Direct-to-Consumer – Creating additional supply chain complexity for manufacturers

Direct-to-consumer (D2C) sales, a component of e-commerce, continues to emerge as a viable business strategy for manufacturers exploring potential areas for increased revenue by reducing volume to third party sellers, traditional retail stores, and e-tailers. In fact, the number of manufacturers moving into D2C operations has grown significantly in the last decade.

As manufacturers expand into new markets and attempt to grow through direct sales, they often fail to understand the strategies and components needed to support D2C operations. This failure to properly vet these areas can negatively impact profitability via higher levels of product damage, customer dissatisfaction, and returns.

Some issues create significant challenges when it comes to perfecting a smart D2C approach, but these challenges also provide insight into how manufacturer can eliminate these common risks within their distribution centers. These challenge areas include:

  • Breaking Down the Unit Load: Manufacturers engaging in D2C business often find themselves relying upon traditional supply chain operations centered around unitized/bulk shipments and have yet to develop the necessary picking strategy  optimized for single item shipments. Understanding the shipping rules behind configuration, orientation, and order consolidation can make the difference in your convergence plan to serving the D2C marketplace.
  • Locating the Inventory: Within the warehouse, determining inventory positioning for the D2C product portfolio can also present challenges, particularly if the SKU offering is different than retail SKUs. Depending upon the organization’s size and product portfolio, it may be beneficial to choose a stand alone location for D2C fulfillment. If a separate location is not viable, strategies for creating a designated location within the warehouse to manage and ship D2C inventory should be explored and implemented.
  • Fulfilling the Order: With free shipping offered by leading retailers, it is not uncommon for customers to ditch their shopping cart due to unexpected last mile costs at online checkout. This reality now forces the seller to shop and negotiate competitive parcel rates and requires advanced cartonization technology in order to gain better control of shipping estimates. Either the customer or the seller pays shipping, so the estimate at order entry becomes critical to making the sale or preserving profit margin. Without these focus areas in place, organizations fail to realize the true value associated with the D2C marketplace.

The expansion of the omni-channel marketplace will almost certainly result in more companies exploring additional D2C strategies in the coming years. Organizations seeking to invest in their D2C marketplace should consider an end-to-end supply chain assessment in order to determine where potential damages could occur as well as the optimal location for storage and handling of D2C products. If your organization is considering D2C services, or has seen complications in existing operations, outside expertise may be required to determine the optimal solution for your product offerings.   

Kyle Ous, Manager, is a Certified Packaging Professional within the Packaging Optimization practice at Chainalytics. He has served as the lead on several packaging and supply chain cost reduction projects resulting in improved supply chain performance.

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