In today’s interconnected market, it is easy for the end-user to get products and services from companies worldwide. The increased market size can make it more challenging to choose the right providers for the services you seek. This article will give you insight into the different entities in the contractor’s supply chain and how their relationship to each other can affect your business processes.
What do supply chains look like?
First, let’s have a look at a simple supply chain. The supply chain starts at the manufacturer, also called the producer, that creates products out of raw material. These products will be dispersed via a distributor to the end-user or a provider. The service provider then offers the product as part of a service solution to the end-user.
Let’s use car manufacturers and taxi companies as an example. The car manufacturer builds the car and distributes it via dealerships to taxi companies, who offer transportation services to the end-user. The end-user will then pay for the service.
How do supply chains affect me as the end-user?
You may now wonder why the supply chain is crucial for you when hiring a contractor. Let’s have a look at a more comprehensive supply chain based on a specific example. You are an energy provider and need to get work done in your facility. Therefore, you are about to hire a contractor that takes care of confined space entries. You can choose between Contractor A that rents the equipment, and Contractor B that owns the equipment. Who would you choose?
The project is over, and each contractor did everything you asked for, but your employees gave you the feedback that the equipment’s user interface is confusing. Additionally, some of the equipment was not functional in wet locations. You ask each contractor to make adjustments to the equipment to ensure an even smoother process for the next project.
Scenario 1 – You chose Contractor A:
The contractor has to contact the distributor they rented the equipment from and make a recommendation or ask for adjustments. The distributor takes this information to the manufacturer and asks on behalf of the contractor that they make changes. Unfortunately, this specific project is not significant enough for the manufacturer to make changes to the entire equipment line. After a few weeks, Contractor A informs you that they have to decline your request.
Scenario 2 – You chose Contractor B:
The contractor receives the feedback and informs their in-house development team and schedules a meeting between you and the development team directly, to ensure all requirements are communicated in the most efficient way. As this contractor owns and manufactures the equipment, the development team orders new materials from manufacturers and starts building the equipment with the adjustments you requested. Hence, Contactor B agrees to your request.
Another aspect to consider, next to the path of communication and equipment adjustability, are the costs. Each entity of the supply chain is adding a margin to the original price. The longer the supply chain, the more additional costs have been added to the product. The end-user is most likely paying partially for the equipment embedded in the service’s price, which makes the service more expensive when the supply chain is longer.
These examples show you how providers’ service levels can affect your business process and that you should consider the supply chain behind each contractor/service provider. Before your next project, ask yourself: Is this a vertically integrated provider that owns the equipment or is this a secondary provider whose equipment, cost, and level of support depends on a third party?