June 16, 2021
Is Your Supply Chain Optimized for D2C?
The pandemic changed many aspects of life, including the way people discover and interact with brands. Although e-commerce has been gaining traction for years, the global impact of COVID 19 has accelerated consumer adoption of online shopping and the growth of online brands. This change in consumer behavior appears to be long-lasting, and there are many reasons:
- Choice (endless) assortment of goods
- Opportunity for savings
- The thrill of discovering new brands and unique products, and
- The desire to associate with brands with shared values (sustainability, diversity, etc.)
In what many experts believe is a turning point, consumers and brands are no longer captive to department stores and e-commerce marketplaces. Brands no longer need intermediaries to reach their audience. Using social media and other online direct marketing strategies, they are attracting and retaining customers who identify with their brand. The immediacy of digital technology means they can foster direct relationships, keep customers engaged and build loyalty via experiences, new products, and shared values.
For successful brands, it’s not just about clever marketing
To attract consumers and remain relevant, brands must be able to produce new and unique products at a greater frequency. They must manage their inventory well to respond to consumer demand, while not over-producing or under-producing, thereby losing sales opportunities and disappointing customers. They also must accelerate innovation and new product introductions, increase inventory turns, and decreasing waste (over-production), which not only drains working capital and hurts profitability but ends up in landfills.
Direct-to-consumer (D2C) requires an agile, flexible, and responsive supply chain
Brands have much to gain by shifting to direct-to-consumer e-commerce. But this transformation requires putting in place a new demand-driven supply chain that responds dynamically to consumer demand, delivers a great consumer experience, improves sustainability, and enhances profitability.
An agile supply chain is able to adapt quickly to fluctuating demand while providing real-time data to make better and faster decisions.
The D2C model creates greater brand value and equity for brands than traditional B2B models. The B2B model relies on forecast demand that can never predict real-life scenarios. The supply chain that supports B2B is designed for high-volume production and large distribution centers. This traditional infrastructure is not able to deliver a great consumer experience, provide real-time data, react dynamically to fluctuating demand, and fulfill individual orders at scale.
As a brand, what does the ideal D2C supply chain look like?
- The ideal D2C supply chain is agile and adaptable, based on real demand, not forecast demand. Today, to create consumer excitement and loyalty, marketers understand that unique, customized, limited edition, and personalized products are needed to differentiate their products. The ideal supply chain will accommodate these factors seamlessly.
- The ideal D2C supply chain is highly efficient. Many large retailers hold large amounts of brand inventory, which the brand pays for whether it is sold or not. Also, in the traditional supply chain, inventory stacks up at all phases of the product journey: production, in transit (often weeks at sea), at distribution centers, and at the retail store. Holding inventory is costly to brands and not just financially. With unnecessary inventory, comes the risk of obsolescence and environmental impact. Consumers are increasingly fickle and being agile is necessary to compete effectively. This requires fast inventory turns and careful management of inventory based on demand. The ideal D2C supply chain will produce a product based on demand and hold very limited inventory (far less than the minimum 30 days inventory seen in traditional models).
- The ideal D2C supply chain is engaged, open, and informative. Brands want and need, to engage more intimately with their customers. They also want to respond immediately to consumer preferences and market shifts. Both the traditional retail model and online brand marketplaces carry risks. With online marketplaces, brands have difficulty differentiating themselves and creating a unique brand environment. This is a lost opportunity to engage with customers about promotions, or other calls to action. When a brand understands its customers’ buying behavior and preferences, it will open the door to relevant communications and opportunities. It moves brands closer to their ultimate objective of personalization and ‘segmentation of one’.
- The ideal D2C supply is digitally enabled. Brands need a digital system to manage a vast number of orders and transactions. This digital ecosystem ensures orders seamlessly transfer from the consumers’ basket to a pick, pack, and ship operation and on to carriers for final mile delivery. s. Throughout the chain, order management combines data with track and trace information to provide customers with a seamless digital experience.
- The ideal D2C supply chain is shared. Very few brands have the scale to invest in their own D2C facility. To avoid making large capital investments and fixed costs, it is best to leverage a facility with other brands. Whilst benefitting from economies of scale, digital technology ensures that brands receive tailored solutions just like brands provide their customers.