Building an Omnichannel Supply Chain for Brands

Building an Omnichannel Supply Chain for Brands

Consumers today are spoiled for choice. No matter where they live, they have at their fingertips a vast assortment of products, delivery options, and a never-ending parade of exclusive products and special offers.

The consumer journey is becoming increasingly frictionless thanks to advances in  technologies and disruptive innovations. For example, Amazon and Alibaba continue to push consumers to buy what they want and how they want it. (see figure below):

Presently, branded manufacturer’s direct-to-consumer (DTC) or eCommerce sales — that is, sales fulfilled by the manufacturer, regardless of whether the customer makes the purchase online, a manufacturer-owned store, or at a third-party retailer, — typically account for between 5 and 15 percent of total revenue. However, we believe brands can increase their DTC sales to between 15 and 35 percent in the next 3-5 years. (see figure below)

DTC growth logos.png

Such a shift will not only improve brands’ operating margins. It will also create greater stickiness with end customers and capture their fair share of market power.

Key Gap: Omnichannel Supply Chain for Brands

Based on our client work and research, one of the biggest gaps preventing Brands DTC growth is fulfillment. Brands spend significant effort and energy on generating online demand. But, they often fail to build the necessary supply side capabilities to deliver against a rapidly changing and rising consumer expectations

Long order to door lead times, not having the right assortment deployed in the right location, disjointed click and collect operations will not only significantly erode order margins but devastate the overall value proposition to the consumer.

In  “our forthcoming paper” (in collaboration with professor Sunil Chopra from the Kellogg School of Management), we describe a systematic approach to getting DTC fulfillment right:

1) Define a clear and winnable fulfillment promise

2) Reinvent and redefine the role of the store, either owned or within retail partners

3) Evolve supply chain and 3PL partnerships

In short, Brands can take advantage of this unprecedented growth opportunity to get closer to the consumer. However, they must manage to build the right omnichannel supply chain.

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