Disintermediation

BusinessDictionary.com defines disintermediation as “The removal of intermediaries, or middleman, from a transaction or communication.” It is a strategy typically used by a consumer to pay less for the same product or service by eliminating the middleman. Undoubtedly, this can be an extremely effective method for consumers to pay less in many situations without compromising the product or service received. In this view, the middleman is typically viewed as an excess and unnecessary cost. However, in the supply chain and warehouse management industry, this is not the case. Having a middleman on your side, especially if they are a large company, can be extremely beneficial when moving products.

Supply chain manager is the name given to the middleman in the supply chain and warehouse industry. They are the middlemen between suppliers and buyers. Their job is to maximize the efficiency of merchandise movement in respect to carriers and warehouses. The general strategy that most supply chain managers use is partitionment or the subdivision of the shipping and storing process of goods. When the process is partitioned into smaller units, more carrier companies are able to provide those services and thus compete for it. Increasing the amount of competition drives the prices of the services down and increases the range of services available. Then, the supply chain manager reconstructs the most optimal configuration using multiple carriers and warehouses and the new version is usually superior to any version only one company can provide.

The limitation with this method is all of the participating companies, providing segments of the complete shipping and storage process needed, must be supervised: hence the importance of the middleman or supply chain manager. The supply chain manager’s importance can further be demonstrated by analyzing their cost effectiveness. Although they generate an additional cost in the equation, their overall effect usually justifies their involvement. Their validation is not only explained by price reduction, but also by providing wider service options. Additional service options that supply chain managers can assist with are faster delivery, guaranteed delivery or temperature controlled shipping.

Using a large company as a supply chain manager has additional potential benefits over an individual providing supply chain management. To start with, big companies usually have relationships with more carriers and warehouses. Due to their large volume, they may have stronger relationships with these other companies as well. The end result is they are able to negotiate better pricing and service options. On top of that, large companies typically have powerful tools to work with and more resources, some being created specifically for the industry or task. They are often willing to share their tools and developments with their clients to strengthen or maintain their relationship.

A common consumer and business mantra is “cut out the middleman to save money.” Especially in these poor economic times, many people are trying any method to conserve money. However, the strategy does not work well for every industry. In fact, it seems that cutting out some middlemen, as in the supply chain and management industry, would have devastating consequences to the industry because they provide a large irreplaceable value.

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