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The ecommerce logistics consultants at Go Supply Chain Consulting outline the challenges of brands going direct to consumer.
Cutting Out the Middle Man – When Brands Go Direct
Successful business-to-business (B2B) companies with strong brands are regularly tempted to launch out into the business-to-customer (B2C) environment where they can engage directly with the end consumer. Well-known brands such as Nike, Levi’s, Clarins, Nestle and Apple have rolled out their various B2C channels and enjoyed an annual turnover growth rate of over 15%.
There are obvious business opportunities, but how do you get it right?
Some brands with deep pockets have ventured into retailing proper where they have more direct control over their brand. Some are setting up branded flagship stores or a store-within-a-store which creates a new revenue stream and enhanced customer relationships. However, these options also entail high capital investment, increased operational expenditure as well as adding supply chain complexities. These brands are also incurring the displeasure of their wholesale partners.
The B2C channel of preference is e-commerce, the on-line solution.
The benefits are tempting:
- Keep a bigger share of the margin for minimum cost
- Great exposure for the brand and better control over reputation
- Get closer to customer’s needs and aspirations
- Easy to expand product ranges and service offerings
The e-commerce B2C solution
This initiative can grow your competitive advantage, especially if your competitors have not yet discovered this channel. However, B2B companies face the risk stumbling over their lack of infrastructure. Operational capability and a track record in B2B do not always translate easily to the consumer environment. You can sell direct to customers by:
- fulfilling the orders yourself using your current warehousing and logistics facilities
- sell direct but fulfil through an outsource partner or wholesaler
- funnel all sales orders to your established retailers to deliver your product to the customer
The high level supply chain challenges
- Inventory management. Do you allocate dedicated stock for on-line sales or not? Optimising multiple inventories requires different rules.
- Warehouse design and layout. Order picking and packing for B2C requires greater frequency of picking and smaller pack sizes. How and where to do this?
- Customer expectations are for more frequent deliveries to a greater variety of locations in the right season. What type of transport logistics will be needed?
- Dealing with returns and reverse logistics is a new area of concern. Where to, how and what systems and processes are required? Failure to provide customer satisfaction comes with reputational risk.
E-commerce sales channels include sales via the internet, call centres and through mobile phones. Companies that venture into these areas will need professional help to avoid the technology pitfalls. A powerful back-end solution will be required to manage these processes in house, or you need to find the right partner to outsource it to.
Changing your operating model
Internal operations will have to be reorganised to accommodate B2C. There are three main options:
- Embed it in a current business unitThis solution allows for a single focus on your markets but needs each department to understand and change to new ways of working. This takes time and may not provide the level of agility required.
- Set up a separate business unitThis has the benefit of measuring the exact costs of the services and can be used to do pilot projects and trial runs. It does not detract from the current business but can result in lack of consistency of offerings and internal competitiveness
- Use a third-party outsource partnershipOutsourcing the activities has its attraction: it lets you focus on core competencies and shares the risk (as well as some of the margin). It needs a tight agreement to ensure quality service and no loss of control over the brand.
The e-commerce logistics challenges
Customers need faster deliveries, preferably same day. Lead times change, more packs and delivery addresses are added to the mix and returns are a headache. On-line orders are completely changing the B2C delivery landscape.
What kind of logistics strategies do companies use to manage this distribution network? Most use a hybrid model, managing some part of the distribution and fulfilment network themselves and outsourcing the delivery part to experienced freight and express courier companies like FedEx, DHL or even Royal Mail. These speedy models are still evolving and success may only be achieved by trial and error. Cash-on-delivery (COD) can add another dimension to the many payment services offered.
Go or no-go
B2C is not the answer for all consumer products companies. You will have to readjust your focus, understand your new target groups, and cater to their needs. This requires a retailer mind-set and some investment. Having set a strategy and designed the solution, the next step is structured implementation and effective execution of the services.
Are you considering venturing into B2C services?
Go Supply Chain Consulting Limited
18 Stoke Road,
SLOUGH, SL2 5AG,
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Telephone: +44(0)1753 722060
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March 18, 2016
Published by: Go Supply Chain Ltd