New perspectives on disintermediation
Disintermediation is the removal of supply chain intermediaries - 'cutting out the middleman'. Instead of going through traditional distribution channels (distributors, wholesalers, brokers, agents), suppliers deal with customers directly, typically via the Internet. The key is to reduce cost of servicing customers.
The 'supplier' is typically the designer and marketer (example, Apple). In this global age, manufacture is usually contracted out (iPod and other Apple products are made in China). Sales and distribution intermediaries service the consumer. Apple initially sells iPhone only through AT&T (Cingular), though iPod is now sold by several different intermediaries - retail stores and online.
Disintermediation is supposedly dooming distributors, retailers, wholesalers, and all other intermediaries between suppliers and end customers. Because the Internet lets customers connect to and order from the primary source of a product, there is presumably no need for traditional distribution channels.
But there is another side to the disintermediation story. Some products need a significant amount of support. Industrial automation is a good example: selection from a confusing variety of available products and options, correct ordering with optimal pricing and delivery, selection and purchase of related accessories which must be ordered separately from others suppliers, installation of the complete system, and services such as maintenance and calibration to assure optimal operation over useful system life.
Who will provide all this value? Certainly not manufacturers.
Even the largest automation suppliers cannot supply the multiplicity of products. And they cannot have 'local' presence everywhere.
So this value must be provided by intermediaries.
Distributors are necessary - but not just for 'local stock'.
The job of the distribution channel is to supply all the additional products and services needed to maximise value to the customer.
The distributor who provides products and services better than anyone else is the one who is immune to 'disintermediation'.
Any attempts by a manufacturer/supplier to disintermediate merely result in replacement by alternative suppliers. It is an interesting twist - suppliers becoming disintermediated.
US education value fizzles
Globalisation and technology together are creating big changes in how work is done. Knowledge work can be broken into smaller tasks and redistributed around the world. And the rapid growth of virtual offices is transforming what it means to be 'at work'.
There is a mixture of enthusiasm and fear for what is happening. American jobs are becoming more interesting and complex, while supposedly rote tasks are moved offshore, or eliminated. At the same time workers are pushed by competitive pressures that leave little time or room for creativity and innovation.
Employers are seeking knowledge workers with higher levels of education. But these jobs are increasingly filled with foreign workers brought in on work visas - and American employees often train the lower-paid foreigners who take their jobs. So degreed people compete for fewer high-paying jobs and many end up working in service jobs at vastly reduced pay.
The latest report from the Bureau of Labor Statistics shows that the real wages and salaries of US civilian workers are below five years ago.
There are persistent signs of a gloomier outlook. In 2006, US job satisfaction plummeted to a record low. Workplace demands have increased tremendously, especially as technology (e-mail, cellphones, Internet) makes it ever harder to get away.
Two decades of rising incomes for educated workers have come to a halt. When adjusted for inflation, the real wages of US workers with at least a bachelor's degree are barely higher than they were in 2000, an unpleasant surprise in a world in which education is seen as the route to success.
Wage stagnation, combined with 60% rise in college tuitions since 2000, seems to discourage many young Americans from getting a college education. The next generation of young Americans may actually be less educated, creating a growing gap between the kinds of people companies need and the workers who are actually available.
As a result of these shifts, knowledge work is increasingly going offshore, where lots of upwardly-mobile knowledge workers are available to generate quick results.
Jim Pinto is an industry analyst and commentator, writer, technology futurist and angel investor. His popular e-mail newsletter, JimPinto.com eNews, is widely read (with direct circulation of about 7000 and web-readership of two to three times that number). His areas of interest are technology futures, marketing and business strategies for a fast-changing environment, and industrial automation with a slant towards technology trends.
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