The Amazon effect: what does it mean for Australian manufacturers?

the Amazon effect

Amazon – friend or foe? That’s the question facing Australian manufacturers. Here, we weigh up the opportunities and challenges presented by the online retail giant’s arrival, and how manufacturers can stay ahead of the game.   

In case you missed it, here’s the story so far. In 2017, online retail goliath Amazon announced it would enter the Australian market. In a conference, the CEO revealed Amazon would launch with both a direct retail presence and an Amazon Marketplace offering of local sellers, with everything from underwear and books to laptops and toys. Then, in November, Amazon opened its first local fulfillment centre in Melbourne’s Dandenong South.

Australian retailers haven’t held back on how they feel about Amazon’s arrival. There’s been widespread criticism and talk of fears that they will be driven out of business by the online superstore. All except for Russell Zimmerman, Executive Director of the Australian Retailers Association, who spoke out that SMEs saw Amazon’s entry into Australia as an opportunity rather than a threat.

So, should Australian manufacturers fear the arrival of Amazon in Australia? should they fear the Amazon effect? Or should they be seeing this as a golden opportunity to grow and evolve their businesses?

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Let’s take a look at the opportunities and challenges in the Amazon effect…

Tap into a new sales channel

First and foremost, Amazon offers a new channel for manufacturers to get products into consumers’ hands. There are three types of Amazon sellers: Fulfilled by Merchant (FBM), Fulfilled by Amazon (FBA), and Amazon Vendor.

FBM is the basic model; it allows a seller to list a product for sale on Amazon and then handle all logistics, customer service and shipping themselves. The FBM model offers the best margins, allowing suppliers to leverage their existing logistics infrastructure. However, it also denies customers the Amazon Prime shipping and flexible returns policy they have come to love. So, if you choose FBM, you may need to rethink your delivery times to meet customer expectations.

Fulfilment by Amazon (FBA), launched in February, is an in-house logistics program whereby Amazon stores, picks, packs and ships products on behalf of third-party sellers. This is arguably the best option for small and medium businesses, who can reduce overheads for storage and security, and outsource time-consuming logistics issues. Smaller businesses can tap into the benefits of FBA to grow fast, as they can sell internationally without the need for costly logistics and warehousing.

For larger manufacturers, there’s an Amazon Vendor. Similar to a traditional wholesale agreement, Amazon invites sellers into the program and buys a number of units at a pre-agreed price. Amazon Vendor offers the advantages of enhanced on-page content and marketing options without manufacturers having to worry about shipping products straight to consumers.

Whichever way manufacturers choose to work with Amazon, they should be mindful of existing relationships with retailers. It’s been reported that manufacturers were threatened by some retailers that they could be “kicked out” of stores if they started selling to Amazon.

Amazon opens the door to a global audience

Perhaps the biggest advantage of Amazon’s arrival is that Australian manufacturers can tap into a global sales channel more easily than ever before. Amazon’s Seller Summit last year was all about educating Australian businesses on how they can use Amazon Marketplace to take their products to a global audience. According to Amazon Australia country head Rocco Braeuniger, they can use Amazon to reach more than 300 million customers around the world and to grow their business.

Food processors: watch this space

Food processors won’t miss out either; Amazon’s former global logistics senior manager, Brittain Ladd, announced in 2017 that a separate “Amazon Fresh” site would be part of the launch. While this has yet to eventuate, Amazon has renewed its Whole Foods trademark in Australia, suggesting that it is planning a move on the nation’s $100 billion grocery market. This could mean the biggest shake-up for grocery retailers since the arrival of Aldi. All we can say is watch this space.

Raise your game

There’s no denying that Amazon is already playing a massive part in the supply chain. But if you’re not yet selling through Amazon, or perhaps never will, what does this mean for you? Professor Chris Earley, dean of the University of Technology Sydney’s business school, told Manufacturers’ Monthly that the smartest organisations in Australia will use Amazon’s arrival as a “learning mechanism” to see how a world-class supply chain organisation moves things around.

In short, it will show manufacturers how to raise their game. For some, this could mean embracing new ways of thinking and operating, such as through more collaboration, digitisation (Industry 4.0), and integration into global value chains. For others, it means looking at specific ways to supply goods or products locally, quickly, and at a lower cost of delivery.

So rather than fearing the Amazon effect, the bottom line is every manufacturer should take this opportunity to watch and learn.

Here’s something else presenting a great opportunity to learn: how Australia’s dairy industry mitigates risk and builds brand trust.

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Matthews has large resource library full off highly informative case studies, whitepapers, presentations we’ve done to industry bodies, infographics for manufacturing, articles from our thought leaders, vids showing solutions in action, lots of detailed of brochures and more! And its all free to download!

Image credit: iStock / Wenping Zheng

Trent Munro

Trent Munro

Manager – Strategy & Business Development at Matthews Australasia
Trent Munro is an accomplished business strategist, marketing innovator and speaker specialising in business development and optimisation. Over the past 15 years, he has worked across a range of blue-chip and medium enterprises including Goodyear Automotive, Clariant, Corona Manufacturing and Matthews Australasia. Trent holds a range of postgraduate and graduate qualifications in Commerce, Psychology, Project Management and Science. At Matthews Australasia, he has overseen market development locally and abroad, launching class leading traceability and automation technologies across manufacturing, healthcare and logistics.

by Trent Munro

Trent Munro is an accomplished business strategist, marketing innovator and speaker specialising in business development and optimisation. Over the past 15 years, he has worked across a range of blue-chip and medium enterprises including Goodyear Automotive, Clariant, Corona Manufacturing and Matthews Australasia. Trent holds a range of postgraduate and graduate qualifications in Commerce, Psychology, Project Management and Science. At Matthews Australasia, he has overseen market development locally and abroad, launching class leading traceability and automation technologies across manufacturing, healthcare and logistics.

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