The ‘Amazon Effect’: The Digital Marketplace Meets the Education Sector
Amazon. Consumers love it, the high street loves to hate it; but what do buyers in the education sector think? No, this isn’t the writer’s imagination running away with itself on a hot summers day. This is now a very relevant question for procurement managers in schools, colleges and universities across the UK.
That’s because the ‘Amazon Effect’ is now spreading to a new marketplace, with the online retailer preparing to take on traditional supply arrangements in the public sector (part of its foray into the wider B2B forum).
In August 2018, Supply Management magazine reported that UK purchasing consortium YPO have agreed a five-year deal with the online giant for the supply of goods through its digital marketplace. With a contract potentially worth up to £600m, what does this mean for the procurement profession? And more importantly, what does it mean for business consumers in the education sector?
A One-Stop Shop?
Love it or hate it, Amazon has transformed the retail market place over the past decade. The benefits of a single, secure electronic portal where you can find everything from staplers to staple foods are self-explanatory. Instead of protracted sourcing exercises, buyers are instead presented with an instant menu of goods served directly to their table. Amazon’s logistical agility is well-known, and their world-class distribution system could even see organisations receiving goods within the same day, underpinned by a sophisticated order, payment and returns interface.
The greater choice enjoyed by consumers, however, can present a nightmare to those trying to control organisational spend. With thousands of suppliers, plus independent businesses retailing via the Amazon platform, it becomes a huge challenge for buyers to control quality and be sure that they are really getting the right product for the best price. The question of cost management is also central; when all goods are bought via digital marketplace, it is harder to examine spend across categories and identify where savings could be made on certain common commodities.
And what about the dangers of single-sourcing? Although it feels impossible that a retailer of Amazon’s prowess would ever fail, there remains the same risk that always accompanies putting all of one’s supply eggs in the same proverbial basket.
Suppliers and Supply Chains
For some commodities, the type of hands-off relationship offered by a digital marketplace is ideal. But it is not suitable for all goods that the education sector needs to procure. For products like computer hardware or audio-visual equipment, we need to ensure that adequate technical support and warranties are provided to support the long-term operation of goods. When buying furniture, it is sometimes not enough to have 50 desks dropped off at our college’s reception; we need a supplier who will help us deliver and assemble our equipment ready for use within classrooms.
The pressure on suppliers negotiating directly with a global giant such as Amazon could lead to stripped margins and a zero-added-value offer to consumers. Many education sector bodies pride themselves on their connections with the local community and particularly with neighbouring SMEs. The use of a multi-national online retailer not only severs this connection; it could threaten to lock smaller businesses out of the market altogether.
While it presents the opportunity for smaller businesses – like their high street retail counterparts – to innovate and adapt, the use of the digital marketplace could become a question of cash value versus social value for the education sector.
So, could a single supplier of all commodities be the right approach for the education sector?
On the surface there are many possible benefits, yet also manifold sacrifices – in quality control, spend management, supplier relationships and added value – that could have to be made. While the ‘Amazon Effect’ might be a good thing for education sector consumers, it could make the challenge of saving money even more difficult for procurement professionals.