Amazon’s failure to police 3rd parties in its supply chain draws public ire

November 6, 2019
Harris Allgeier

As the world’s largest….well, everything, Amazon is no stranger to finding itself in the hot seat. As of late they’ve found themselves facing scrutiny over their handling – or lack thereof- of 3rd party partners. The world’s largest digital retailer generated $232.9 billion in revenue in 2018 and 3rd party sellers account for 50% of those sales. Since January 2017 over 3.3 million new sellers have joined the Amazon marketplace. The presence of 3rd parties allows Amazon to offer an even greater diversity of products but those 3rd parties are also largely unvetted, despite the appearance of authenticity leant by Amazon’s store front.

3rd Part Havoc

This approach has come home to roost for Amazon lately, with the retail giant coming under even greater scrutiny after a story broke revealing that numerous Amazon customers had received expired grocery products including baby formula, coffee, and beef jerky.  A data analytics company, on behalf of CNBC, performed an analysis on the site’s 100 top-selling food items, discovering that at least 40% of 3rd party sellers had over five complaints alleging that they had received an expired product.

Unethical Clothing

These items are only the tip of the iceberg. The Wall Street Journal has published multiple stories on the consequences of the marketplace’s slipshod approach to vendor management. These include stories on Amazon providing some 4000 products that had been deemed unsafe by federal regulators, and the company’s clothing brands sourcing from factories that had blacklisted by the greater fashion industry for unethical labor conditions.

The clothing from these factories was sold on Amazon largely by 3rd party wholesalers and has since been removed from the site. While Amazon does perform safety inspections on factories that manufacture Amazon-branded products, they do not investigate producers behind goods listed by 3rd parties.

Amazon’s Response

Amazon consumer chief Jeff Wilke, speaking at the WSJ Tech Live conference, acknowledged that Amazon’s business depends on customers trusting the company and that the company recognizes it could lose its status as a trusted brand if the perception builds that it isn’t policing the products it sells. Wilke cited those factors as motivation for Amazon spending $400 million in 2018 on technology and a staff of 5,000 people tasked with tracking counterfeit and unsafe items.

“We have to be vigilant and willing to spend hundreds of millions and eventually billions of dollars to protect our customers,” said Mr. Wilke. He also stated that the company is lobbying for stiffer federal penalties for counterfeiters.

Electronics Regulation

So far Amazon has taken small steps to regulating some 3rd party retailers, particularly those selling used electronics products. Specifically, Amazon has rolled out rules requiring 3rd parties selling Nintendo and Apple products (as well as used DVDs, oddly) to obtain approval from the relevant company before selling. It’s unclear if these directives stem from Amazon however, with many sellers speculating that such missives are directly from businesses looking to lock down the amazon market on their own products. The rule change is also likely connected to Amazon’s continuing issues with counterfeit products being sold on the store.

Footwear Foul

The American Apparel and Footwear Association (AAFA) recently added Amazon to its list of “Notorious Markets,” which primarily includes markets with serious counterfeiting issues.

“While we are happy to have seen increased engagement with Amazon on brand protection issues during the past year,” said AAFA president Rick Helfenbein, “that engagement regrettably has not translated into a discernible decrease in counterfeits of our members’ products on Amazon’s marketplaces.”

In addition to spending over $400 million to combat fakes, Amazon has previously sued multiple 3rd parties for counterfeiting, but such an approach is not scalable to policing the millions of 3rd parties using Amazon’s marketplace.

A Scalable Solution

Businesses like Amazon that rely on vast, and seemingly untamable, network of 3rd parties need scalable mechanisms for vetting, monitoring, and managing the kinds of risk those 3rd parties bring. Whether its risk of a cyber-attack via a vendor, the risk of unintentionally selling a counterfeit product, or inadvertently providing a platform for a vendor that uses unethical labor, all big businesses are exposed to some form of 3rd-party risk. Amazon simply has more public exposure.

The only way for enterprises to tackle this problem is by leveraging the power of emerging technologies like machine learning to ensure the origin, authenticity, and integrity of products and their manufacturers.

But how?

Interos Inc., ( located in the Washington, D.C. area, delivers transparency, knowledge, and modeled outcomes so organizations can make smarter decisions about their global connections. Interos visualizes relationships, computes 3rd party relationship health, and monitors ecosystem interactions to reveal opportunities and risks. Interos serves customers in finance, aerospace, CPG, food, manufacturing, retail, technology and the government.

Interos, the world’s leading (and only) AI-powered supply chain risk management platform. Check out the rest of our site to learn more.

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