The Effect of Going Directly to the Consumer

The effect of going directly to the consumer is a longtime argument in the business world. Although some believe that middlemen add unnecessary costs to products, others believe that costs are kept in check when companies focus on their specialization. The supply chain is a vital part of the business world; managing its costs is a function that businesses must control to remain profitable.

Supply Chain

• A supply chain is the relationship suppliers have with other companies to move their goods from the manufacturing process to the consumer. The supply chain allows companies to focus on their area of expertise; manufacturing, warehousing, transportation and consumer sales. Few companies are large enough to handle all responsibilities of the supply chain, thereby allowing "middlemen" to enter the process. Though some costs are added to goods from the supply chain, it's usually within reason for the selling company to pass them on to the consumer.

Traditional B2C

• A traditional Business to Consumer (B2C) supply chain consists of five players: supplier, manufacturer, wholesaler, retailer and buyer. The first four players produce the item and generate the cost associated with it. Although each of the four parts are somewhat specialized, some larger companies are able to combine parts of the B2C chain and lower costs to consumers. One example is Wal-Mart, which owns large distribution centers and replaces the need for a wholesaler in its supply chain.

Internet Effect

• The Internet has greatly affected the B2C supply chain. Businesses can restructure their supply chain, lower consumer costs and increase their market percentage with very little overhead added to company operations. Internet supply chains now include just three players: supplier, manufacturer and buyer. The wholesaler and retailer, often seen as middlemen, are squeezed out because manufacturers can create a website dedicated to sales and bring in consumers for their products.

Advantages

• The advantages of selling direct to consumers are quite obvious: lower product costs, less confusion from supply chain contracts and increased company profits. Companies can also focus more attention on perfecting their internal operations and further lowering product costs. And companies can focus on selling their product with little or no competition from retailers trying to sell a substitute product.

Disadvantages

• Some disadvantages can result from a shortening of the B2C supply chain. The biggest disadvantage is that companies not specialized in Internet sales will have to create a department to handle the consumer demand. This includes website maintenance, credit card processing, fulfillment and customer service. Although some manufacturers can accomplish this with little effort, others may find it a large capital investment with little return.