are purchasing small volumes of non-production items from Amazon Business, but are taking a wait-and-see attitude concerning purchasing components and other production materials.
Steve McEuen, vice president of commodity management for EMS provider Creation Technologies, said his company is purchasing
MRO items from Amazon Business.
“We are not implementing the production stuff yet. We are monitoring Amazon Business to see what they’re doing,” said McEuen. “They have introduced electronic components into their portfolio, but the sources and the manufacturers are not well defined.” He added that the quantities of components that Creation buys for production are “a lot higher than what Amazon is market competitive for. We don’t see Amazon Business as a near-term solution, but we
are watching them to see where they’re going,” said McEuen.
He added that it appears the parts being sold on Amazon are mainly from distributors not manufacturers.
One distributor that lists its parts on Amazon Business is Future Electronics. Karim Yasmine, executive vice president, strategic supplier development at Future, said that Amazon Business is not currently a threat to the electronics industry, but is an opportunity for distributors to expand their customer base.
He notes that there are many online marketplaces and they are “all looking to get deeper into the industry because they see opportunity.” Some are referral sites which drive traffic to distributors. Others are referral sites such as Amazon Business and AliBaba that also try to fulfill business.
“Are they hurting our business or industry? Today they are not,” said Yasmine.
He said that Amazon Business today is in the “embryonic” stage. “Amazon Business in the world of electronics distribution is learning. They are educating themselves,” said Yasmine. They certainly want to get into this business. But at the same time, they understand the complexity of what we do as a broad line distributor is not simple,” said Yasmine.
Distributors do more than just sell parts. “There is the global presence, the technical support, there are the terms, the quality and compliance,” he said. “There are a lot of elements to distribution of components that are very specific to our industry.”
Yasmine acknowledges there is concern or fear about online marketplaces such as Amazon Business. Yasmine noted the electronics distribution industry management is “pretty seasoned and change makes them nervous.” But he said distributors that are “selling value, selling differentiated terms, differentiated supply chain and demand creation capabilities” don’t have to be too concerned about Amazon Business or online marketplaces because those marketplaces won’t offer those capabilities in the near-term future.
Yasmine added instead of looking at Amazon Business as a threat, “we are better off understanding what the model is and if there’s an opportunity there or find a way to make it an opportunity.”
He said Future was “looking at everything as an opportunity. Everything will have risk and the question is how do we make the best out of this online marketplace.”
Yasmine said one concern was that Amazon was “going to engage with manufacturers” and have agreements with them.
“But the reality is the majority of the manufacturing base is not looking to add more to their channel,” said Yasmine. “They are looking to streamline. For manufacturers, there is little to no value in that kind of engagement simply. “So, there is no upside there” for component manufacturers, he said
Find the upside
The upside with online marketplaces is for distribution. “The manufacturer does not want to get into the direct relationship of moving product, driving fulfillment part of the business and offering terms and supply chain capabilities,” he said. That’s what manufacturers’ distributor do.
The opportunity with online marketplaces is with distributors. “If you look at the big aggregator sites such as Octoparts, OEMstrade, FindChips etc. every distributor in the world is engaging with them because they have access to the customers’ purchasing community,” said Yasmine. “That drives customer expansion for your company.”
The key to success from a distributor perspective is “if you’re adding differentiated value that an online marketplace website cannot offer, distributors can use that website to drive customer expansion,” he said. But if you’re just moving boxes, you put yourself into a position that anyone can replace you,” he said.
TTI, which sells commodity passives, connectors and semiconductors, does not list parts on Amazon Business. Besides its own website, TTI lists its inventory on ECIAuthorized.com because the site “has a lot of industry traffic and several features that we think are extremely important to the customer and supplier base,” said Michael Knight, senior vice president at TTI.
A key feature is that only authorized distributors are listed on the site, “virtually eliminating the chances of counterfeit product being sold on there.” In addition, the site is very strict about only posting inventory that a distributor owns and has in-house.
“This eliminates the practice of showing factory stock, or stock from another source, as if it were part of the posting distributor’s inventory,” said Knight. With many third-party sites, the inventory shown in the channel is often overstated with much of the quantity being shown as available for sale being double counted, or more because of this practice.”
No impact… so far
Knight said so far, Amazon has not had much of an impact on the electronics industry “but it would be a mistake not to continue to keep our eye on Amazon.”
He noted Amazon’s stated goal is to be the place that everyone goes to buy everything and that “certainly encompasses electronic components.” However, while Amazon Business sells electronic components, “they are generally excess parts of unspecified origin being posted by companies not affiliated with the manufacturer of the component. The same is true over on eBay,” said Knight.
He added that one of the hurdles for a web based reseller that is targeting the B2B supply chain business supporting a company’s production line is that the “environment is very chaotic and sales support requirements are knowledge and relationship intensive.”
For instance, factory lead times for components can be very erratic and extreme with little to no warning.
“The difference between a customer’s production line staying up and running, or being shut down and idle, is the ability of the providers of the hundreds of different types of components that go into a typical piece of electronics gear to build inventory in front of these events,” said Knight. “That takes knowledge and understanding that only comes with experience,” he said.
In addition, providing adequate forecasts is challenging for most OEMs and EMS customers and as a result “what we have is a supply chain that is chronically out of sync,” said Knight. “Will big data, M2M and application programming interface one day pull everything together and make the supply chain more virtual, predictable and accurate, lessening the need for human knowledge, relationships and intervention? For sure, but that isn’t today, so today general-purpose e-commerce businesses remain disadvantaged when trying to sell electronic components in volume,” he said.