Amazon Expanding into the Medical Market

In recent news and on a recent class blog post (https://blog.richmond.edu/mgmt340-05/2018/02/04/269/), Amazon along with JP Morgan Chase and Berkshire Hathaway plan on entering the healthcare industry. In order for these companies to successfully reshape the healthcare industry including the health insurance sector, they need to gain a complete understanding of medicine and healthcare. Amazon is starting small. It is focusing on the medical supply chain in hopes that it will pave the way for the company’s larger goal, which involves the project venture with JP Morgan Chase and Berkshire Hathaway. This small entrance into the healthcare industry can hopefully set up Amazon for the long-term.

Amazon wants to become the main source for basic medical supplies. These basic medical supplies would include latex gloves, bandages, and sutures. If Amazon can successfully make restocking the supply room at hospitals and doctors’ offices simpler with their fast shipping, Amazon can establish an important presence in the healthcare industry. This could eventually lead to Amazon being a distributor of prescription drugs and medical devices.

Amazon has noticed that the medical market is an attractive market for Amazon to expand into. Hospitals and doctor’s offices need a majority of the same supplies; so, Amazon would be able to use its buying power to save costs and cut out the middlemen. However, there is a challenge Amazon would have to overcome in order to enter the medical market. Amazon would need to develop standardized vendors for their supplies. Standardized vendors would provide hospital administrators the knowledge on knowing exactly what they are getting each time they order supplies.

In class we discussed, capacity as being the maximum rate of output of a process or a system. Managers are responsible for guaranteeing the firm has the capacity to meet current and future demand. Additionally, capacity decisions related to a process need to take into consideration the process’s role within the organization and the supply chain. Changing the capacity of a process could affect other processes within the organization or the supply chain.

In order to enter the medical market and expand their company by offering medical supplies, Amazon needs to have a long-term capacity plan in order to be successful. By starting with basic medical supplies that are not highly regulated, not costly, and can be easily distributed; Amazon can establish their place in the medical supply chain by measuring their outputs. They would measure their sales of latex gloves, bandages, and sutures. It appears Amazon is taking the wait-and-see approach when expanding into the medical supplies market. The wait-and-see strategy allows Amazon the ability to expand in smaller increments starting with medical supplies in physician offices with the hopes of eventually expanding to prescription drugs and medical devices in hospitals.

Currently, Amazon has started supplying supplies to smaller physician offices. This would allow them to understand the capacity requirement for medical supplies in physician offices. Amazon could use this data as a basis for estimating the capacity requirements of medical supplies in hospitals. Estimating capacity requirements is the first step in the systematic approach to long-term capacity decisions outlined in the textbook. In addition, to estimating the future capacity requirements Amazon is going to need to identify capacity gaps, develop alternatives to manage projected gaps, and evaluate the alternatives.

Amazon’s small step into the medical market and medical supply chain shows the connection between the supply chain and capacity planning.   Firms needs to understand how the supply chain works if they want to successful expand their firm into a new market or industry.

Here, is a link to Amazon’s medical marketplace: http://www.amazonbusiness.com/healthcare-join-now-b?utm_medium=cpc&utm_source=google&utm_campaign=913101093&utm_term=51212064368&gclid=Cj0KCQiAiKrUBRD6ARIsADS2OLmbvF0-SgcxuC6PSq6tBWo6pslqeRnxqwMsJ58iXZ2fSaGqV1l4D1AaAsnZEALw_wcB. The website emphasizes that Amazon’s medical marketplace offers simple, efficient, cost-effective medical supplies. In addition, Amazon outlines the benefits of choosing Amazon as for your medical supplies.

 

Here is the link to the article: https://www.bloomberg.com/news/articles/2018-02-15/amazon-bets-on-band-aids-as-health-industry-braces-for-shakeup

 

4 thoughts on “Amazon Expanding into the Medical Market

  • February 21, 2018 at 11:31 pm
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    Erin,

    I was not aware that Amazon was making plans to expand into yet another industry! This massive corporation seems to have a hand in every sector of the market. I found their cautious approach to entering the medical supplies market both interesting and surprising. As you mentioned in your post, Amazon is starting off this initiative slowly. Initially, I would have guessed that Amazon, with their unbeatable buying power and high-speed delivery system, would take a more aggressive approach upon entrance into a new market and try to bully the competition. But after reading your post and considering what we now know about the difficulties of planning capacity within a supply chain as diverse and complicated as Amazon’s, a slow start makes business sense.

    In your post, you characterized Amazon’s strategy approaching the medical supplies market as a small entrance to set up what will potentially be a long-term strategy with JP Morgan Chase and Berkshire Hathaway. Amazon is going about this buy starting to supply smaller physicians’ offices, which will give Amazon vital information and details about the intricacies of the healthcare industry and how they should structure their supply chain in this sector. Like I said, starting small makes sense. We have learned that planning for changes in capacity to one supply chain can affect different supply chains within the company. Amazon is wise to take a cautious approach to their entrance into this market, because if they miscalculate important projections and rush into this industry, it could negatively affect various other supply chains within Amazon’s massive and interconnected business system.

  • February 21, 2018 at 12:33 pm
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    Erin,
    It is interesting to see amazon moving into such a complex market, but not surprising in my opinion. They have grown into such a large company now and have such a large presence in people’s lives. Amazon is only proving forecasters right in saying that they might end up as one of the mega corporations that dominate the economy in the future. This is certainly a step in that direction. When looking at Amazon’s capacity requirements for moving into the healthcare industry, you are correct in saying it was smart of them to start small. Understanding the small nuances of the industry will help them prepare for when they take the larger step they are planning with J.P Morgan and Berkshire Hathaway. They will gain valuable knowledge on where certain processes can bottleneck and figure out how to adapt to them, and it will also give them an idea of what their capacity cushion should be. The economies of scale will play a large part as well during this introductory step for Amazon. They will have to find a way to provide their usual services to the medical industry, and as usual they will have to strike the balance between what inventory is too much and what inventory is too little. These pieces of knowledge are all translatable to a larger project and will be likely what amazon bases this first project on. Back home I have been a part of a local company that was not able to handle its inventory space, and as expected the process of moving items around became too complex, caused many inefficiencies, and people began to make mistakes. Customers were not too happy with this. I will be interested to see how amazon expands into the healthcare industry, and to see if they can continue to hold up their standards that the original service has created.

  • February 21, 2018 at 12:25 pm
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    Erin,

    This is a very enticing blog post and topic because it would be interesting to see how Amazon plans on reshaping the entirety of the medical market. One thing that I think about when seeing this is the convenience aspect. Obviously, Amazon is a market leader because of their incredibly efficient supply chain processes. Not only that, but they have recently started testing drones to deliver their products. It would be great to no longer have to go to the pharmacy at Target or CVS to pick up a prescription but instead have it delivered to your door in half an hour, like the new drones will be able to do. I have attached a link to an article discussing the efficiency that drones can bring to the Amazon marketplace because it is something that I think is the future of business.

    link: https://www.theverge.com/2017/3/24/15047424/amazon-prime-air-drone-delivery-public-us-test-mars

    • February 21, 2018 at 5:52 pm
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      Connor,

      Your discussion of Amazon as a potential leader in the health industry is very interesting. I think the convenience that Amazon provides to its users is a huge reason why people choose Amazon over other companies for their products and services. I think entering into the medical market is the logical next step for Amazon, as they have already integrated themselves into a variety of prominent industries. I think through Amazon starting small and entering the market as the prime supplier for basic medical supplies (latex gloves, bandages, sutures, etc.) they can steadily establish themselves within this industry. Through starting out small, Amazon can gain the trust of other leading companies within this industry and from there they can expand into distributing prescription drugs and medical devices. Because this industry provides products and services that are extremely important, Amazon must first assert themselves as reliable and well-versed in the industry they are entering.

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