Everything about distribution is hard work. From organizing suppliers, warehouses, and customers to fending off competition, it’s your job to keep everything flowing. But in recent years, you saw a new threat appear—entering your space less than five years ago and poised to become the largest distributor out there.
Should You Consider a Move to a Marketplace?
Last year, we discussed one of the biggest threats to the distribution industry—begins with an A, ends with an N, has a little smile that connects A to Z. Well, a year later, and their presence in the B2B space hasn’t gotten any smaller.
Ranked number 6 in the MDM list of top distributors in 2018, they jumped to number 3 in 2019, and analysts believe they could surpass Ferguson Enterprises and W. W. Grainger in the next few years.
Not only does the presence of Amazon create a new sense of urgency and risk at businesses—setting higher customer expectations, enforcing additional commoditization of the industry, and putting downward pressure on prices—it also creates opportunity.
As noted in our blog last year, one of the options distributors have is to join them. Yes, you’re bound by the expectations, have to turn over a portion of sales to the company trying to put you out of business, and give up customer data, but it’s worth considering the benefits:
- More access to customers.
- A smaller slice of a larger pie.
- A bigger online presence.
Add to this that Amazon isn’t the only game in town—you can just as easily sign up with Walmart or other retail leaders making moves into the distribution space, and the opportunity may be too lucrative to pass up.
Some of the Challenges You May Face in a Marketplace Initiative
Understandably, this doesn’t come without challenges. Whether it’s dealing with the logistics that come from processing a huge number of small transactions, the issues that might happen when you have to send an invoice to Amazon for each of these transactions, or the process of reconciling everything, it’s easy to end up with a backlog.
Dealing with Tens of Thousands of Invoices
As a distributor, you may be accustomed to large orders. But when you enter a marketplace like Amazon Business, you started working with businesses of all sizes.
In turn, this means that you’re going to be processing smaller orders much more frequently—and invoicing the marketplace for each. Are your people ready for the shock to the system this may bring?
Receiving a Bulk Remittance
Now, say you end up with 50,000 invoices sent to Amazon in a month. At the end of that month, you’re going to receive a remittance with 50,000 events in which the company pays you, takes their cut, and then notes deductions they took for storage and shipping.
Each of these lines has to be matched with the invoice sent—before you can analyze the deductions to see if each is authorized.
Processing Clawbacks for Unauthorized Deductions
The way that Amazon pays you is not much different than the way a giant company will fight a lawsuit from a small business—burying you in paperwork.
Not every deduction is correct. Often, a marketplace will take a small cut that they shouldn’t for storage fees, shipping, or the like. It’s not out of malice. Mistakes happen, their system will automatically calculate a deduction that doesn’t belong.
If this happens, they will pay you back—if you can catch the error. But again, remember that you have to find the error in a file that includes payments for 50,000 invoices. If you’re manually trying to analyze each line of each remittance to know if a deduction was justified or not, you’re probably not going to catch everything.
Too often, if you’re selling on a marketplace, this ends up being money you don’t know you’re losing.
Automating Marketplace Accounting Practices
But not all is lost. You do have options to facilitate the processing of invoices, remittances, and more. Our product, Online Marketplace Fee Accounting and Payment Reconciliation for NetSuite, is designed to automatically apply payments from marketplaces, record both structured and unstructured fees, mark invoices as paid, and generate a deposit record in NetSuite.
This solution delivers speed and accuracy, provides your people with visibility, and helps you run more smoothly. In fact, we helped JAM Paper get out of the bind they were in. In our Case Study, Getting JAM out of a Bind: MIBAR Delivers Invoice Automation and Marketplace Reconciliation, we discuss how we helped this company handle the backlog created from manual processes.
Read this case study to understand how we helped the company get from being 45 to 90 day backlogs to real-time data. Click here to learn more.