E-Commerce, Retail & CPG
How to Overcome the Supply Chain Challenges in Direct-to-Consumer Selling
Nov 26, 2020
6 mins read
The growing demand for online shopping and convenient deliveries due to the pandemic has brought about a new revolution in the consumer goods and retail supply chain. While traditional mom-and-pop storekeepers have started selling products digitally, big-scale retail brands and consumer goods manufacturers have adopted the direct-to-consumer selling model in order to fulfill customer demand in these difficult times.
Direct to consumer or D2C selling is a fast-track retail model wherein brands sell merchandise directly to consumers through an online storefront, without involving intermediaries such as wholesalers or distributors. Brands can sell directly to consumers via in-house fulfillment centers, or E-commerce marketplaces such as Amazon, or with the help of third-party logistics providers.
In 2019, D2C E-commerce sales reached $14.28 billion in the US. In 2020, eMarketer forecasts that sales will grow by 24.3%, to $17.75 billion. Skipping intermediaries allows brands to have complete control over their sales and fulfillment activities, and speeds up delivery operations significantly, as the secondary mile in the supply chain is totally eliminated. D2C selling also helps businesses in building a stronger brand-customer relationship, and engaging with their valued customers personally.
For customers too, it is a convenient way to buy directly from brands, without having to visit retail stores in person. 87% of US consumers say that they will purchase directly from a brand online if they could.
While the D2C selling model is gaining popularity among consumer goods, apparel, electronics, furniture, food and beverage, and medicine brands, there are a number of supply chain complexities and challenges involved for businesses in this space. The supply chain and logistics management can make or break a D2C buying experience.
Here are 5 major direct to consumer challenges to consider:
1. Warehousing and Inventory Management
Direct to consumer selling involves distributing goods to customers directly without sending them to a retail store or secondary distribution center. But, the problem is that brands may have mother warehouses/ manufacturing hubs located in a few major places, and goods must be distributed in multiple locations, both urban and rural. In this era of same-day and two-day deliveries, it is a time-consuming process to ship products from mother warehouses to customer locations as and when the demand arises.
Brands must therefore come up with small-scale distribution centers such as pop-up/rental distribution kiosks in high density areas, or utilize redundant retail store spaces as fulfillment centers by partnering with local retailers in order to ensure timely fulfillment of orders.
2. Packaging and Shipping Merchandise
Traditionally, consumer goods brands ship finished goods in large volumes to wholesale distributors, typically in a B2B distribution set-up. B2B packaging and shipping procedures are therefore more simple. In direct to consumer selling, the whole shipping operation takes a B2C turn, which means packaging and shipping processes must be more organized.
Brands must make a number of additional decisions such as deciding the size and shape of boxes that need to be purchased and type of packaging material to use for each customer order, which products need to be padded with bubble wrap or labeled with a warning. There are also standards and regulations to be met when shipping specific types of products such as food items. Moreover, brands have to adjust to shipping a high quantity of smaller packages rather than a few large cases.
3. Fleet Utilization Challenges
In order to fulfill customer demands with doorstep deliveries, companies might depend on either in-house captive fleet or rental fleet, based on demand fluctuations. While it may be difficult for mid-size businesses to invest fully in a captive fleet, renting too many delivery vehicles can lead to higher operating costs. Businesses are faced with the challenge of identifying the right mix between owned and outsourced fleet, in order to carry out delivery operations in a cost-effective way while ensuring efficient vehicle capacity utilisation.
Download WhitePaper on Captive vs Outsourced Fleet: Math behind Transportation and Distribution for free!
4. Last-Mile Delivery Bottlenecks
For consumer goods brands and retail businesses, a shift to direct to consumer selling comes with an underlying requirement of efficient last-mile delivery. However, many brands may be new to last-mile dynamics and challenges such as delivery route planning, rider allocation, traffic and route restrictions, customer address verification and more. Competing with e-commerce giants and ensuring timely and efficient last-mile fulfillment, especially during COVID-19 times is a major challenge ahead of direct to consumer sellers.
5. Supply Chain Visibility
When customers purchase from a brand, they expect complete transparency from the seller. They want to know when their order is shipped, where exactly their order is in transit and who is handling their delivery. If a D2C brand does not have an efficient delivery tracking system, they might not be able to establish this transparency with their customers.
A lack of supply chain visibility also makes it difficult for logistics managers to monitor on-ground operations, and take preventive measures in case of any deviance from planned delivery schedules.
Logistics Tech to the Rescue from Direct to Consumer challenges
Digitization is the need of the hour, and D2C selling is not an exception. With logistics technology solutions such as route optimization, fleet management tools and last-mile visibility tools, brands can plan delivery networks and routes optimally, reduce logistics costs, build greater visibility in the supply chain and automate manual processes such as dispatch planning and rider allocation. Whether you’re planning to expand your retail sales by entering the D2C market, or wish to optimize your existing D2C operations, consider implementing smart logistics tech in your D2C supply chain and gain a competitive advantage while fulfilling customer expectations effectively.
Locus offers a range of AI-enabled logistics solutions to D2C brands for optimal distribution operations and improved last-mile efficiencies. Get in touch with our experts for a quick tour of our solutions.
Infographic by Locus
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ABOUT THE AUTHOR
Shweta is a seasoned business author and writes about logistics, supply chain management, and SaaS technologies. She occasionally writes on Quora and loves to take on baking experiments in her free time.Read other blogs by this author
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How to Overcome the Supply Chain Challenges in Direct-to-Consumer Selling