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Amazon in Medical Supplies – Wholesalers Beware

Amazon: the bookseller,
Amazon: the moviemaker,
Amazon: the grocery store and now,
Amazon in medical supplies?

In February, the Wall Street Journal reported that Amazon was developing and executing a robust strategy to enter the hospital supplier/medical supplies business. This development of Amazon in medical supplies adds a new layer to the announcements over the past year indicating Amazon’s ambitious goals for the healthcare and pharmaceutical space.

Amazon is already distributing limited medical supplies through the company’s B2B marketplace, Amazon Business. But Jeff Bezos’ organization is now looking for a full immersion into the entire supply chain, where the business hopes to leverages its vast resources, technologies, and logistics expertise to create a new model for negotiating and distributing medical supplies.

According to Chris Holt, the healthcare leader at Amazon Business, in speaking with The Wall Street Journal,

“Our goal is to be something new,” adding that to simplify purchasing, the company has been “actively building out new capabilities and features.”

How will Amazon in medical supplies distribution impact the life sciences industry?

As recent history has taught us, the convenience and reach of Amazon will catch the eye of anyone in purchasing who is looking to assess their suppliers. The average buyer now brings their consumer-purchasing habits (e.g., mobile shopping) as expectations to professional purchasing activities. The convenience, immediacy, and familiarity of Amazon’s marketplace approach, delivery speed and efficiency, and advanced logistical and technological capabilities will be appealing to a modern purchasing team.

That said, there are clearly considerations and challenges specific to the medical supply sector that a convenient platform can’t unilaterally solve. For hospital administrators, for instance, Amazon’s marketplace approach does not address the expectations around continuity of product supply. Supply agreements, under the current negotiated contract relationship between hospitals and their wholesalers, provide the assurance that distributors will provide supplies securely and in a timely manner, even in the event of natural disasters or other supply-delaying circumstances. Under the Amazon marketplace approach, this guarantee doesn’t exist in the clear and regimented way hospital administrators have come to expect from their medical supply wholesale distributors.  Amazon would need to provide the same level of assurance for continuous and uninterrupted supply.

How can medical supply wholesale distributors prepare for the disruption of Amazon in medical supplies?

As it stands now, the negotiated contract process remains advantageous for some medical supply purchasers. As Cleveland Clinic’s senior director of pharmacy sourcing and purchasing, Jeffrey Rosner, told Modern Healthcare,

“We receive the best value by negotiating our contracts and purchasing our products directly from manufacturers and our approved distributors.”

This mindset, along with the often-complex nature of the medical supply sector, gives distributors long-entrenched in the business the opportunity to demonstrate their understanding and commitment to their key constituents while building out the capabilities necessary to more effectively compete with Amazon.

Many wholesale distributors have addressed basic digital and e-commerce capabilities but advances must continue. Wholesalers are now empowered by advances in artificial intelligence, robotics, and predictive analytics to drive more efficient and nimble services and solutions. As intermediaries, wholesalers have access to vast amounts of data that, when leveraged correctly, can provide transformative value to stakeholders.

While Amazon brings a host of advanced capabilities and technologies to disrupt the market, it is Amazon’s newness that will benefit wholesale distributors. As established entities in the value chain, wholesale distributors have a deep understanding of their core customers’ opportunities, challenges, and goals. Pairing this understanding with robust digital tools will allow wholesalers to better compete against a potential Amazon disruption.

What’s next?

Following the Wall Street Journal article, stocks tumbled for medical supply distribution companies. Owens & Minor’s stock price plunged 4.8 percent, Cardinal sank 3.4 percent, and McKesson slid 1.9 percent. The message to wholesale distributors is clear, the time to prepare for the future is now.

With today’s continued pricing pressures in the healthcare value chain, hospitals must consider all options to improve efficiency and reduce costs of their medical supplies.  Within a wholesaler’s own infrastructure, the need for strong pricing engines, integrated and strategic planning, and actionable and focused analytics are deeply rooted to core transformation.  The process must begin immediately to not be lost in the current.  The ebb and flow of disruption has begun.

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Tags: Supply Chain Technology, Life Sciences Trends
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