Tag: online sales

OM in the News: Amazon’s Attempt to Upend the Parts Supply Chain

“A growing number of plumbers, electricians and other contractors starting to buy industrial parts online,” writes The Wall Street Journal (Aug. 22, 2017). As part of its business-to-business marketplace offering, Amazon now sells everything from light switches to hydraulic valves, and last month boasted it had one million customers across fields that also included health-care and office supplies.

Amazon is joining a host of online sellers shaking up the $130 billion U.S. market for items that keep factories humming and the plumbing working. They threaten a business largely still conducted via salespeople and national distributors that cater to large businesses, as customers are lured away with instant comparison shopping and free delivery. While parts accounted for a sliver of Amazon’s $136 billion in 2016 sales, the company is a proven disrupter of industries ranging from apparel to video to cloud-data services.

Like retailers before them, industrial suppliers risk getting caught in a race to the bottom on prices, where online-only sellers have an advantage because they don’t maintain costly networks of branch offices and salespeople. Amazon is shaking up the traditional format for selling industrial parts by allowing distributors and manufacturers to sell products directly to businesses on its marketplace, eliminating middlemen and often undercutting traditional local suppliers. It also offers one-click ordering and transparent pricing, features that are the norm in online retail but less common in the industrial world.

Industrial distributors do offer extra services, which would require significant investment from Amazon to match. For example, United Electric Supply will work off a customer’s blueprints to determine the parts needed to build a $10 million electrical system. W.W. Grainger embeds employees in manufacturing plants to manage inventory. MSC Industrial cuts or dyes metal to meet customer specifications.

Classroom discussion questions:

  1. Why is Amazon a threat to traditional supply chains?
  2. What are the advantages that traditional distributors like Grainger have?

OM in the News: Retailers Scramble to Ship From Stores As Web Sales Soar

 

A Black Friday shopper at Toys R Us in Fairfax,VA
A Black Friday shopper at Toys ‘R’ Us in Fairfax, VA

I was meandering the aisles of our local Toys ‘R’ Us store yesterday, and I noticed that not only were the shelves full, but the aisles were stacked with toys as well. Why? It turns out they are trying to avoid a repeat of last Xmas, when online promotions fueled a surge of web orders twice the company’s forecast and beyond what its e-commerce fulfillment centers could handle. Afraid that items wouldn’t arrive by Xmas, management halted some online deals to deter shoppers—a drastic measure during that peak sales period.

To address the issue this year, the company has prepared nearly its entire chain of 870 stores to help ship web orders during the holidays, reports The Wall Street Journal (Dec. 1, 2016). It started cramming its stores with as many goods as possible weeks earlier than last year, and is offering bonuses and better wages to recruit seasonal warehouse workers. Larger items also were shipped to stores earlier to free up its supply chain so it has maximum flexibility during peak times. The $11.8 billion company says it has built in capacity to ship twice as many units from its stores this holiday season, while transporting nearly 25% more from fulfillment centers.

Two decades after Amazon.com was founded, traditional retailers are still struggling to manage hundreds of brick-and-mortar stores, while trying to maximize online sales. The difficulty is amplified during the holidays because online sales spike to 4 times normal volume at peak times.

Across the industry, traditional retailers are taking similar steps. Kohl’s is raising wages and offering bonuses to ensure fulfillment-center employees stick around. Target has more than doubled the number of stores shipping online orders this year to 1,000. Target said enlisting its brick-and-mortar footprint allows inventory in stores to be used for web orders, freeing up online distribution centers to focus on shipping products that stores don’t carry.

Classroom discussion questions:

  1. What OM issues are being addressed by Toys ‘R’ Us and others this season?
  2. How does Amazon differ from traditional stores with regard to distribution?