Safeguarding Profitability When Selling Direct

Omni-channel is no longer just a concern for retailers. Many manufacturers are developing direct purchasing relationships with consumers, resulting in a lot of new revenue opportunities, as well as a lot of added supply chain complexity. In fact, our European team recently released a Manufacturing Pulse 2016 report, which revealed that in the last 12 months, more than two-fifths (42%) of European adults have bought goods directly from a manufacturer. This shift is having a direct impact on manufacturers’ supply chains and their profitability.

As omni-channel comes to the manufacturing sector, disruption will inevitably follow. The dynamics of selling directly to customers are far different than manufacturers’ previous experience of selling to retail partners. As the online channel grows in popularity, how will manufacturers build a digital supply chain that supports the burgeoning digital relationship with their customers?

Manufacturers are approaching a crossroads, where they must decide if they are going to embrace the growing direct channel and make it profitable. According to the Manufacturing Pulse 2016 report, a key challenge facing manufacturers is how to capitalize profitably on the desire to go direct, while ensuring customers get their goods where and when they want them. The stakes are (potentially) high: If manufacturers are unable to fulfill consumer demand efficiently, they will lose customers, as unhappy shoppers will not become repeat customers. This may explain why it appears that many manufacturers today are still testing the waters of direct selling.

When asked what factors would stop them from shopping directly with a manufacturer, 43% of European adults pointed to the lack of delivery/collection options. Additionally, 43% stated they had experienced frustration with manufacturers not having the desired products in stock. Both of these concerns underscore how important it is for manufacturers to create an optimal customer experience when selling direct. Yet, companies must be careful not to present offers (such as paying premium freight charges to expedite products, etc.) that risk profitability in an attempt to win new customers.

One way to ensure profitability is to have an order promising and fulfillment process and system in place. With this type of structured framework and technology, companies have the ability to determine the most optimal way to fulfill a customer order.  This is important, as not all products or customer segments are the same. Customer segments, like products, have different cost and margin potentials, and companies that can prioritize their order fulfillment accordingly will reap the benefits.

For manufacturers ready to take the next step, check out two recent Multichannel Merchant articles that I authored — Achieving Profitable Fulfillment: Five Questions to Consider and 3 Steps to Establishing a Profitable Order Fulfillment Process — which provide additional guidance on how to develop a structured and profitable order fulfillment process.

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