Is Amazon's YPO deal a worry?

posted by Mark Fitzgibbon
8 August 2018

Not necessarily, says Mark Fitzgibbon, who argues that this digital marketplace public sector deal could be a disruptor that is needed in this sector.

The Yorkshire Purchasing Organisation, or YPO, a local authority-owned supply organisation that operates over 100 pre-procured frameworks open to the public sector to access, issued a Voluntary Ex-ante Transparency Notice (VEAT) on 3 July 2018, confirming the award of a five year digital marketplace contract for the supply of all sorts of goods from paper clips to bandages to the new Amazon Business division. A contract that could reputedly be worth up to £600m.

This marks a departure for Amazon and the opening of a new battle front for them against traditional supply chains selling into the public sector.

The Amazon-ification of the public sector supply chain has not hit the headlines in quite the emotive way that both the purported “privatisation of the NHS by the backdoor” has (see the stories of Virgin Healthcare having won £2bn of NHS healthcare contracts) and the criticism levelled at Amazon for its vigorous tax planning models and workforce pay and conditions. Yet the award could have far-reaching consequences as Amazon begins work on its ambition to lead the B2B marketplace in addition to its B2C dominance.

The award represents an ambitious move by both YPO and Amazon in a sector not known for its innovation – take for example the Crown Commercial Service’s Crown Marketplace Programme tender, which was pulled on 21 June of this year to return to the drawing board.

YPO is likely to face criticism for ostensibly failing to support local economies and instead facilitating a multi-national entity most notoriously known for aggressive tax-avoidance, however, at a time of increasing public sector austerity, something has to give. Public sector procurement teams are constantly required to provide more for less and, just perhaps, this is the kind of disruptor to the system in the public sector supply chain that could seriously shake things up for the better; after all value for money still looms large versus the assessment of the economic and social value created by a contract. With this in mind, it is highly likely that Amazon’s purchasing power and logistics management will result in driving-down prices while improving quality and efficiency. It’s worth bearing in mind that Amazon’s popularity as a one-stop-shop for anything from gadgets to groceries has not waned in the B2C market, notwithstanding some of the moral criticisms levelled at it over the years.

There is little doubt also that Amazon’s logistical prowess refined in the B2C market will result in smooth and sophisticated order, payment, fulfilment and returns interface. Amazon will also deliver consistency via a single point of access and a brand trusted in terms of reliability and cyber security, something that could only be offered by a major digital provider. YPO’s supplier base is currently made up mostly of SMEs – this contract may jeopardise the future of YPO’s current cohort of suppliers who fail to respond to the introduction of a more agile and powerful competitor which is able and more than willing to adapt and innovate.

Similar to the way in which high street retailers have and continued to struggle to compete with lean online retailers, the digital marketplace contract has the potential to force suppliers who do not embrace this change out of the market in a similar way – a case of adapt (read: sell on Amazon Business, or indeed innovate) or die.

While the true consequences remain to be seen, Amazon again threatens to disrupt a new market, which is likely to be a sign of things to come.

Mark Fitzgibbon is head of the commercial, TMT & IP Team at Hill Dickinson LLP

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