From Supply Chain Management Encyclopedia
Russian: Посредники в канале продвижения
Channel intermediaries facilitate the process of product distribution to the ultimate customer. Intermediaries’ functions may include taking physical ownership of products, collecting payment, and offering after-sales service. Channel intermediaries are crucial for a manufacturer in order to reach for and serve the end-user. The spreading of the phenomenon is connected to companies’ rising competition for the customer: in order to be efficient enough companies tend to focus on what they do best, the “core” business, and outsource secondary functions. As more and more tasks are passed onto intermediaries, the manufacturer starts to lose control over the rest of the value chain: distribution, sales and the after-sale service provided to the customer. Companies are trying to find the balance between the services of intermediaries and value chain control. Today producers apply increasingly complex distribution systems serving the customer through multiple channels. Producers, intermediaries and customers constitute a triangle with each element co-creating value and all of them interconnected . Both producers and intermediaries use multiple channels to reach customer. Generally, producers use telemarketing and e-commerce to reach the end-user directly and it is described in more detail further. Intermediaries use both channels above and retail as well. Speaking of the manufacturer-intermediary relationship, it has to create value and deliver it to the customer. Moreover, the system creates value only in case parties bring value to each other . In fact, the quality of relationship for a given party depends on the quality of the relationship between the others.
Types of channel intermediaries
There are three types of channel intermediaries:
- Distribution channel intermediaries facilitate physical exchange of the goods and services by acquiring the goods and holding the inventory, such as supermarkets.
- Transaction channel intermediaries promote economic exchange between buyers and sellers but unlike the previous category they obtain a degree of control over pricing and merchandising, e.g. brokers, wholesalers.
- Communication channel intermediaries inform the buyers about the goods and services of the seller, for example recruitment agencies, real estate etc.
Disintermediation means elimination of intermediaries enabling direct trade between the manufacturers and customers. There are two main reasons for disintermediation: either the services of the intermediaries are no longer needed, or their functions are implemented by the company internally. On the whole, one of the major advantages of disintermediation is eliminating margin-hurting agents.
Disintermediation through the Internet. The fast spread of the Internet during the last two decades significantly contributed to disintermediation process. This pushed the development of e-commerce that considerably facilitates the direct communication between supplier and end user. There are several benefits that suppliers get using Internet channel:
- It allows customer to proceed a purchase any time during the day as website can accept orders all around-the-clock (24x7).
- Internet allows to trade regardless the location of the demand (Amazon.com suggests the same products both in densely and sparely populated areas, or iTunes allows to purchase a song in any place connected to the Internet).
- It allows companies to apply postponement practice (Amazon.com example), decrease in inventory level, deceased number of warehouses (smaller fixed costs) (e.g. Amazon.com uses both its own warehouses as well as warehouses of its suppliers).
- It allows companies to better understand their customers’ preferences and needs (because intermediaries sometimes do not provide reliable information or there are so many of them that it is hard to gather the information).
- Producer can better control the level of service provided which leads to better reputation and increased customers loyalty.
- As the amount of extra facilities decreases and transport is use in smaller proportion, as a result companies pollute to the environment significantly less.
Generally, e-commerce present significant advantage for companies as it allows to decrease cost significantly and positively influences on customer relationships.