Disintermediation accelerates supply chain innovation and cost savings

As companies increasingly bypass traditional intermediaries, disintermediation is transforming supply chains to deliver faster, cheaper, and more efficient operations in a digital-first marketplace.

Disintermediation, in supply chain management, refers to the strategic elimination of intermediaries, colloquially known as “cutting out the middleman”, to streamline operations, reduce costs, and enhance overall efficiency. This approach is integral to achieving key sup...

ply chain objectives such as cost reduction, productivity improvement, faster delivery, better asset utilisation, cash flow enhancement, customer satisfaction, and sustainability.

A traditional supply chain consists of multiple nodes and handlers, including suppliers, warehouses, distribution centres, transportation providers, and retail outlets, all contributing to material and information flow. Each intermediate step often involves transportation, handling, inventory, and sometimes overproduction, which can lead to duplications, delays, and unnecessary costs. Disintermediation seeks to identify and remove these non-value-added activities, such as unnecessary handling, redundant inventory storage, repetitive data entry, and multiple transportation modes, that introduce waste and inefficiency into the system.

The concept aligns closely with Lean principles that target the elimination of wastes such as excess transportation, inventory, motion, and overproduction to achieve peak performance in supply chains. By minimising “touches” to materials and information, companies can simplify their supply chains, reduce redundancies, and drive better performance outcomes. For example, a “Don’t Touch” supply chain model, as promoted by Supply Chain Game Changer, advocates for cutting down all unnecessary movements and handoffs to improve efficiency.

Disintermediation is exemplified in direct-to-consumer (DTC) strategies where companies bypass traditional retail and distribution intermediaries to sell straight to customers. This approach reduces the layers in the supply chain, conserving resources and improving responsiveness. The surge in online shopping epitomises such disruption, as customers increasingly order products directly from suppliers who ship them without the need for multiple warehouses or physical retail points.

Drop shipping is a specific form of disintermediation, where goods move directly from supplier to end consumer without intermediate warehousing, further reducing logistics costs and inventory requirements. Beyond physical goods, disintermediation also extends to information flow; for instance, automating purchase orders electronically to avoid manual interventions reduces errors, delays, and redundant communication.

Several global companies illustrate the benefits of disintermediation. Dell’s direct sales model allowed the firm to reduce costs and offer competitive prices by eliminating traditional retail channels. Tesla’s strategy of selling vehicles through its own showrooms and online platform bypasses dealership networks, lowering final costs and fostering closer customer relationships. Similarly, brands like Apple leverage own stores and e-commerce platforms to control the sales process and distribution more tightly, thereby cutting distribution expenses.

The wider business landscape shows that numerous industries benefit from this approach. In music and publishing, creators now often connect directly with consumers via digital platforms, bypassing traditional intermediaries such as record labels or distributors. Online giants like Amazon and Alibaba enable producers to sell directly to customers, disrupting conventional retail ecosystems.

The efficiency gains from disintermediation are well documented: lower costs, faster deliveries, reduced inventory, better cash flow, and enhanced flexibility. However, companies implementing these strategies often face resistance from entrenched intermediaries and internal stakeholders accustomed to legacy processes. Overcoming such barriers requires decisive leadership and a willingness to challenge longstanding operational norms.

In conclusion, adopting disintermediation as a core supply chain strategy is crucial for organisations seeking to optimise their operations in an increasingly competitive and digitised marketplace. By questioning the necessity of every touch and transaction in the flow of materials and information, and striving to eliminate the superfluous, companies can unlock significant value, improve customer service, and enhance overall supply chain resilience.

Source: Noah Wire Services