Distributors are often not prepared for operational challenges that follow.
This is the 4th and final installment of our eCommerce Challenges for Distributors in 2015 series:
- Getting started with eCommerce initiatives are more time consuming than distributors thought they would be.
- There is more and more competition on the online channel.
- Customers today expect more than just a catalog and a shopping cart.
- Distributors are often not prepared for operational challenges that follow.
In this post, we will be discussing another major challenge: Distributors are often not prepared for operational challenges that follow. Quite often their business management systems act as a barrier to transformation instead of offering the flexibility necessary for change. While there are many challenges that small- & mid-market distributors and manufacturers face when implementing an online eCommerce solution, the two largest challenges stem from supply chain and channel conflict.
Bill Gates coined the term “Content is King” back in 1996 long before the explosive growth in ecommerce. This has proven even more true in the realm of digital product marketing. Many retailers have leveraged content marketing strategies to grow their online ecommerce businesses. However, these content marketing strategies do not KEEP customers. Getting the right products to your customers on time, avoiding product outages and communicating accurate information related to back-orders, product status, shipment tracking and even managing and handling returns is critical to keeping your content-grown customer base. Otherwise, you will face the other edge of the double edged content sword – negative content about your services! If content is King, then Supply Chain is the divine power giving your king authority.
A recent report by EY and the Consumer Goods Forum claims the growth in sales outside the traditional brick and mortar channel will drive retails sales, but that most supply chains are not set up to capitalize profitably; only one-third of supply chain executives forecast an increase in profits from a multi-channel approach. Considering the achieved and forecasted growth of eCommerce, this is an opportunity (or huge barrier to stay competitive) distributors can not afford to ignore.
What was traditionally a separate, but well integrated supply chain process from ‘procure-to-pay’ to ‘order-to-cash,’ though lean, left room for a separation of responsibilities:
- Sourcing was responsible for forecasting and obtaining product,
- Warehouse management was responsible for receiving and storing,
- Order fulfillment was responsible for picking, packing and shipping that product to the consumer.
The growth of direct-to-consumer fulfillment is placing significant and far different demands on distribution facilities. Not only are these facilities asked to ship ‘eaches’ when they were used to picking and shipping pallets or even cases, but they are having to do so with virtually no lead time. End consumers and even business customers are expecting their products to arrive within 24 to 48 hours of order. Distribution centers are not only faced with receiving orders, picking, packing and shipping these orders same day, but must also pay attention to the overall customer experience as it relates to clean, professional and branded packaging; basically product presentation in the box. As Jeffery B. Graves states in his article Maximizing Productivity in E-commerce Warehousing and Distribution Operations, “In e-commerce, the distribution center provides much of the customer experience. Simply delivering the goods is no longer an adequate mission for the fulfillment center—customer satisfaction has to be a critical priority.”
What does this mean for today’s distributor? Product availability, warehouse/inventory management and order fulfillment must be viewed from a consolidated omni-channel approach. Manually managing sourcing, inventory and order fulfillment via spreadsheet or a poorly integrated system is no longer acceptable. Tighter integrations and cooperation between these processes and better fulfillment visibility to the end customer is a must not only within your organization, but also along the entire chain from manufacturer, to distributor to retailer/reseller, to the end customer. Here are the key pieces that are critical to the integrated value chain:
Today, order-to-pay supply chain processes give sourcing visibility as to when product is available from manufacturers and suppliers as well as information on transit time. Exposing this information for products that are in high demand gives customers comfort in knowing when out of stock or low stock products will be available. Even your most loyal customers may find alternate suppliers at their time of need if they do not have visibility as to when your product will be available.
Forecasting inventory has always been important, but is now critical to the success of the online channel. Not only do you need accurate inventory to display, but a quick increase in sales may result in some items being ‘out of stock’ which may cost you one or more online customers. There is a perception consumers have with brick and mortar being out of stock. If a product is out of stock in a physical location (the store) even though it may be frustrating to the customer, it is understandable. The product is not PHYSICALLY HERE. In those instances, what do retail clerks say? “We can check another store or order it and have it shipped.” The perception is that it can always ship from SOMEWHERE. A product not available on line is seen as more of a failure of the business to truly meet the customer’s needs. Customers assume the online store should be able to ‘get it’ and ‘ship it’.
To many distribution executives, online fulfillment poses a significant challenge to their existing knowledge, experience and resources.
Customer Service / Customer Experience
“In an omni-channel world, the supply chain has become the consumer-facing front office and a key determinant of whether shoppers have a good or bad experience.” –EY Consumer Goods Forum. Detailed order status updating, branded (and professional looking) packaging and proof of delivery are all extensions of the online experience and can have a great impact on whether or not customers come back to you.
The primary key to achieving a supply chain process that fully supports the omnichannel is through robust integrations both within the organization itself and with all the organizations in the value chain (manufacturers, distributors, value added resellers, retailers, etc.) . Here are some of the integrations that should be considered as part of an omni-channel supply chain aware eCommerce solution:
- Accounting (order creates, supplier PO for inventory forecasting, contract pricing, etc.)
- Warehouse (inventory, shipping, RMAs, etc.)
- Standard integrations:
- Shipping carriers (by weight or more sophisticated, regional carriers, combined solutions (FedEx SmartPost, UPS SurePost, etc.)
- Automated Tax calculation (Avalara)
- Payment gateways
- Enhanced Supply Chain (Value Chain) integrations
- Manufacturer Product Information (new product lines, product specs, imagery)
- Supplier Inventory / Product Availability
- Dropshipping (order create, order status)
- PO automation
The Smarter 3PL
As Jeffery B. Graves continues in Maximizing Productivity in E-commerce Warehousing and Distribution Operations, “As an alternative to in-house fulfillment, a large number of retailers have turned over internet order processing to 3PLs (third-party logistics providers) that are equipped and experienced to handle these online needs.”
With the rapid growth in eCommerce and its associated impact on order fulfillment, some 3rd party logistics companies have capitalized on this trend by investing in solving typical eCommerce challenges. A ‘smarter 3PL:
- Understands eCommerce and see it strategically
- Implements sophisticated warehouse management systems capable of rapid order processing, automation, near real-time receiving, allocating, and inventory managements systems,
- Invests in robust integration capabilities to support near real-time eCommerce order integration as well as supplier integrations for product availability and inventory
- Pays particular attention to customer experience in the packaging configuration and customizations
- Has researched and implemented ‘each’ picking automation and ways to lower labor costs
Envalo has been working closely with a client who has partnered with one such ‘smarter 3PL’ based out of Chicago. Our client has been working with this ‘smarter 3PL’ in the following areas:
Inventory: identified when shipments are traditionally received and scheduled inventory updates for those times so that inventory is allocated to in-process orders making sure our customer is not losing sales on high demand products while still maintaining a 48 hour delivery guarantee.
Order Fulfillment: With real time submission, orders are received by the 3PL seconds after the customer clicks ‘submit order.’ They custom pick and pack for single and multi-box shipments which reduces shipping costs. The 3PL also follows enhanced order fulfillment to support both a default carrier / carrier account number to an end customer provided carrier / carrier account number. Automation and custom scheduling of order processing updates helps shorten the window to capture funds and improve cash-flow, customer facing packaging, optimized shipping, etc.
Overall Business Relationship: Not only have we achieved game changing integrations with this smarter 3PL, but they understand the importance of all the organizations along the supply chain process being fully integrated. This 3PL is recognized as an extension of our client. They are often aware of special promotions and seasonal needs and are quickly engaged if any issues arise.
For more information on how to assess a 3rd party logistics organizations capabilities for eCommerce, read Maximizing Productivity in E-commerce Warehousing and Distribution Operations.
Early on, distributors and manufacturers were slow to integrate online eCommerce into their multi-channel strategy for both technical and operational reasons. With the growth of eCommerce has come the advent of tools to solve some of the more technical challenges such as back office integration capabilities, customer specific catalogs, pricing, and even payment terms and methods.
Another barrier quickly being removed is the technical savviness of consumers and their desire to shop and buy online. The percentage of people working in procurement or in buying roles that grew up with the internet at their fingertips is growing dramatically. They are constantly seeking ways to achieve their goals by leveraging technology, are driving change in their organizations and even influencing the supplier selection process to choose more technically capable suppliers.
The bigger, more pressing issue that remains is addressing the perceived conflict with more direct channels such as retailers, dealers, direct sales, etc. More traditional outlets, partners and teams often focus on how the online channel is competing with them and ‘taking their sales’. Many organizations have solved these challenges by teaching their other channels how the online strategy can support and even grow their sales. Some of the techniques used include:
- Product Mix: focus on product lines that are not often carried or promoted by retailers or dealers or products that are high volume but low margin for traditional channels.
- Product Content/Customer Service: most buyers access the manufacturer’s website before or after a purchase for product information, how-tos, maintenance questions, etc. Improving the customer experience through information drives sales across all channels.
- Find a Retailer: promote and drive traffic to your partners, dealers and retailers.
- B2B login: Offer your other channels the ability to login to obtain product information, imagery and even place orders with customer-specific pricing.
- Direct Sales Support: add functionality to your eCommerce solution that empowers sales reps to place orders on behalf of their customers, view order status, see order history, and access proprietary sales assets which are not available to the general public.
- Pricing Strategy: List products with retail MSRP pricing so as to not undercut other channels.
eCommerce continues to be game changing across all markets and industries. Most of the market discussion centers around retail and digital marketing. Larger enterprises have identified the impacts that eCommerce is having on their back office processes and have been working to react to those impacts for years by implementing eCommerce-like solutions such as Ariba, BuyerQuest and Coupa.
This awareness is quickly coming to small- and mid-market manufacturers, distributors and value added resellers with solutions like PunchOut and cloudBuy. Unlike larger enterprises that may have the capital to react but are often slow to implement change, the small- and mid-market manufacturers and retailers who are aware of changes that need to be made are often able to react quickly and with lower cost technical solutions, thus leveling the playing field with larger enterprises.
With our experience across many clients, our knowledge of the Magneto platform, various extensions we have perfected and integration tools we have built, we are able to offer solutions for manufacturers and distributors to quickly and easily support the challenges they commonly face going into this market space including:
- Contract Pricing
- Robust product content
- Payment Options / Credit Terms
- Order splitting / multiple shipments
- Warehouse level inventory
Thank you for following this series of blogs on the challenges that manufacturers and distributors face in eCommerce. Are you dealing (or have you dealt) with any of these challenges? I would love to hear how your have solved them or if you need help solving them. Comment below and let’s get the conversation started!