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WE often think of a middleman as someone to avoid, the person who stands in the way, or does nothing at all.
Politicians are now in full damage control mode, racing to ensure basic food for the rakyat remains affordable.
In public, officials blamed the “middlemen mafia” for the uncontrolled rise in prices of basic items.
Many experts came forward and suggested and proposed ways to work on food security for the country.
Some politicians even boasted that “by selling or importing directly, they can eliminate the middleman”.
This strategy of claiming to “eliminate the middleman” is common in advertising done by retailers. The great frequency of its usage testifies to its believability, for the claim that money is saved by eliminating the middleman does indeed seem sensible.
After all, wholesalers and other middlemen don’t work for free. They must be paid.
So if a retailer eliminates the middleman, that retailer apparently has savings it passes on to the consumer.
If middlemen raised retailers’ costs, why would any retailer ever use such parasites?,
It’s true that middlemen make profits. But these services are paid for only because they are valuable. And these services are valuable only because they reduce the prices that consumers pay at retail.
Middlemen who don’t enable retailers to lower their prices go bankrupt and are later eliminated by the market.
In contrast, successful middlemen reduce the costs that consumers pay at retail.
Wholesalers supply services to retailers similar to the services that retailers supply to end users. No supermarket grows its own vegetables, churns its own bread or kaya, or cans its own sardines.
It buys these and each of the other tens of thousands of different items on its shelves from wholesalers.
And just as retailers lower your cost of buying goods for you and your family, wholesalers lower retailers’ costs of inventory purchases.
Wholesalers specialise in transporting goods from around the country, or even the world, and assembling these in accessible, central locations at which retailers’ delivery trucks can be loaded. Also like retailers, wholesalers also generally vouch to their customers for the quality of the goods they supply.
If a retailer discovers a way to produce, on its own, some retail item at a cost lower than the price it must pay to a wholesaler, that retailer will eliminate the middleman wholesaler and produce that item itself.
And this retailer will turn this cost-saving into a competitive advantage by passing along to consumers at least some of these lower costs in the form of lower retail prices.
Eliminating middlemen from the supply chain merely because that supplier charges for its services is foolish.
If those services are valuable, if those services reduce retailers’ costs of acquiring some good for resale, then for retailers to refuse to purchase that supplier’s services results in retailers’ costs rising, not falling.