No sooner has 2010 begun and we find evidence of large industry influencers embarking on the first steps toward what could ultimately become significant disintermediation and power change within industry supply chains.
This week’s two significant evidence points were a Wal-Mart announcement related to how it intends to cut additional billions of dollars of costs from its supply chain, and Google‘s announcement concerning its newly launched Nexus One smartphone.
Significant supply chain implications tend to always start with Wal-Mart, since its initiatives often cascade to other industries related to consumer goods. According to a Financial Times article, (promotional free sign-up account may be required) the retail giant intends to combine its store purchasing efforts across major geographic boundaries. The effort is described as a plan to consolidate global sourcing of supplier purchases by going supplier direct rather than utilizing third-party procurement companies or suppliers. Wal-Mart plans to leverage purchase volumes for global distribution to its stores, rather than a current country-by-country approach. The report notes that Wal-Mart has already established four global merchandising procurement centers for clothing and general goods, and is in the early process of shifting to global-wide direct purchasing of fresh fruit and vegetables, starting with North America.
Google, well known for its disruptive tendencies, who has of late muscled its way into branded smartphones, announced this week that it plans to sell phones directly to consumers, bypassing major wireless carriers and electronics retailers. By establishing its own online store, Google will offer an “unlocked version” of its new Nexus One phone for $529, which consumers can directly purchase and later enable with a wireless carrier of choice that supports Google’s wireless technology. Of course, there will be options to purchase “subsidized” Nexus phones, starting with a $199 plan offered by T-Mobile, but the initial blogsphere consensus is that Google’s intent is to ultimately challenge the traditional mobile phone distribution model through wireless carriers. One of the better initial analyses comes from Renay San Miguel in an Ecommerce Times article, What’s Behind Google’s Strange Nexus One Sales Strategy?
I’m sure that Supply Chain Matters readers can provide more than enough commentary regarding the pros and cons related to either of these noted initiatives.
In the Wal-Mart case, there can be comments related to the overall risk of global-level procurement, risk related to consistency of quality, adherence to governmental inspection standards for fruits and vegetables, or responsive processes in the event of a product recall. What happens for instance if a salmonella infected fruit or vegetable needs to be backward traced through the supply chain? Will Wal-Mart assume primary risk as the primary purchaser and distributor of goods?
In the case of Google, we can certainly debate the success or reward factors of any upstart who attempts to alienate the existing distribution thinking or network realities. How will consumers be able to test-drive a phone, where does one go to repair or return a phone after you literally own that phone, and will global consumers be willing to shell out a large initial sum of money in order to avoid being locked into a specific carrier’s plan? Most important of all, how or who will Google partner with to deploy a worldwide order fulfillment network that can rival the likes of Amazon or Apple?
And let us certainly not forget a mention of what happens to all of the people employed by current intermediaries, since they represent the consumers of each of these vendors’ products in the long term.
Many industry observers can point to the fact that major economic downturns, such as the recent global-wide recession, can often lead to new industry disrupters, companies who ride the recovery in an entirely different business model. The first week of January 2010 should be referenced as the initial thrusts from two global giants to again be industry disrupters. There will likely be others who follow, and time will tell how successful these efforts will become, or how disruptive they actually turn out to be.
We will no doubt have frequent updates during the year. In the meantime, chime in with your own comments on how do you view these announcements?