Is direct-to-consumer the only logical option for manufacturers?

- December 24, 2018 3 MIN READ

Most manufacturers would jump at the chance to simultaneously reduce their operating expenditure while gaining back control over the end-to-end customer experience. Direct-to-consumer sales models promise to do just that – but at what cost? Cutting out the retail middleman can dramatically improve manufacturers’ results and growth potential, but only if they master supply chain management and put customer service first.

The case for going direct

On the face of things, direct-to-consumer makes sense as the most efficient and engaging sales model for manufacturers. E-commerce platforms and marketplaces have played a key role in lowering the time and costs required to establish a direct-to-consumer sales channel, as well as acclimatising consumers to the idea of purchasing straight from the source. In fact, recent US research suggest that nearly six in 10 shoppers tend to research products on brands’ sites, while 55 percent prefer to buy directly from brands themselves rather than multi-label retailers. Some of the world’s largest manufacturers are not only adopting direct-to-consumer across their brands, but rapidly acquiring pioneers of this sales model.

Direct-to-consumer brings with it a range of obvious benefits. In its purest form, it eliminates the third-party costs associated with wholesale distribution, potentially raising manufacturers’ margins. It gives brands far greater control of how their products are distributed and marketed, paving the way for a far more cohesive branding strategy. Finally, it brings manufacturers much closer to their customers, making it easier to understand their needs and develop more relevant products. Yet manufacturers should be wary of treating direct-to-consumer as a panacea for their profitability: to succeed, the sales model requires manufacturers to become experts in areas where they may have little to no experience.

Establishing a customer-centric direction

When a manufacturer adopts a direct-to-consumer model, they essentially take responsibility for the entire supply chain – from production all the way to purchase point, delivery and (in the case of returns or subscription sales) beyond. In such a model, the quality of their supply chain management also directly influences customers’ experience of the product, and how likely they are to return to, or recommend, the brand. That applies particularly to the younger shoppers who most manufacturers will rely on for direct-to-consumer sales growth: seven in 10 millennials say they would choose a purchase based primarily on the delivery options offered by its seller.

In other words, going direct-to-consumer requires manufacturers to take up the supply chain function of distributors and the customer service competencies of retailers. For many, the sheer extent of these extra responsibilities will render direct-to-consumer an increasingly unpalatable prospect. However, the right tools and partners can help manufacturers lessen these challenges and put them on the right track to greater agility, customer satisfaction, and business growth.

First, manufacturers need a platform with which they can match their supply with demand, in any market and at any time. Direct-to-consumer allows manufacturers to align inventory far more efficiently with actual sales volumes – if they can gain sufficient visibility and control over their logistics resources. The right ERP platform, ideally based in the cloud for maximal reach and scalability, should give retailers the supply and demand data they need to successfully meet their end-consumers’ needs. When health food producer Emma & Tom’s took its national distribution chain in-house, for example, its Oracle NetSuite ERP solution proved pivotal to coordinating same-day deliveries to small retailers and e-commerce consumers around the country.

For the direct-to-consumer model to reach its full potential however, ERP platforms must dovetail with CRM and other customer-facing systems to ensure consumers consistently get what they want, when they want it. Without strong integration between e-commerce sites, payment gateways, and back-end fulfilment, manufacturers may quickly find themselves under fire from customers when products arrive late, incorrectly, or not at all.

More than just new technologies, manufacturers must adopt a new mindset that takes responsibility for the entire lifecycle of their product – not just its physical quality, but the purchasing experience, delivery, and even returns. This mindset may require new talent in areas ranging from digital marketing to customer support. Manufacturers may also work closely with their technology providers to ensure greater levels of automation between their customer-facing and supply chain systems, minimising the likelihood of inaccuracies or delays that could put their brand image in the eyes of consumers at risk.

No manufacturer is an island

Going direct-to-consumer could offer manufacturers an attractive upside – but they should not approach it simply with the goal of eliminating the middleman. In many cases, wholesale distributors will still play a pivotal role in areas like logistics management and fulfilment, particularly in overseas or remote markets where establishing an in-house supply chain proves unprofitable. And direct-to-consumer will require manufacturers to work with other, newer partners too, from ERP platform providers to e-commerce marketers and customer service teams.

Ultimately, manufacturers should only adopt direct-to-consumer models not purely for efficiency gains or cost savings – but to improve the experience for their customers. Do that with the right platforms and partners, and everything else will fall into place.

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