Comparing Buying Direct versus Purchasing through Amazon Business

A recent discussion with the buyer of a major higher learning institution offered some interesting insight about the value of buying direct from vendors versus shopping on a third-party marketplace like Amazon Business. A key takeaway is that you don’t always judge a book by its cover.

For the past 25-plus years, Amazon has amassed a retail empire largely built on emotional appeal and trusted consumer perception. In Amazon’s stable is Amazon Business, a B2B marketplace that provides businesses with a purchasing solution for a wide range of products. The solution caters to organizations of all sizes to help consolidate procurement, minimize spend and gain greater insight into purchasing.

Among its clients are a few Fortune 500 companies, hospitals, universities and higher learning institutions and city governments.

Just like the rest of its product lines, Amazon Business hangs its fedora on stellar brand perception. Buyers can compare products and business-only prices from multiple sellers and get bulk, quantity, and other discounts. So, whether you’re in property management or floral arrangements, Amazon is calling. Amplifying its pitch is lightning fast shipping.

But, does a supplier that has just about everything fulfill the complete purchasing needs of a company in a specialized industry, like property management? Is it nimble enough to always deliver the products at the right price and at the right service level with low risk?

Marketers are always the first to say you can’t be everything to everyone.

Certainly, it doesn’t mean you can’t try. But for a focused industry like property management, a one-size-fits-all procurement approach probably isn’t sound spend management. Property managers rely on products specific to the day-to-day operation of apartments and other residential properties, which often require tailored pricing and service agreements. 

Comparing pricing, service

My colleague’s employer has an annual spend budget of $1 billion, including about $4 million that is procured direct with Amazon. The institution compared its buy-direct agreement with an office supply company versus Amazon Business to determine the better deal.

The comparison involved products under contract and non-contract pricing with the office supply company against Amazon Business’ published rates on a given day. Also, factors like the supplier’s volume rebates, Amazon’s daily price fluctuations over time and the institution’s inability to negotiate Amazon’s pricing were also considered.

Some of the highlights:

• On all items where a match existed, Amazon was 8% higher.
• On contract items, the office supply company was 12% lower. (This did not include the contract price for the brand of copy paper used by the institution, which Amazon does not inventory).
• Amazon was 19% lower on current non-contract items.

When factoring in volume rebates and negotiation leverage the institution enjoys with the office supply company and other considerations, the buy-direct agreement gained a big advantage. Enough that it saved $10,000 annually.

Also, my colleague noted the institution would not have the same level of high customer service and account management it enjoys with the office supply company.

“This makes it a challenge to build a true supplier relationship,” he said.

Benefits to buying direct for property management

At the end of the day, the organization realized three big benefits of buying direct:

1. An approved contract with negotiated terms protects the organization.
2. An open line of credit with automated invoicing and payables, meaning no additional work for department stakeholders.
3. Dedicated account management solves issues quickly and efficiently, with that personal touch that includes working with the institution on exceptions.

That’s not to say that Amazon Business doesn’t have a place in the B2B world.

Shop around enough on the website and you will find some deals (the comparison yielded up to 54% savings on some items). Amazon can negotiate better prices on some things because of their massive size: Amazon Business has thousands upon thousands of items to choose from because their supplier base is so diverse.

And same-day or next-day delivery, which may not be included in a negotiated buy-direct agreement, can come in pretty handy in a crunch.

Even at all of that, the deal may not pencil out. Trying to convince folks within the organization that “saving big” is a challenge.

“The big picture is some employees shop solely on price and that’s not what the administration is looking for when buying office supplies,” my colleague said. “At the end of the day, that 50 cents you think you saved, you added three hours to the process. You have to look at the overall landed cost of getting that product to your office.

Administrators want seamless, direct purchasing with vendors that match their business model. They prefer employees work off an established procurement platform that supports automatic purchase orders, invoicing and payment rather than having to reimburse purchases on an expense report.

Such platforms save money that isn’t always reflected at checkout.  

The need for consistent, seamless purchasing

A big incentive to buy direct versus working with a third-party marketplace is greater assurance that the supplier will have the products specific to the buyer’s industry.

The higher learning institution relies on special supplies for research. Beakers and test tubes are always available online, but there is a critical need for a vendor or group of vendors that always has the specific equipment necessary for the research department.

My colleague noted that chemistry beakers used by the institution require particular measurement markings and are not always available online.

“We have to buy a beaker and it needs to say 200 ml on it,” he said. “We’re doing critical research. We can’t buy just any beaker, so we need a supplier who will always have that beaker.”

And, if for some reason, that product or another is discontinued, the institution needs to be able to reach out to a dedicated support staff and find a suitable replacement.

Also, the price for vendors doing business on third-party marketplace platforms can be much higher than buying direct, easing a common fear by property management companies that they will incur additional costs in the long run. Vendors typically pay 1-3% on traditional buy-direct platforms, versus up to 15-20% on some third-party marketplaces.

An effective supplier agreement consists of many chapters.

Property management companies must be able to consistently and seamlessly buy products essential to their operations. Buying direct enables establishing volumes that can help in future negotiations and allow vendors to forecast future needs, which ensures product availability.

And, besides, every dollar counts.

RealPage’s Spend Management Ecosystem reduces operating efficiencies by linking procurement, invoice processing and catalog spending through a single platform. Learn more about RealPage Spend Management.