Trend 12: Increasing Disintermediation

Jan 23, 2011 7 Comments by

Middle-men continue to be redefined as they search for better ways to add more value with less cost, less friction, operate at higher speed and with greater efficiency. Intermediaries must add value and re-invent before they disappear and die!

Supply chains extend from the producer of raw materials to the manufacturer of a finished product and then through various layers or links in the chain to ultimately get to the customer and end user of the product.

Typically, factors such as efficiencies of economies of scale, access to distribution systems, and access to sales channels allow middle men to profitably exist in the supply chain for the benefit of others in the chain.

Cutting Out the Middle-Man

Given the opportunity, many end user customers would like to deal direct with producers or manufacturers in order to get fresher, newer, more relevant or cheaper products.

Many producers and manufacturers are happy to sell direct to end user customers if they can, rather than go through middle-men whose value-add is questionable or non-existent.

Wholesalers and retailers typically use trade credit from their upstream distributors to fund their businesses, and distributors and manufacturers become unhappy when they get paid slowly.

Cumbersome distribution systems, disloyal wholesalers and retailers, poor customer service systems, and slow to move stock can add to the frustrations experienced by manufacturers. Given the chance to deal direct with end user customers, most manufacturers are tempted to find a way to try out ‘factory direct’ sales.

One of the few barriers to more factory direct sales is the factory’s desire to efficiently sell their products in large volumes to distributors and wholesalers rather than in the much smaller quantity requested by the typical end-user customer.  New middle-men are emerging to specifically handle warehousing, fulfillment and shipping logistics of physical products sold online.

The Threats from Empowerment

As the Internet enables, empowers and tempts its various users, the Internet also challenges and threatens middle-men businesses in each stage of a supply process.

As soon as a producer or manufacturer can figure out how to efficiently make direct sales in smaller quantities to end-user customers, the supply chain becomes redundant unless its various intermediary players add some value in the process.

Look at the travel industry over the past 15 years and see Disintermediation at work, changing the sales processes of selling airline tickets, hotel rooms and more. Low-cost carriers (LCC) in the airline industry base their sales channel on streamlined web-based bookings. Intermediaries that add no value are being eliminated, but those that can add value are re-defining their strengths, and staying relevant in the industry.

airasia.com

airasia.com

bellhop.com.au

bellhop.com.au

Many travel agents have lost a revenue stream because they no longer need to do the seemingly mundane task of booking simple flights or accommodation. We can book simple tickets ourselves now, but jumping – or flying – into the unknown is still risky for many people. Travel agents can still add value by giving customers better advice and peace of mind from reliably simplifying the booking of complex connecting flights or detailed holiday packages.

The travel agent’s role as an expert in their field can allow them to re-define themselves and re-build their brand as a reliable source of trusted information and specialist services.

There is still a role for middle-men intermediaries, but it’s being re-defined.  Those that can find the pain of their target customers understand the problems and cleverly structure solutions that add value can prosper.

hotelscomparison

hotelscomparison.com

wotif.com

wotif.com

New middle-men intermediaries with different value propositions have emerged, often with fully online business operations.

In the hotel and accommodation market, you can often make an online booking directly with a hotel or resort, but hotels like to charge walk-in customers a high rack rate price, without any discounts, and as an online customer you find yourself wondering if you are getting the best deal.

Comparison sites like HotelComparison.com and BellHop.com.au allow you to  search for online deals.  Sites such as LastMinute.com and WotIf.com service travelers looking for cheap or available hotel rooms at short notice, and hotels enter their discounted prices for rooms that would otherwise probably be vacant.

Not all middle-men will die, but at the very least, the roles of middle-men in supply and sales chains are being re-defined to ensure they add more value with less cost, less friction, operate at higher speed and with greater efficiency.

To stay ahead of the game in your industry, look for opportunities to add more value in supply and sales processes. Disintermediation is happening all around us in every industry. Lead it, follow it or get out of the way of it!

Questions To Ponder

  1. Where do you fit in your sales and supply channels? How much control do you have?
  2. Where are the points of friction and inefficiencies in your channels? How can you help to remove, reduce or re-define these impacts?
  3. Would your customers or suppliers be better off or worse off if you were not in the channel? What benefits and value would your customers not enjoy?

Go to next trend: Increasing Transformation from Atoms to Bits

Go to previous trend: Increasing Corporate Ecosystems

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    Thanks for taking the time to discuss this, I feel strongly about it and love learning more on this topic. If possible, as you gain expertise, would you mind updating your blog with extra information? It is extremely useful for me.

    • Alice Wees says:

      Hi Trendto,

      Glad that you find it useful! Don’t forget to subscribe to DigitalTrendCatchers by email to get extra info about smarter strategies, tactics and tools you can use in your business.

      Thanks

      DTC Team

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