What you need to know to position your brand correctly
During the Covid-19 pandemic, there was a shift toward selling consumer goods directly to buyers. This meant that suppliers were dealing with an increasingly complex retail supply chain. Furthermore, there was the additional strain of a vulnerable global supply chain. Some experts are beginning to query whether direct-to-consumer brands have combined with e-Commerce to significantly change the nature and activities of the global supply chain today. More importantly, perhaps, what does the future hold for this business modality?
Selling directly to the consumer
One of the experts on this topic is Marne Martin, President of IFS Service Management. Recently, Martin was interviewed and provided his insights. This was an important engagement because of the need to map how suppliers can navigate this relatively new situation to their advantage. Moreover, this could begin a wider trend that calls for analytical attention. IFS is an authority in software development and cloud computing for businesses that distribute or manufacture goods, manage service-focused operations, or build and maintain assets.
There is a difference between direct-to-consumer (DTC) brands and what we typically refer to as traditional brands when managing the supply chain. Martin defines a DTC as one with exclusive control over its marketing, including channels and modalities. This may incorporate online selling or using branded stores. Rather than engaging with wholesalers, retailers, and dealers, a DTC will undertake these activities in-house. Hence, a DTC will collect manufacturing, marketing, and sales data.
The immediate and obvious advantage is direct access to and control of the marketing process. Moreover, DTCs have the flexibility to adjust to changing marketing conditions rather than consulting with third parties that may be slow to react. In some cases, there is a need to outsource forward and reverse logistics, even among DTCs. However, that is a decision that they consciously and strategically make rather than having it imposed on them. Moreover, the parent DTC brand closely monitors and controls the outsourced functions.
Making the best of the production and marketing process
Ultimately, DTC chains are looking to optimize operations to facilitate purchasing. However, it is also important to account for other processes in the chain, including the returns process. The IFS survey of global field services companies indicated increased technology adoption and related investment strategies since 2018. Reverse logistics are particularly important and have risen from 25% in 2018 to 54% this year. An effective returns process has always been essential to DTC brands. However, it is now crucial because it is a strategic differentiator, enhances customer experiences, and improves profitability.
In the era of increasing e-Commerce, the ability to return products safely and efficiently is as important as the ability to deliver them in the first place. DTC brands have additional responsibilities since this process is under their remit rather than offloading it to a retailer or wholesaler. The last three years have seen a boom in DTC brands, mainly due to Covid-19 lockdowns when many consumers remained at home and often had no option but to order everything online. This led to an uptick in e-Commerce for diverse items, including cars, furniture, medication, and groceries. The inflationary pressures on many industrialized economies have inspired others to look for deals online. Moreover, e-Commerce has the advantage of produce and price information that can easily be compared, unlike in-store purchases where information is limited to what is in front of the consumer.
Comparative shopping and bargain hunting are rife in e-Commerce
The recent Prosper Insights & Analytics Survey indicated that about 30% of consumers have increased their comparative shopping on e-Commerce in response to inflation. Conventional brands are also now turning to direct selling strategies to attract online shoppers. Nevertheless, DTC brands are struggling with port congestion, labor shortages, and unprecedented consumer demand. Thus, logistics must be even more streamlined to ensure prompt delivery and enhance customer experiences.
According to Martin, many companies are deciding to bring everything in-house. For instance, a recent IFS study showed that large enterprise decision-makers are turning inward when controlling their supply chain. Hence, 72% of those polled had increased the proportion of domestic supplies compared to international suppliers. In addition, more than 50% have considered increasing the ratio of materials or components that are produced in-house as opposed to being outsourced elsewhere.
Embracing a circular economy
One of the more unconventional responses to the risk of an exposed supply chain is to embrace the circular economy. For example, some businesses like Schoeller Allibert are recycling materials used in the manufacturing process, achieving sustainability goals and supply chain resilience. The survey by IFS indicated that 93% of decision-makers had witnessed their organizations either embracing the circular economy or planning to embrace it in the future. This is a ray of hope following concern that the sustainability goals might backslide following Covid-19 and the Russia-Ukraine war.
Another critical trend is businesses updating their enterprise resource planning (ERP). The reforms target enterprise asset management (EAM) systems, customer experience (CX), supply chain and reverse logistics capabilities, and manufacturing. Artificial Intelligence (AI) has been incorporated into modern integrated EAM, CX, and ERP frameworks. In that way, users can predict the need for specific parts during the manufacturing process and operations. Therefore, it is possible to forecast and pre-empt labor allocation needs.
Improving the supply chain environment
The last 24 months have seen significant improvements in the supply chain environment, especially in reducing the tension that had gripped it. For instance, the long-term shipping rates for a 40-foot container from East Asia to the USA are now hovering at about $1400, consistent with their pre-pandemic status. At one point, they were 85% higher than that quote based on data from Xeneta. Nevertheless, there are still many challenges pending resolution. For instance, the backlogs at Los Angeles and Long Beach have subsided. Still, some reserves go as far as 12 months through Panama Canal just in case delays re-emerge.
The vulnerabilities of the supply chain have inspired a call for more investment and renewal, with a case in point being the decision to diversify supply chains, including reshoring, near-shoring, stockpiling, and embracing the circular economy. The over-reliance on just-in-time supply chains is a thing of the past. Digital transformation is also opening new frontiers in resilience. For instance, some companies are automating operations and engagement with their clients. IFS is a case in point when adopting evergreen approaches to software updates. Using an incremental approach improves business agility, with objectives being continuously reviewed and redefined in line with the market.
The lesson learned in the last three years will not be forgotten even as the situation normalizes. Many companies continue to improve their supply chains to prevent future vulnerabilities. Digitization and diversification are very much part of that equation. For instance, social media and sentiment analysis will likely feature heavily in future operational planning. The consumer and their experiences will remain at the heart of all these changes in the DTC landscape.