Acumatica’s ERP for wholesale distribution helps companies adapt and thrive

The Elephant in the Room: Disintermediation

Disintermediation, the “elimination of the middleman”, is widely discussed with the rise of the internet as a platform for selling goods and services. The theory goes that retailers and consumers, with the ability to purchase directly from the manufacturer, would save time and cost by cutting out the middleman, and was widely accepted as the future sales model during the dot-com bubble of the 1990’s and 2000’s. It was common knowledge at the time that cutting out the intermediary equaled “significant savings” by the manufacturer and many hoped that some of that savings would be passed on to the customer. This disintermediation of the sales channel was (and still should be) a valid concern to distributors who are not adapting.

However, the importance of “service” was underestimated. The truth is that someone must perform much of the activities that distributors traditionally do. If the distributors are not performing these services, then the manufacturer will do it (and raise their costs) or customer must live with less options and services.

Examples of the valuable services “the middleman” has been providing include:

• Variability of Scale: Fulfillment of very small orders or the assembly of big, multi-product orders
• Diversity: Combining related products from different suppliers into one order
• Support: Providing specialized knowledge and value-added processes like repackaging
• Delivery: Maintaining distributed, regional warehouses to reduce standard delivery time and shipping costs
• Exceptional Service: Having a team dedicated to listening to the customer and empowered to quickly act on their requests

Some manufacturers have had success in their disintermediation attempts, but many have discovered of the difficulty in providing these services efficiently. What we know is that the challenge (and opportunity) is there for those distributors who create continuously greater value for their services, and thus prove their worth against a disintermediated model. The result is the service activities provided in the middleman model are still part of the business—they simply look a little different in the internet-connected world.