Disintermediation Business Model – How Does It Work? (Explained)

Introduction

Over time, it can be seen that businesses are increasingly focusing on retaining their competitive edge and ensuring that they can ensure sustainability in their existing business models.

Therefore, businesses work day in and out to innovate so that they can provide the market and their customers with effective service protocols. The innovation does not necessarily have to be with the product line. It can be with anything and everything that sets them apart from their competitors or gives them an edge on the grounds of profitability.

Hence, innovation within the business model tends to be a recent trend that has picked up pace over the past few years. This mainly involves identifying business models and opportunities that can enable businesses to manage to squeeze higher profits without making significant changes in the product they are selling.

Disintermediation Business Model tends to be one such prime example of business modeling innovation.

What is Disintermediation Business Model and how it works?

Disintermediation Business Model basically constitutes businesses being able to eradicate the middle-men or intermediaries in their business model to get in closer proximity with the producers (or their customers). This helps them eliminate profit absorbing channels within their supply chain, consequently resulting in higher profits.

The main idea behind intermediation can be described as an incentive to cut down upon the otherwise paid costs to the intermediaries. There are numerous different examples of disintermediation that exist in the modern-day and age, in different sectors. However, the growth of online businesses has also seen a parallel surge in the growth of disintermediation.

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Even though disintermediation cannot be regarded as a one size fits all approach to supply chain management. This is because it is often challenging to eliminate chains because of logistic reasons that make it a cumbersome task to ensure that there are minimized links existing between the first and the last end of the supply chain for a particular commodity.

Online disintermediation has been the most apparent and obvious kind of business intermediation, essentially because of the relative ease with which it can be managed. Since most of the operations are conducted online, it gives business owners the much-needed flexibility to operate the system in a relatively streamlined manner.

This is mainly because they do not need physical inventory on hand, making it easier for them to get orders without having to fulfill the prior part of the supply chain before the actual sale itself.

Hence, it can be seen that disintermediation works by the beginning and the ending part of the supply chain agreeing to be in direct contact and eliminate the need of having intermediaries in between the overall process. This is perhaps the main crux of the disintermediation process because it literally means removing the existing intermediaries within the company’s supply chain.

Examples

Modern-day examples are quite inherent and apparent when it comes to implementing disintermediation in the existing business models. As mentioned earlier, many online stores have structured themselves around this concept because of the relative ease with which this model can be executed and implemented in modern-day online businesses.

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Dropshipping can be regarded as one classic example of disintermediation. This is because this involves the seller of the goods and services to be in direct contact with the producer of the respective goods and services.

It constitutes the seller of the goods (to the final consumer), gets a hold of orders, and then has the goods shipped directly from the producer’s warehouse. Rather than getting a hold of distributors across the supply chain, these business models are inclined towards make money using this direct approach.

Conclusion

Therefore, it can be seen that disintermediation is regarded as one of the increasingly popular business models that are thriving in the modern-day business dynamic. Even though it is often a cumbersome task to carry out eliminations between such integral parts of the supply chain, yet it can be seen that this marginally helps businesses to conduct their business operations with relative ease.

It also enables entrepreneurship because it opens up a window of opportunity for people to get in direct touch with the producer (or manufacturer) of these goods and services and start their own venture. This is regarded as a win-win situation for all the people across the company’s supply chain, except for the previously existing intermediaries.

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