The Disintermediation of the Supply Chain!

Disintermediation

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What is disintermediation?

Most definitions of disintermediation characterize it as the elimination of intermediaries, or “cutting out the middleman“.

Further consider that the “Wastes” associated with Lean thinking and principles include transportation, inventory, over production and motion amongst others. Eliminating these wastes is critical for peak performance.

Why is this relevant?

A truly efficient and effective Supply Chain must include a strategy, plans, business processes, and performance metrics that incorporate disintermediation and the elimination of waste!

Why Disintermediate the Supply Chain?

Think about the typical set of objectives and metrics associated with managing a Supply Chain.

Invariably those metrics include cost reduction, productivity improvement, delivery performance, lead time reduction, asset velocity, cash flow improvement, customer satisfaction, revenue growth and enablement, competitiveness, environmental protection and sustainability, and product return rates and reverse logistics.

Now consider what a Supply Chain entails. It involves the planning, processes, resources and execution required to facilitate the movement of materials and information between various nodes from the lowest tier supplier through to the end customer and everyone in between.

For every node of the supply chain this means that there is transportation, movement and handling, inventory, and production and over, or under production. And every one of these activities involves multiple participants from various levels of suppliers to warehouses to distribution centres to ocean carriers to trucking companies to rail carriers to retail stores and ultimately to end customers.

In order to achieve the objectives of any Supply Chain organization it is thus necessary to look for all opportunities to reduce transportation, reduce movement, reduce material handling, and reduce inventory levels. It is also necessary to look at all of the parties that are involved in processing, handling and storing goods throughout the Supply Chain and whether they are all truly necessary.

In short achievement of Supply Chain’s strategic objectives and tactical goals requires the reduction, if not elimination, of unnecessary, non-value added activities, processes, and participants.

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Disintermediation is central to Supply Chain’s business mandate. The simpler we can make any one Supply Chain the more efficient it can be.

Waste, Redundancies and Opportunities for Disintermediation

Now let’s think about where in the Supply Chain we have this waste that needs to be removed, or rather disintermediated.

Some of the non-value added activities include:

  • Every time goods are handled without any form of value added processing being performed
  • Any material movement
  • Duplicate, and repetitive, data entry
  • Manual inventory counting
  • Inventory and inventory duplication
  • Storage and multiple storage locations
  • Repacking and reshipping
  • Labelling
  • Palletization and depalletization of goods
  • Breaking open cases or packages
  • Manual purchase order placement, alterations, and acknowledgements
  • Multiple transportation modes and transfers
  • Overproduction
  • Parameter dampening
  • Safety stocks
  • Forecast tampering
  • and on and on and on

Opportunities for Disintermediation

Most of us have heard of “Direct to Consumer“. At its core it is a Supply Chain channel management strategy which eliminates intermediary channels and enables a company to receive orders directly from the customer and ship those goods directly back to that customer.

Distributors and transportation service providers are disintermediated in this model. That does not mean that there are no distributors or carriers involved. It does mean that the number of these service providers is reduced to the bare minimum required.

Here at Supply Chain Game Changer our concept of a “Don’t Touch” Supply Chain has the principle of disintermediation at its core. We’ve experienced numerous situations involving extra product handling, handoffs, movements to and from extra distribution centres, and more. All of this adds no value. If you can redesign your Supply Chain so that you absolutely eliminate all unnecessary “touches”, of materials and information, then you are disintermediating and improving your Supply Chain!

Drop shipping is another example of eliminating unnecessary and redundant material movement and transportation. Unless there is some value-added processing involved in moving goods to another distribution centre or warehouse then enabling the direct shipment (ie. drop shipping) of goods between a supplier and end consumer is the most efficient, disintermediated supply chain.

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It is often more tangible to consider physical opportunities for disintermediation but the concept equally applies to the management of information.

Think about purchase order management. Every time a buyer manually intervenes in the content a purchase order to change quantities, dates, pricing or terms there is an opportunity for disintermediation. The optimization of parameters and electronic connectivity, for instance, can enable the direct, uninterrupted transfer of purchase orders, alterations and acknowledgements.

The entire online shopping, e-commerce experience is also designed to fundamentally disintermediate, and disrupt, the retail shopping experience. If customers can order from a supplier and get home delivery that direct-to-consumer model disintermediates distribution centres, warehouses, carriers and last but not least, physical retail stores.

The growth of online shopping is a great example of a disintermediation strategy in action.

Conclusion

The potential to achieve all Supply Chain goals will be greatly enhanced by the adoption of a disintermediation strategy. Any time materials and information are “touched” in any way you should be questioning whether that is truly necessary and whether that activity can be eliminate, or rather, disintermediated.

Lower costs, faster responsiveness, greater flexibility, lower inventory, improved cash flow and more are all achieved through disintermediation.

You will likely need to overcome the barriers presented by those who resist change and hang on to sacred cows, but through leadership and perseverance you have a tremendous opportunity to greatly improve your Supply Chain through disintermediation.

Originally published on October 8, 2019.

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