Something is seriously wrong with major distribution or supply chain processes for physical products.
Over the last 50 years, many new brands, kinds (flavors or designs), and sizes of products have been created in almost all industries of our economy. As a result, the number of different products has increased exponentially or in a three-dimensional way during that period. In addition, due to the rapid advancement of communication technology and transportation capability, many more differentiated products have been imported from abroad. This has presented an enormous problem of how these many different products are to be distributed in the market.
Let’s see the existing major distribution or supply chain process models for physical products in the U.S. economy.
1. Conventional 3- or 4-tier distribution process model with 3 or 4 separate transactions, from suppliers to distributors, from distributors to wholesalers, from wholesalers to retailers, and from retailers to customers. Customers go to retail stores and purchase products. Due to limited store space, only 1 or 2 (mostly, big) brands with a few kinds and sizes can be available in each retail store. Most small- and medium-size companies are still using this model.
2. Wal-Mart type big discount store or franchise store distribution process model with 2 or 3 separate transactions; from suppliers to Wal-Mart type or franchise distribution centers, from Wal-Mart type or franchise distribution centers to Wal-Mart type big discount or franchise stores, and from Wal-Mart type big discount or franchise stores to customers. Customers also go to their stores and purchase products. Also, due to a limited store space, only 1 to 3 (mostly, big or imported) brands with a few kinds and sizes are available in each Wal-Mart type big discount or franchise store. This model requires operating many big local retail or franchise stores with high development and overhead costs.
3. Amazon type e-retailer distribution process model with 2 separate transactions; from suppliers to Amazon type e-retailers, and from Amazon type e-retailers to customers. Products are individually delivered from Amazon type e-retailer distribution centers to customers, mostly by expensive carriers such as UPS or FedEx, or by their own trucks or drones. Due to high individual product delivery or fulfillment costs, only on-line business-possible products have been available in this model. Moreover, due to a limited distribution center space, only 1 to 3 (mostly, big or imported) on-line business-possible brands with a few kinds and sizes have been available in each Amazon type e-retailer website.
4. EBay or Amazon type e-marketplace distribution process model with a single direct transaction; from suppliers to customers directly, or from suppliers to customers through Amazon type fulfillment centers. Products are individually delivered from suppliers to customers directly or through Amazon type fulfillment centers, mostly by expensive carriers such as UPS or FedEx, or by Amazon type fulfillment centers’ own trucks or drones. Also, due to high individual product delivery or fulfillment costs, only on-line business-possible products have been available in this model.
Now, I believe, you could easily figure out that only a small number of brands--mostly, big or cheap imported--with a few kinds and sizes, and also only some on-line business-possible products are available in the existing major distribution or supply chain processes. Then, what has happened to other products, specifically those products which didn’t have big brand names and were not on-line business possible? Also, big-brand products but not selected kinds and sizes? Something is seriously wrong with the existing major distribution or supply chain processes, despite electronic facilitation.
Imagine that you as a small business owner have created a new product. Unfortunately, it is not an on-line business-possible product. How are you going to sell your new product in the existing distribution processes? I believe it will be extremely difficult and also take a lot of time at high costs for you to construct efficient supply chain networks for your customers within the existing distribution processes. Actually, you will quickly realize that there is no appropriate distribution process for you and your new product. The liquidity costs imposed by any of the four systems are too high.
You are not the only one. In 2012, according to U.S. Census Bureau data, there were 5.73 million employer firms in the U.S. Firms with fewer than 500 workers accounted for 99.7 percent of those businesses, and businesses with less than 20 workers made up 89.6 percent. Actually, most of these small- and medium-size firms also have the same kind of situation as you have imagined, and they have struggled with the existing distribution processes and kept losing their businesses without finding any answering distribution process for their products over the last 40 to 50 years.
It is clear that existing distribution or supply chain processes have benefitted big businesses and some imported cheap foreign brands, but damaged most small- and medium-size domestic businesses. Therefore, the smooth flow of all products to the market has been seriously impeded. I believe this is a hidden but critical flaw in our economy, and our markets have already fallen into a liquidity trap for physical products.
As you may know, many small- and medium-size company businesses in the conventional distribution process have kept on being destroyed, mainly due to multiple costly transaction stages, over the last several decades. Moreover, many off-line businesses, including franchise retail stores and self-employed retail businesses, have also started failing these days, due to their high maintenance and overhead costs. If the existing distribution processes are just left alone, I fear the situation for employment and the gap between rich and poor will be getting rapidly worse again, and accordingly it will be much harder to sustainably revitalize the economy.
What should we do with the existing distribution or supply chain processes? Isn’t there any way to break down the current physical-product liquidity trap by developing a new distribution or supply chain process appropriate to all? What should the new appropriate distribution or supply chain process be? It should provide open and fair conditions for competition to all suppliers, big or small, and also make real goods transaction much cheaper, faster, and easier for almost all kinds, sizes, and prices of products.
If someone could develop such a process, wouldn’t you think that person has a good chance to make a big impact on the economy and society – and have great business success?
We look forward to such an appropriate supply chain process in the market as soon as possible.