What is Grainger?
Grainger is an industrial supply company specializing in MRO (maintenance, repair, and operations) inventory that operates an eCommerce platform as well as physical distribution locations. The site was launched in 1995 after over almost 70 years of offline success. Grainger is mostly a B2B platform and still has a very “old-school” look and feel to it but is user-friendly and organized. It mostly supplies small industrial parts, aftermarket materials, and tools to businesses that range in size. It does not provide highly specialized parts that would most likely need to come directly from an OEM or would be covered by warranties.
Like Amazon, the company operates as a platform where buyers and sellers can meet and transact. Suppliers can list their products on the Grainger website. Customers can search for products through the brand name, the product category, or the use case. Customer can fill their carts, proceed to purchase, and have materials shipped to their location within 2 business days. Unlike Amazon, Grainger does not produce any of their own products.
Inventory Management Services – supporting the feedback loop?
In addition to selling over 1.5 million products though the platform, Grainger provides additional value-adding services to their customers. Grainger provides inventory management services and technical support services. Customers can use Grainger’s customer-managed inventory system best used by customers with small inventories where Grainger provides software and barcoding services to the customer but the customer largely self-manages the program. They also provide a Grainger-managed inventory program where Grainger manages all the customer’s inventory needs including tracking and re-stocking. They also provide secure inventory vending machines for companies that benefit from that service. Providing inventory services creates a feedback cycle into further sales for Grainger as their integrated inventory management system prioritizes ordering from Grainger when supplies are needed. Additionally, Grainger most looses sales to emergency situations where customers would drive to the nearest hardware/supply store to get a part they should have in inventory but do not. Having well maintained inventory systems boosts Grainger sales and reduces customer downtime by having required parts on hand.
Grainger creates value on all fronts
Grainger creates value for their customers by offering an extremely large range of products, ensuring adequate supplier inventory (what you need will be in stock), providing add-on services and support, ensuring fast shipping reducing downtime, and integrating the online and offline experiences for customers. While Grainger are sold at a high margin, customers value Grainger’s services, convenience, and reliability and are willing to pay the higher costs in exchange for the benefits. Additionally, sellers value Grainger as Grainger provides sellers with access to thousands of customers while handling issues relating to returns, inventory, and customer service that many suppliers do not have the ability or willingness to handle themselves.
No limits to scale and longevity
Grainger can continue to scale as it has successfully with very few limitations. Suppliers know that Grainger provides an excellent distribution channel and access to new customers. Customers know that Grainger has many suppliers and can provide most products they are looking for (that are not highly specialized). There is a feedback loop that exists where the more customers that use the platform, the more suppliers want to list on the platform and vice versa. The more customer support and services that Grainger supplies to both customers and suppliers, the stickier the relationships are and the less likely that disintermediation will occur. Many suppliers in this industry especially do not want to supply directly to small-medium sized customers due to logistical headaches, further ensuring the sustainability and scalability of the platform. There are thousands of businesses globally that Grainger could supply to. An incremental supplier or customer costs Grainger very little except for the initial product listing and inventory space. However, Grainger has an abundance of cheap inventory space and physical locations to supply short-terms customer needs.
Is Grainger the perfect platform?
Grainger is effectively the only player in its market and solves both their customers’ and suppliers’ pain points. It can continue to scale by providing more services, listing products from more suppliers, and expanding in more geographies. It is a highly sustainable business model as it can grow with almost no up-front costs. Suppliers and customers have little interest in disintermediating the platform, protecting Grainger from competitive threats and new market entrants. Grainger might be one of the best and most protected platform businesses out there today.
Is Grainger the perfect platform? Yes.
- Grainger and SAP, “How Can the Right Procurement Technology Make Buying Simpler for Customers”, 2021
- Grainger, “Corporate Sustainability”, 2021, www.GraingerESG.com