episode 05 exercise answer 03

Part 3: Solution

Which of these alternatives (vertical integration, carry more inventory, or closer relations with suppliers) would be most effective under each of these different threats? Explain.

Let's see how well you answered the questions.

1.	Elimination of the middlemen by sellers buying wholesalers or wholesalers starting their own retail Web sites.
	Your Answer:

	Our Answer:
	If disintermediation occurs, CanGo will be competing with its former suppliers. As the suppliers establish their own retail operations, they will have less and less need for CanGo and its services. CanGo will most likely be forced to vertically integrate or develop such a close working relationship with a supplier that defacto vertical integration occurs. In effect, CanGo would compete with wholesale/retail combinations by becoming a wholesale/retail combination itself. By carrying more inventory itself, CanGo could also become more like a wholesaler.

2.	E-commerce Web sites outsourcing the book distribution process to third party logistics partners.
	Your Answer:

	Our Answer:
	If e-commerce retailers start outsourcing their distribution process to third party partners, they will turn that part of their operation over to others who are probably more efficient. The e-tailers would essentially be buying a delivery core competency from someone who specializes in the field. In order to compete, CanGo will likely need to build that same competency. So, CanGo could follow suit by using a third party logistics partner or even vertically integrate in an outward direction by buying a logistics company or a local delivery e-commerce company, such as Webvan or Kozmo.com.

3.	Authors selling directly to the public.
	Your Answer:

	Our Answer:
	The third threat, authors selling directly to the public, would be CanGo's worst nightmare. If this happens, there will be severe disruption in the entire industry. Authors and customers will disintermediate everyone else in the supply chain, from publishers to distributors to retailers.

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