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Disintermediation in the Distribution Industry: A Quick Guide for Distributors

By |December 2, 2022 December 27th, 2022No Comments

As the distribution industry continues to grow, so does the need to innovate. New market disruptors are posing challenges. The distribution industry has changed drastically in the last few years, coping with the onset of digital entrants. However, eliminating intermediaries from the supply chain is a new threat. Traditional distributors and supply chain businesses need to focus more on direct sales to tackle disintermediation in distribution.

Buyers are becoming more sophisticated and demanding. Large enterprises generally buy from partners with a worldwide presence, on-demand fulfilment capabilities, specialized account teams (sales, support, and technical service), and an in-depth understanding of their company and end customers.

According to Gartner, by 2025, 80% of B2B sales interactions between suppliers and buyers will take place through digital channels.

The transformation is due to changes in consumer behavior, declining sales and increasing operating expenses. This has led to disintermediation distribution strategy where many wholesalers eliminate intermediaries from the value chain, shifting their focus away from traditional distribution models towards becoming a value player at the retail level.

Disintermediation Distribution Strategy

Characters of people holding a blockchain network illustration

A traditional supply chain comprises manufacturers, distributors, retailers, and consumers. However, in the intermediary model, suppliers can service wide geographic areas without creating regional warehouses through advanced web portals, app-based ordering, and telesales. Based on the above business model, suppliers are shifting to direct sales or collaborating with partners like Amazon.

In a nutshell, 

Disintermediation is the process of removal of intermediaries from a transaction. In other words, it’s the direct connection between two parties without needing a third party.

Disintermediation was coined in the early 1980s to highlight changes in capitalist nations’ financial sectors. The savings and investment market disintermediated when investors began investing directly in many sorts of products rather than allowing interest to accrue exclusively in a savings or checking account. 

With the onset of the virtual realm, the Internet ushered in a new era of online shopping and sales, upending the traditional business paradigm. Today, customers have access to a large range of items that may be purchased from suppliers and distributors via web-based businesses online. Online disintermediation tries to bypass the wholesaler and retailer to offer things straight from the producer.

These developments have the potential to have a substantial influence on the growth prospects of both large and small distributors, suppliers & customers. Traditional distributors were/are excellent at client service, streamlining operations, enhancing the geographic reach and streamlining the whole product line for suppliers. Since suppliers lacked the expertise and willingness for the capital expenditure necessary to outperform distributors in these areas, distributors were assured a place in the supply chain.

There are many reasons why disintermediation in distribution industry is on the rise.

One reason is that it’s easier for consumers to deal with manufacturers or service providers. With advancements in technology, there’s also been an increase in transparency, which gives consumers more confidence when dealing directly with brands.

Additionally, disintermediation can often lead to cost savings for consumers and businesses. When fewer middlemen are involved in a transaction, businesses can directly improvise their selling channels to optimize customer requirements. Since consumers are now interacting with brands, they can often get better deals and prices.

Get more insights on distribution trends: 7 Ways Distributors Can Boost Profitability: By Simplifying Their Commerce

Distribution During Disintermediation: The Good, The Bad & The Ugly 

The Good: Benefits of Disintermediation

The disintermediation buisness model can help to reduce costs, increase efficiency and improve customer service. It can mean more accessible access to a wider range of products at lower prices for customers.

Let’s look at each of these in more detail.

  • First, disintermediation can help businesses to reduce costs. This happens in two ways: by removing the need for middlemen and by allowing businesses to deal directly with manufacturers.
  • Second, disintermediation can increase efficiency. This is because it allows businesses to cut out the time and effort that goes into dealing with middlemen.
  • Finally, disintermediation can improve customer service by giving customers direct access to the businesses they buy from.

Relevant Reading: How Can Wholesale Distributors Differentiate Their Businesses in the Age of Amazon?

The Bad: Challenges of Disintermediation

It’s not all good news when it comes to disintermediation. As we’ve seen, companies face many challenges when they cut out the middleman, chief among these is the loss of control. 

Companies can quickly find themselves in a precarious position with no intermediary to help manage the relationship between manufacturers and consumers. This can be especially true in industries characterized by low barriers to entry and high levels of competition, where companies can quickly fall behind if they’re unable to keep up with the latest trends and developments.

Another challenge is the increased financial burden placed on companies. With no intermediary to share the load, companies have to shoulder more and more of the costs associated with production and distribution. This can be a challenge for smaller companies, which may need more resources to support an extended distribution chain.

 The Ugly: Disintermediation Risks

Although disintermediation offers businesses a range of potential benefits, there are also several risk factors to consider. 

Firstly, it requires a strong understanding of the distribution channel. That’s because the effects of cutting out intermediaries are often unpredictable. It can be challenging to manage pricing and product availability when navigating supply and distribution chains on your own.

Secondly, disintermediation can limit a company’s ability to reach new markets. That’s because cutting out intermediaries means that businesses are now responsible for developing relationships with distributors, retailers and customers—something that can take time, manpower and resources that smaller companies may not have.

Finally, disintermediation could become less attractive if the intermediary is providing value-added services like marketing support or customer service. Businesses need to weigh these risks against the potential rewards before investing in a disintermediated business model.

So, what’s the verdict? When it comes to analyzing the pros and cons of distributing through disintermediate channels, there are a few things to consider. On the one hand, disintermediation can be incredibly empowering for both individuals and businesses. By cutting out the middleman, they can access markets quicker, reduce overhead costs and increase profits.

On the flip side, small businesses may find themselves in a tough position when it comes to competing with larger corporate players. Since these bigger companies have more capital to invest in marketing and advertising budgets, they often command greater customer recognition and trust. This can impact smaller businesses’ ability to succeed in an increasingly competitive global market.

There is no one-size-fits-all answer when it comes to distribution during disintermediation. And while there are numerous advantages and disadvantages to consider, ultimately, each individual or business must determine what works best for them based on their unique needs and goals.

How Can Distributors Combat Disintermediation in Distribution?

 As disintermediation becomes more prevalent, distributors are being forced to adapt. Many are shifting their focus to become more service-oriented, offering logistics and fulfillment services. Others are moving into niche markets where they can still add value. And still, others are finding ways to use technology to their advantage, such as by developing online platforms that make it easier for manufacturers and consumers to connect.

To mitigate this risk, distributors must first understand some of the challenges suppliers would encounter if they attempted to sell directly to the client. 

Suppliers must 

  • manage the high cost of many smaller shipments that are unfamiliar to them; 
  • improve technology for security measures to protect the customer’s private information; 
  • manage the additional exposure of income and sales tax reporting in a multi-state environment; 
  • and, most importantly, provide a high level of customer satisfaction.

Distributors must use this awareness to improve the service areas into which the supplier is aiming to expand. 

Here are a few things distributors should do to ensure they are working at best-in-class levels to maximize their products’ value.

Want to improve your value as a distributor by breaking operational silos?

Watch this video:

  • Remodeling B2B E-Commerce with B2C Experience

At Least 80% of B2B buyers expect a buying experience like that of a B2C customer. 

Today’s average B2B buyer is heavily impacted by their B2C experiences with businesses like Amazon. They desire: 

  • Ordering platforms that are simple to use with high-quality 3D product images. 
  • Real-time inventory to check whether or not an item is in stock. 
  • Search options that are intuitive and allow the end-user to compare goods. 
  • Instant availability of items and recommendations of related items
  • The ability to purchase products online with a range of fulfillment options (e.g., deliver to the branch, jobsite, my location, or your distribution center on consignment).

Enhance your digital commerce experience to cement your brand visibility with the promise of a simple-to-use website with fewer clicks and a fast check out process.

Get more insights: The Most Important Thing Every B2B Customer Wants Most

  • Go Beyond & Above to Meet or Exceed Your Customer’s On-Time Delivery Expectations 

A supplier’s business process must undergo considerable change in a distribution market, including lowering shipment sizes and optimizing delivery locations. This means they need to make a major investment to reap the most out of this business shift. 

So, the one thing you can do is discourage your competitor’s efforts by making it challenging for them to match your customer’s service:

  • Be quick or be killed. Provide a customer experience that is outcome-driven. Your customer’s expectations and preferences are changing. So they need their products fast. Make sure to review delivery performance.
  • Replatform core companies and integrate real-time business processes and analytics to make wiser and quicker choices.
  • Encourage all workers and contractors to be more informed and involved.
  • Facilitate supplier cooperation and use the Internet of Things and Big Data effectively to produce real-time insights and new business models.
  • Invest in the Best-in-class Technology.

Verify that your organization is employing the best-in-class technology solutions to empower decision-making. According to a recent Forrester research, distribution organizations that implemented efficient business management systems achieved a 237% return on investment (ROI) in just four months. Instead of spending time rearranging information with manually produced spreadsheets and pivot tables, etc., using appropriate tools as intended will maximize the time available to focus on process optimization and analysis.

  • Leverage the use of Integration Technology

Some sectors of the distribution industry need to catch up in terms of process automation. Some businesses are rapidly adopting digital solutions to automate tedious tasks regarding record-keeping.

However, many professionals in the distribution sector continue to operate in an era that relies on a paper trail. It’s an old-fashioned method that wastes time and money.

Adopting cloud-based, integrated superior solutions may provide various benefits for distribution organizations, including cost savings, increased efficiency, a stronger competitive edge, and a better customer experience.

Want to know how the integration works for you?

Seizing eCommerce transformation at its finest is everything and more that puts your brand on the topmost pedestal. And that’s what CyM Distributors did. Integrating key features with DCKAP Integrator brought about unmatched user experience resulting from invoice payment sync, category sync, and customer account creation. Click here to know how we did it. 

  • Create a Centralized Data Source

In this day and age of online shopping, it is difficult for distributors to maintain a centralized location to streamline product information. Yet, in this age of disintermediation, distributors must focus on amplifying product information by centralizing their data sources to stand out and thrive.

The following are the issues that distributors face as a result of the growing digitization of eCommerce:

  • Lack of transparency in handling product information across several channels.
  • There is no data repository for product data
  • Inconsistency in digital asset management
  • Difficulty in maintaining the inventory and automatically gathering information from the client’s website

Integrating a PIM solution alone speeds up the process for distributors.

  • The PIM system assists the distributors in organizing all of the data systematically. It provides a single repository for collecting and storing data from many sources.
  • Using a PIM system enables correct data categorization. It enables the creation of user-friendly touchpoints.
  • Catalogs are highly important in eCommerce since they aid to attract more buyers to the product. A poorly managed or unstructured catalog might result in product obscurity. PIM enables catalog simplification by providing real-time updates.
  • Omnichannel is a critical component of digital eCommerce. PIM facilitates the seamless integration of all channels and gives the greatest experience.
  • IoT is a Game Changer for Distributors

According to a McKinsey analysis, “by 2030, it is predicted that around 65 percent of the IoT’s potential would be accounted for by B2B applications.”

IoT and other emerging technologies like Artificial Intelligence are promising tools that can help modernize the wholesale distribution sector. Smart sensors in warehouses, paired with modern analytics, provide up new ways to manage your distribution business using data.

Here is how IoT can help distributors stand out in the market: 

Ensures Inventory efficiencies: The Internet of Things reduces the time limitations and inaccuracies associated with manual inventory tracking. Businesses may track incoming and existing goods by embedding RFID tags and sensors in items. This data is sent into an ERP system, which allows them to keep their inventory supplied.

Brings transparency in logistics: IoT tracks a product from when it leaves the manufacturer’s production line to when it reaches the buyer. IoT notifies businesses of shipments that have been delayed and gives real-time consumer delivery information.

Tightens consumer relationships: The Internet of Things collects more data to understand customer habits and demands better. Distributors may use this knowledge to improve the consumer experience at every touchpoint, from pre-sale shopping and purchases through post-sale conversations. Businesses may notify consumers when specific inventory is running short, when their product warranty is about to expire, or when a product they frequently purchase is on sale. Customers value the personalized attention and efficiency that these updates provide.

Informed Decisions through data analytics: The Internet of Things (IoT) delivers accurate, real-time data to make better-informed decisions for strategic goals and future success. Because knowledge is power, IoT is critical to establishing an omnichannel business.

Recommended Reading: Future of Industrial Distribution: Identifying Key Challenges & Trends

It’s Time to Innovate for Traditional Distributors

Disintermediation (cutting out intermediaries) and reintermediation (introduction of intermediaries) have its own competitive advantages and challenges. The wholesale distribution business is also under stiff competition as huge disruptors seek new markets and disintermediation distribution strategies. Traditional distributors must respond by devoting time to innovate amidst the rising challenges. They must focus on two things to compete in the market and retain their integral role in the entire supply chain management process: redefining client value propositions and using digital technology for increased connection and cooperation.

Aiswarya Madhu

Author Aiswarya Madhu

Aiswarya Madhu has two years of experience in content creation. Pen and Paper, without them her life is dry. She can manage keyboards too. At present, she navigates the intricacies of eCommerce. When not engaged in writing, she enjoys savoring books and tea.

More posts by Aiswarya Madhu

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