Supply Chain Intermediaries and Insurance Needs
Intermediaries make it possible for a company to deliver its products to the end user without needing to own the whole supply chain, as well as serve the critical functions of reducing transaction costs, pooling and diversifying risk, and alleviating adverse selection.
Distribution of goods takes place by means of channels, and the intermediaries are generally the independent groups or organizations within the channel that make products available for consumption. Damage, and loss of goods, needs protection through insurance for supply chain intermediaries.
- Transit risks can include all types of incidents, including:
- Rough handling of goods
- Theft, or non-delivery
- Jettison (the act of casting goods from a vessel or aircraft to lighten or stabilize it)
- Collision, and
- Natural disasters, to name a few
There are four main types of intermediary: agents, wholesalers, distributors, and retailers.
A firm may have as many intermediaries in its distribution channel as it chooses, or it can have no intermediaries at all, through direct marketing.
Agents or brokers are individuals or companies that act as an extension of the manufacturing company whose main job is to represent the producer to the final user in selling a product.
Unlike agents, wholesalers take title to the goods and services that they are intermediaries for. They are independently owned, and they own the products that they sell. Wholesalers buy in bulk, and store the products in their own warehouses and storage places until it is time to resell them to other intermediaries such as retailers, for a higher price than they paid. Thus, they do not operate on a commission system as agents do.
The difference between distributors and wholesalers is that distributors align themselves to complementary products. For example, distributors of one name-brand product will not distribute a competitor’s products, and vice versa. In this way, they can maintain a closer relationship with their suppliers than wholesalers do.
Retailers come in a variety of shapes and sizes: from the mom and pop store’s, to large chains like Target stores. Whatever their size, retailers purchase products from market intermediaries and sell them directly to the end user for a profit, and for those intermediaries who cannot deliver on time, or experience an incident that results in loss of cargo, they need insurance for supply chain intermediaries to help cover those losses.