Amazon Will Disrupt Medical Supply. How Do OEMs Fit?

Over the past couple years, Amazon has been expanding into new turf: the market for B2B distribution. While most industry analysts initially doubted that Amazon Business would succeed in B2B, incumbent distributors like Grainger are already struggling.
 
Over the next few years, numerous verticals will come to be dominated by Amazon’s B2B e-commerce platform, and medical supply is high on its list. The key to not only getting through the coming disruption, but to maximize the opportunity, is to embrace marketplaces and digital transformation.
 
Amazon Changes the Industry Landscape
For medical OEMs, existing relationships with distributors and group purchasing organizations (GPOs) will start to change.
 
Unless GPOs start to innovate soon and figure out how to offer lower prices and better buying experiences, they will steadily become displaced by Amazon Business. Amazon has always aimed to deliver prices lower than the competition, causing problems for Walmart in B2C and Grainger and others in B2B.
 
If Amazon can deliver for procurement officers easier, better buying experiences for lower costs, then business customers will naturally shift their preferences toward purchasing from Amazon.
 
Amazon excels at offering relatively simple, commoditized items. Consumers, including procurement officers, are used to ordering these types of items from Amazon. This behavior is increasingly translating to B2B industries. Even if Amazon only wins these more commoditized items, it will place significant price and margin pressure on medical supply distributors, OEMs, and GPOs.
 
Even worse, Amazon Business’s marketplace model thrives on price transparency and price competitiveness. Soon enough, firms like Patterson and Henry Schein will face mounting margin pressure as Amazon’s marketplace grows and offers customers a better deal.
 
It’s paramount that medical OEMs establish lucrative relationships with online marketplaces right away. Until a marketplace reaches scale, partner OEMs will likely be given good terms and subsidized access to new markets.
 
With all of the infrastructure being handled by another entity, an OEM will merely need to meet its production timetables and not worry about sales or distribution.
 
There’ll only be one degree of separation from the customer and all increases in sales will come at low marginal cost—the marketplace handles most of the marketing and logistics. OEMs can just focus on making medical supplies better and more efficiently.
 
As things stand now, the best candidate for a partnership is Amazon Business, which offers its third-party sellers customizable, branded online store pages and a whole suite of tools for fulfilling sales. If an OEM wants a very scalable path to new growth, selling on Amazon Business looks like the best option and it should be seized quickly before those friendly terms evaporate.
 
However, long-term, this strategy could come back to bite you.
 
Enter the Marketplace
For medical supply companies, working with Amazon will be advantageous in the short term, but not forever. The company is devoted to beating out the competition by delivering lower prices, sometimes at the cost of its third-party merchants and suppliers.
 
A more sustainable path would be to create and scale a marketplace built specifically for the medical supply market, one that matches buyers with suppliers seamlessly and offers competitive, transparent pricing. It’s the only way around the increasing margin pressure Amazon inevitably brings.
 
The owner of this new marketplace will need to find smaller, more regionally focused distributors and OEMs that can fulfill orders quickly and affordably. They should be glad to join the marketplace since it’ll be an engine for referral business and low-cost growth.
 
On the consumer side, buyers get lower prices. On the other side of the marketplace, OEMs and distributors capture new business for fractions of a cent on the dollar, and the marketplace owner gets to collect portions of each transaction (or whatever revenue arrangement works best) and essentially own the vertical for medical supply.
 
It may seem incredibly new and complex, but all it takes is some innovation and elbow grease. It’s Amazon’s secret sauce for successful domination in the modern economy and it could be yours too.
 
The window is closing, however, so anyone seeking to capitalize on this opportunity needs to move rapidly. Waiting will only yield ever-increasing opportunity costs.