How to Strengthen Your Direct-to-Consumer Supply Chain

How to Manage and Optimize a Direct-to-Consumer Supply Chain

In the first consumer-direct strategy post “Why Your Business Needs to Strengthen its Supply Chain Direct-to-Consumer Channels,” I discussed why having a direct-to-consumer strategy was more important than ever.

Now I’d like to talk about building and executing an effective direct-to-consumer supply chain.

Achieve Economies of Scale with Single Item Demand? Really?

Process automation has, of course, been available for many years in pockets across the supply network.

Today that automation has been extended across the network and into the home with the ability to trigger a response from the network, based on individual home-based orders.

In essence, we have now enabled one-step home delivery powered by a supply network ecosystem that meets the demand of the individual in real-time across the last mile, while also aggregating this demand in real-time across all customers to leverage economies of scale.

This allows the network to achieve the highest levels of customer service at the lowest possible cost, even when the orders are home-based for individual items.

In fact, because One Network’s NEO Platform is a true multiparty transactional software network, the overall data model is designed to be bottom-up, starting with the unit level single item and building up from there.

So the platform works across all levels of aggregation, whether you are planning six months out or executing a delivery this morning.

Thus, as the market shifted over the past few months due to the pandemic, to one driven by consumer-based single item demand at the home, the network already had both the data infrastructure and the software functionality to enable the shift in real-time.

Recommended Webcast: The Consumer-Direct Strategy for Manufacturers and Shippers

This is similar to the shift discussed earlier in the restaurant industry, although opposite in direction, as the network needed to rapidly slow down rather than speed up.

In the restaurant example, all demand was driven by items ordered off the menu and served on a plate, resulting in similar dynamics for single item demand across a multi-tier supply network.

Making Optimal Supply Chain Decisions Network-Wide

The nature of the network is to view inbound and outbound orders as two sides of the same coin. What one trading partner considers inbound another considers outbound.

Thus, the only way a last-mile solution can benefit both the consumer as well as the companies providing the goods and services is to optimize all inbound and outbound across the network.

Providing visibility, control, and math-based decision-making at different supply chain touchpoints empowers trading partners to make well-informed decisions about positioning and moving inventory.

Given the number of variables in play across a complex network, you will be relieved to find that automated and math-based workbenches to aid in decision making are available today. In the shift toward becoming more demand-driven, companies need to weigh various options such as Incoterms selection based on geography in order to drive carrier preferences, transportation pricing, and inventory ownership.

Another tactic is to divert inbound products at ports of entry to match real-time demand shifts and related mode selection. Companies have the option to segment parts, sort by mode, prioritize by need, then pair components at a fulfillment location closer to demand. This approach enables you to be highly responsive but at a lower cost, while also reducing the carbon footprint.

This is real-time knowledge across the network, along with the ability to collaborate between trading partners, drives better performance for all participants.

Participating in these business networks also gives you a significant opportunity to expand your customer base. Capabilities like telematics and full order visibility empower customers and drive up satisfaction levels, which in turn drive word of mouth referrals. For companies that measure NPS (net promoter scores), these capabilities are certainly a strong accelerator in driving customer loyalty for the direct-to-consumer channel.

Planning Without Execution is a Fallacy

In today’s world, the idea that planning is enough, even with what some are calling rapid response planning, is ridiculous. The pandemic has taught us some hard lessons in regard to planning.

• Scenario planning has become pointless in today’s climate. No one knows what the future will look like, so there is no point in creating complex planning scenarios. After all, how many plans factored in today’s scenario? It’s one nobody could have predicted.
• Traditional forecasting is not going to give an accurate forecast. It’s impossible to forecast consumer behavior based on the past, and the lockdowns are different country-by-country and state-by-state with rules changing rapidly over time. As we’ve said, the shift to ecommerce sales has been dramatic and could not have been forecast.
• The future is uncertain. No one knows what will happen in the next 3, 6, or 12 months, so a new approach in supply chain management is needed. We need end-to-end visibility with an autonomous supply chain that combines planning and execution in real-time.

Remember that the closer you are to making a delivery, the more your decision-making is compressed. Within the delivery window, you are executing transactions, not planning. If a network platform does not provide seamless planning and execution across all phases of the forecast, commit, and delivery, then it is not capable of enabling demand-driven logistics. Without this seamless environment across time horizons, the risks of failure are significant because you have less time to react, and fewer choices when taking action.

Coordinated planning and execution control is critical to logistics performance whether it’s cross-docking to expedite retail replenishment and avoid stockouts, or dynamically routing last-mile shipments to meet delivery demands. Demand-driven capabilities like postponement must be woven throughout the supply network.

In fact, in order to be demand responsive in real-time, a single cloud-based platform which includes procurement, contracting, shipment planning/execution/tracking, yard management, appointment scheduling, and financial/claims settlement must be included in the multi-party planning and execution services available on the network.

For enterprises saddled with technology silos and separate systems in these functional areas, achieving real-time responsiveness is simply unattainable.

The Demand Driven Manufacturer

From the shipper’s perspective, there are many variables where you feel that you have little or no control – such as consumer buying patterns, fuel costs, supply disruptions, and capacity allocations. You can try to apply statistical forecasting techniques or even machine learning but these variables will always be difficult to predict. Regardless of how low you can drive forecast error, you will always need to react to problems and alerts during execution, and basically be in “reactive mode.”

Deploying the demand-driven logistics capabilities we’ve discussed, will empower manufacturers to drive collaboration across their trading partner ecosystem including customers, carriers, and suppliers, leading to improved costs and customer service levels. Transportation management systems (TMS) and real-time supply network capabilities around visibility, decision making, orders, inventory, and fulfillment all available on a single cloud-based platform provides shippers with the ability to share information and manage transportation and logistics processes throughout the network. Having data in one federated master data management repository (MDM) that feed upstream planning and analysis helps facilitate demand-driven logistics.

Making “Order Size One” Work: We must also remember that the dominant philosophies upstream in the supply network have been to enforce minimum order quantities in order to drive efficiencies and lower costs. Today shippers must process a “little-and-often” approach that is predicated on point-of-origin collaboration and consolidation to move smaller quantities more frequently based on real-time demand updates.

On the surface, this approach appears like it may push additional costs onto the manufacturer, but that does not need to be the outcome.

In fact, it is possible to move to smaller order quantities and actually decrease costs as long as the real-time network visibility and collaboration reduce variability for all trading partners and eliminate information lead times from a demand perspective across all tiers and echelons.

Sub-optimizing each tier in the supply network, separating tiers with large inventory buffers, and the “toss it over the wall” mentality that creates the bullwhip effect upstream in the supply network, must all be eliminated to enable the ordering of smaller quantities from suppliers while keeping costs the same or even lowering them. Once all trading partners have visibility to the big picture – which is that no one really gets paid until the end customer buys a product or service – then the trading ecosystem can really thrive. Then, from a transportation perspective, mixed loads will become the new normal.

It’s Still an Omnichannel World: Even as a growing fraction of your business shifts toward direct-to-consumer, you still need to manage multiple channels on a single platform, with integrated logistics management from the first mile to last. Fortunately, leading business network platforms to handle that seamlessly, with a unified view of demand across all channels, along with the ability to execute, forecast, and plan.

The Value Potential is Huge: Now let’s summarize the opportunity. For manufacturers and suppliers, a demand-driven consumer-direct strategy enables you to take back control of your supply network and capture value in these areas:

• With end-to-end visibility, everyone in the network knows what’s going on in real-time – identify and respond to issues more quickly
• Optimize inventory across the entire network with multi-echelon inventory optimization (MEIO) – liberate working capital
• Implement autonomous supply chain management to balance demand and supply, and manage transportation more optimally – drive out cost
• Execute on consumer-direct “drop ship” logistics to increase ecommerce sales and gain market share – maintain revenue growth

On top of all this, strengthening your consumer-direct channel mitigates risk and offers manufacturers a sure way to blunt the impacts of a retail market that may take years to recover.

What’s Needed is a Real-Time Reach Across All Tiers in the Supply Network

Multi-Party Networks Support an Autonomous Demand Driven Strategy

Connecting all partners in a supply chain, and sharing data in real-time, provides significant benefits to all participants on the supply chain network.

For those who are sourcing globally, failing to communicate in real-time with upstream partners creates significant inefficiencies and costs. Trying to do so across dozens of deployed ERP instances will be like being tethered to an anchor. Today companies must strive to reach across all tiers in their supply network and work more closely with suppliers and manufacturers to fine-tune production systems and make sure they are in lockstep with downstream processes.

What’s Needed Goes Well Beyond a Basic Ecommerce Platform

What’s needed is a complete supply chain solution with integrated multi-tier inventory optimization, order brokering, merge, and cross-docking, including last-mile delivery, and the ability to create an allocated Available-to-Promise (ATP) for order promising to a delivery window in a home within a few hours. And all this needs to be optimized on cost.

A tall order? Perhaps not. Today’s network platforms make it possible, and in this way, you’ll enable your whole ecosystem to capitalize on the shift toward direct-to-consumer and achieve a fast ramp in consumer-driven last-mile deliveries. And you’ll be fully prepared to capitalize on new opportunities now and as economies recover.

I’ll be diving into the Consumer-Direct Strategy in detail on a Webcast. If you’re interested in this topic, you’ll get a lot more out of the Webcast as Tom Lee (Lovesac) and I pull back the curtain on exactly how to execute an effective direct-to-consumer strategy. Sign up here:

About the Author

Joe Bellini is Chief Operating Officer at One Network where he provides leadership across the various departments which focus on delivering network-based value across multiple industry segments and geographies. Joe brings his business solution and technology expertise gained through his work experiences at some of today’s leading technology companies, including General Electric, HP/EDS, Brooks Automation, IRI, R1/Accretive Health, and Oracle. Joe holds a patent in Supply Chain Planning and is the co-author of the business strategy book, “The Real-Time Enterprise.” Joe holds degrees in Mechanical Engineering, Applied Mathematics and Statistics is an alumnus of Harvard Business School and is certified in Artificial Intelligence and Machine Learning from MIT Sloan.

Related Article: Why Your Business Needs to Strengthen its Supply Chain Direct-to-Consumer Channels

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