Disintermediation-2

The Customer Perspective

By : Jim Pinto,
San Diego, CA.
USA

The Internet provides direct-connections between suppliers and customers, disintermediating conventional sales and distribution channels. As an end-user, a customer, should you stick with the channels you know? Or, start buying direct from the suppliers website?

What are your choices?

The original version of this article was published in
Controls Intelligence & Plant Systems Report, April 2000

My Disintermediation essay (March 2000) generated a lot of comments and kudos - thank you!

I have had many requests to review the same subject from the customer's point of view. What should we, the customers, do in the new e-business environment? Should we buy direct from suppliers' web sites, perhaps falling unwittingly into a biased point of view? Should we simply abandon the traditional intermediaries who have perhaps helped us greatly in the past? Or, should we start buying from the new multi-supplier B2B web portals? Price is always a factor - so can I buy a PLC from an auction website, with all the suppliers bidding for my business? Where is this all going?

Traditional intermediaries under fire

The traditional industrial automation intermediaries are the sales and distribution channels, providing the coordination, selection, communication and exchange functions. Today, end-users typically purchase through local, independent sales representatives, who provide broad technical knowledge, applications assistance and product selection. As needs advance to repeat purchases, the focus shifts to availability and distributors accommodate fast delivery from local stock. Both are intermediaries, representing additional costs in the supply chain.

The emergence of the Internet drastically changes the situation. Unless the intermediary provides significant value, disintermediation occurs. In this new business environment, the prime examples of disintermediation are airline travel agents and stock brokers.

In an exploding e-commerce environment, the purchase or airline tickets has become the highest segment of business-to-consumer online sales. In the past, the travel agent was the intermediary who interpreted a confusing array of rules and fare-tables, usually through a direct terminal connected to the airline system. Today, most people have direct Internet access to airlines with the complete array of schedules and fares. Some airlines provide a discount for purchase direct through the Internet, to reflect elimination of the cost of the intermediary. To prove their value, many airline web sites even provide a list of alternatives (with perhaps lower fares) from other airlines. Naturally, the low cost intermediaries like Priceline.com Check out Priceline.com who are not directly affiliated with any airline have the highest credibility.

A similar change in the financial environment has occurred through disintermediation of the traditional stockbroker. In the past, purchase of financial equities was done with an aura of mystique, where the broker interpreted a complicated scenario and, through special information and tools available to the elite alone, provided advice and transaction services. The proliferation of financial information and analysis on the Internet today has changed the position to the extent that even Merrill Lynch, the world's largest stockbroker, finally and reluctantly moved to on-line trading. This disintermediated a significant segment of their own employees, forcing those that wish to survive to completely alter their value-equation and relationship with the customers. A significant segment of stock trading is now done on-line, causing major changes in stock-market dynamics.

B2B for everyone

The industrial arena is steadily being impacted by similar changes.

Recognizing that significant savings can be achieved by reducing intermediary involvement, large end-user businesses like DuPont already have a strong and urgent push toward complete disintermediation. Like other similar companies, Dupont has had a qualified list of suppliers for years - if you were not on that list, you didn't sell to them. Dupont has tried several strategies in succession. EDI (electronic data interchange) with major suppliers was too complicated and never quite worked. They then tried integrated supply by appointing, McJunkin Industries as their purchasing factor for most of North America. This lasted less than 18 months. Now they have collaborated with Chemdex to launch an e-commerce venture called Check out Industria.comIndustria Solutions What Industria intends to be is an integrated supply house that is entirely web-based. Actually, they are simply a replacement for DuPontís failed integrated supply system. The potential flaw is that this may simply become a service for Dupont, automatically limiting the potential for others. Many other large end-user businesses are going the same route and have the same challenges.

Large suppliers like Rockwell (Allen-Bradley) are also beefing up their e-commerce activities with direct B2B (business-to-business) alliances and support. For years, A-B has recognized that the largest volume of their sales is actually coming from systems integrators, not distributors. The A-B Automation Fair is organized to recognize this fact. After a systems integrator is set up, it makes sense to give them direct factory access, rather than make them go through the distributor. Therefore, the distributors will be left with single unit sales and the obvious choice of becoming a systems integrator themselves. Or, they can provide specialized services to systems integrators, locally, at less cost and with faster response than the factory.

Interestingly, it appears that Rockwell (the parent) and Allen-Bradley (the subsidiary) each have independent B2B web sites. This seems a sensible thing to do, since the investment is minimal, allowing parallel strategies in an important arena. Check out SourceAlliance.comSourceAlliance.com is funded by Allen-Bradley and is intended to bring together systems integrators and distributors into the largest e-commerce electrical product source. In the tremendously fragmented instrumentation business, the question arises as to whether SourceAlliance (like Industria Solutions) will simply become an adjunct for its primary corporate parent - thereby reducing its effectiveness.

The practical B2B solution may be totally neutral web-based companies that provide a broad range of products and services without bias towards any particular vendor or customer. Several significant industrial B2B portals like Check out IndustrialVortex.comIndustrial Vortex are already working with this type of "frictionless interface" in mind. They offer easy, coordinated access to products and services from anyone and everyone. There are even reverse-auctions, which allow suppliers to bid on business - something which single-supplier web sites will not be able to offer.

Should I shop B2B?

As a customer in the industrial automation environment, what should you do? Continue to work through the intermediary with whom you have developed a relationship over the years? Or break these ties to find a broader range of choices?

If all you want is price and fast delivery - you don't need an intermediary. Accessibility of the product is not the job of today's distributors. The manufacturer can ship the product faster than having an intermediary deliver it. It doesn't matter on whose shelf the product resides anymore; what really matters is making the transaction seamless and reducing the total cost. If the products are standard PLCs, power supplies, motors, switches and panel-lights, you might even try the IndustrialVortex auction-site. If it is not comprehensive today, it will be tomorrow.

Take a deep look at how you operate, what you buy and how you buy. Are the products and systems you work with assembled from commodity components? Are they customized, with high knowledge-content? Determine whether or not you can get all the support you need directly from the supplier, or whether support from the local sales rep or distributor is helping you with "hand-holding" that cannot be replaced.

Intermediaries become "Infomediaries"

As the end-user, you should be making sure that you have access to application-specific knowledge, trouble-free installation, service, calibration, maintenance and upgrade. With complex products, you will still need to work with systems integrators, who can provide knowledge-intensive services. Get those who want your business involved with the design and specifications and you'll quickly find the best value.

The best sales reps and distributors are already changing their roles from intermediaries to "infomediaries". And there is plenty of room in that direction for winners!


See Disintermediation - I See also Disintermediation - The sales perspective


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