Surely you have purchased an item online through your computer. Just as you have probably bought a plane ticket or an entrance for the next concert of your favorite artist. It is valid to believe that most Internet sales are composed of small items or products with little value per se.
But perhaps you´ve been a little more risky and decided to buy a laptop online. Surely the name that has come to you is that of Dell. Why would you buy a highly specialized product, like a laptop, at Dell´s? What if you better go to some of the stores selling electronic equipment in the shopping mall closer to you ?
The advantage of Dell, which is the basis of his success as a company selling computers, is that it can provide products of good quality at a relatively affordable price rather than buying the same computer through a retailer. The secret? as simple as the strategy in the Dell supply chain: got rid of the dealers or brokers of their products, which causes the product to be charged an extra fee on the sale price you normally would on the shelves of stores specializing in electronics.
In theory this is very simple: after you enter the Dell website you can choose from one of the models offered by the company or literally create and order to build your own computer based on the requirements that you need. Once done, you go to pay your computer via your credit card and it immediately sends an order to Dell's manufacturing sites worldwide. Your computer is built, shipped and delivered through a courier company within days at the door of you house.
This approach in the supply chain has allowed Dell to reduce its inventory times to a minimum of three days. Usually the electronic equipment industry handles inventory up to 35 days. The savings resulting from efficient management of supply chain coupled with the elimination of distribution channels (retailers) is reflected in a considerable decrease in the price of Dell computers compared to their competitors.
This business model has been somewhat taken by various companies in various industries. The owners of car manufacturers like Ford or GM have modified their distribution channel of cars and often dispense with traditional distributors, even without going beyond the financial service which they provided via commercial banks to offer their own financing facility. One could argue that this has not necessarily led to a substantial decrease in the price of cars per se but it has led to an increased generation of options for people who are thinking about getting a car. Options that only 15 years ago were unthinkable.
Other companies like Cemex started selling their products such as cement or concrete through its stores named Construrama. Same approach taken by some large franchise chains (Alsea, Pharmacy Savings, Mc Donald's) that have created a scheme where otherwise control their outlets franchisee without using a third party to deliver and distribute their products ,that extra saving cost´s reflected in the selling price plus the advantages of direct control of the business.
No doubt the idea of Michael Dell to cut out the middleman was difficult and took time to develop. Obviously it is impossible in many businesses to eliminate traditional channels of distribution that, I would say that 90% of cases, do not add any value to the end customer.
If you can develop a strategy where somehow you can eliminate the middlemen in the supply chain it will definitely generate a competitive advantage in your company which is very difficult if not impossible, to surpass even by your most fierce competitors.
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