Disintermediation
From Wikipedia, the free encyclopedia
In economics, disintermediation is the removal of intermediaries in a supply chain: "cutting out the middleman". Instead of going through traditional distribution channels, which had some type of intermediate (such as a distributor, wholesaler, broker, or agent), companies may now deal with every customer directly, for example via the Internet. One important factor is a drop in the cost of servicing customers directly.
Disintermediation initiated by consumers is often the result of high market transparency, in that buyers are aware of supply prices direct from the manufacturer. Buyers bypass the middlemen (wholesalers and retailers) in order to buy directly from the manufacturer and thereby pay less. Buyers can alternatively elect to purchase from wholesalers. Often, a B2C intermediary functions as the bridge between buyer and manufacturer.
To illustrate, a typical B2C supply chain is composed of four or five entities (in order):
It has been argued that the Internet modifies the supply chain due to market transparency:
- Supplier
- Manufacturer
- Buyer
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[edit] History
The term was originally applied to the banking industry in about 1967: disintermediation referred to consumers investing directly in securities rather than leaving their money in savings accounts, then later to borrowers going to the capital markets rather than to banks.(OED, Google News Archive)
It was later applied more generally to "cutting out the middleman" in commerce, though the financial meaning remained predominant. Only in the late 1990s did it become widely popularized.
[edit] Impact of Internet-related disintermediation upon various industries
[edit] Strong impact
- Computer hardware and software
- Travel agencies
- Bookstores and music stores
[edit] Still in progress (due to legal or structural obstacles)
[edit] Failed and became niche ancillary services
[edit] Discussion
A prime example of disintermediation is Dell, Inc., which sells many of its systems direct to the consumer — thus bypassing traditional retail chains. In the non-Internet world, disintermediation has been an important strategy for many big box retailers like Walmart, which attempt to reduce prices by reducing the number of intermediaries between the supplier and the buyer. Disintermediation is also closely associated with the idea of just in time manufacturing, as the removal of the need for inventory removes one function of an intermediary.
The existence of laws which discourage disintermediation has been cited as a reason for the poor economic performance of Japan and Germany in the 1990s.
However, Internet-related disintermediation occurred less frequently than many expected during the dot com boom. Retailers and wholesalers provide essential functions such as the extension of credit, aggregation of products from different suppliers, and processing of returns. In addition, shipping goods to and from the manufacturer can in many cases be far less efficient than shipping them to a store where the consumer can pick them up (if the consumer's trip to the store is ignored). In response to the threat of disintermediation, some retailers have attempted to integrate a virtual presence and a physical presence in a strategy known as bricks and clicks.
[edit] References
- Hawken, Paul. "Disintermediation: an economics buzzword that neatly explains a lot of the good that is going on." CoEvolution Quarterly, Spring 1981, pp. 6-14.
