When the traditional sales channels are disassembled and the middleman is cut out of the deal, such as when the manufacturer ships directly to a retailer, bypassing the distributor.
What is Disintermediation?
In the world of logistics, disintermediation refers to the process of eliminating intermediaries or middlemen from the supply chain. It occurs when the traditional sales channels are disassembled, and the direct connection between the manufacturer and the end retailer is established, bypassing the distributor.
Traditionally, the supply chain involved multiple players, including manufacturers, distributors, and retailers. Manufacturers produced goods, which were then sold to distributors. The distributors, in turn, sold these goods to retailers, who finally made them available to the end consumers. This multi-step process allowed each player to add value and earn a profit along the way.
However, with the advent of technology and the rise of e-commerce, disintermediation has become increasingly common. Manufacturers now have the ability to reach consumers directly through online platforms, cutting out the need for intermediaries. This direct connection allows manufacturers to have better control over their products, pricing, and customer relationships.
Disintermediation offers several advantages. Firstly, it reduces costs by eliminating the fees and commissions charged by intermediaries. Manufacturers can pass on these cost savings to consumers, resulting in lower prices. Secondly, it enables manufacturers to have a better understanding of consumer preferences and demands. By directly interacting with customers, manufacturers can gather valuable feedback and tailor their products accordingly. This leads to improved customer satisfaction and loyalty.
However, disintermediation also presents challenges. Distributors and retailers may feel threatened by the direct connection between manufacturers and consumers. They may lose business and face the risk of becoming obsolete. Additionally, manufacturers must invest in logistics capabilities to handle the direct shipping and distribution of their products. This requires efficient inventory management, transportation, and order fulfillment processes.
In conclusion, disintermediation is a concept that revolutionizes the traditional supply chain by removing intermediaries and establishing a direct connection between manufacturers and retailers. It offers benefits such as cost savings, improved customer relationships, and better market insights. However, it also poses challenges for existing intermediaries and requires manufacturers to invest in logistics capabilities. As technology continues to advance, disintermediation is likely to reshape the logistics landscape further, creating new opportunities and challenges for businesses.