SPOTLIGHT Manufacturing
Realising the benefi ts of Direct-to-Consumer (D2C) channels
Karl H. Lauri, managing team member at
MRPeasy.com, discussed the new business strategy that’s sweeping across the manufacturing world
D2C channels are increasingly being brought into manufacturers’ business strategies
T
he disabling of many conventional wholesale/retail market channels during the Covid lockdown has prompted many brand-owning manufacturers to bring forward plans to build Direct-to- Consumer (D2C) channels. This trend was already in evidence since manufacturers started to assert greater control over their relationship with consumers. The move to D2C is scale-free: at one
extreme are micro-manufacturers, who have perhaps converted a hobby into an income stream with a CAD programme and a 3D printer in their garden shed; but, D2C is also attracting interest from major brand owners. A study by the Centre for Supply Chain Management at Cranfi eld found that 48% of major companies are already building D2C channels.
D2C – a fix?
D2C is not a panacea; potential downsides include the risk of impairing relationships in the established retail chain, which remains important. But the advantages of ‘taking back control’ through D2C can be summarised as gaining better understanding of the end user; fuller control over the end-user experience (from product design through marketing to post-purchase service); gaining a larger audience/market share; avoiding being sold alongside competitors (possibly avoiding a ‘bidding war’ to gain retail shelf space – a war which favours the big
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brands); the ability to create a platform for up-to-date information (products, prices, promotions, availability) direct to the potential buyer; and, generally, to off er a better, more authentic brand experience.
The e-commerce platform D2C is not, of course, a single solution. If you already have a trade counter or shop at your factory, you could be said to be D2C; but, in reality, we are talking e-commerce, websites and, increasingly, social media. Quite how ‘direct’ to consumer physical operations actually are can vary: a manufacturer could do everything in-house, or contract with a 3PL for fulfi lment, or use marketplaces such as Amazon in a number of ways. The e-commerce platform space is ‘hot’ and for a good reason: according to the UK e-commerce 2020 study by eMarketer, the post-pandemic hit to the high street is set to continue into the future. It fi nds that UK retail ecommerce sales will account for 27.5% of total retail sales in 2020, and that proportion will approach one-third by 2024. But – and it is a big ‘but’ – in all the discussion of customers, marketing and fulfi lment, there is rarely (if ever) any reference to how the D2C business model feeds back to and changes manufacturing and the upstream supply chain. This is concerning because entering the D2C arena is likely to disrupt the way manufacturing operates quite profoundly, and existing systems – which for smaller manufacturers
may be quite rudimentary – are likely to fall short of requirements with potentially severe results. D2C is inherently more volatile. Business is based on a multitude of individual live orders. D2C means the manufacturer has to take responsibility for many issues, previously the territory of the retailer. In terms of inventory levels: a retailer commits to a given number of units in the next month or quarter, giving a vaguely stable base-line for manufacturing and the upstream supply chain; if, however, sales are slow, in the fi rst instance that’s the retailer’s problem. With D2C, the manufacturer only knows what is selling right now and must make its own judgements on manufacturing and inventory volumes. Few fi rms fully appreciate the impacts, positive and negative, of social media. The ‘infl uencer’ eff ect is profound – some are paid, some fortuitous, but a comment by an infl uential poster can drive sales up – or down – in microseconds.
Suitable solutions There are other exposures. Consider returns, averaging around 20% of sales across e-commerce and well over 30% in some sectors. Under D2C, that is no longer a retailer problem – it is the manufacturer’s. Effi ciently returning that stock to ‘goods for sale fi le’ reduces the quantity of new products required, but, paradoxically, to the extent that returned goods need repackaging, the requirement for packing operations and materials may actually increase. And those are the simple cases; we haven’t begun to discuss the clever things that the manufacturing brand owner ought to be doing with all that suddenly available customer data. A system such as MRPeasy is
confi gurable, scaleable and designed to suit the requirements of SMEs who need to develop D2C in parallel with their existing channels.
CONTACT:
MRPeasy.com
www.MRPeasy.com
Automation | December/January 2021
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