CSCMP's Supply Chain Quarterly
January 18, 2020
Forward Thinking

Going direct: Manufacturers set their sights on direct-to-consumer delivery

IDC Manufacturing Insights expects that by 2020, half of all manufacturers will be capable of handling deliveries to consumers.

Most of the discussion around the impact of omnichannel fulfillment on business so far has centered on retailers and the distribution centers that serve them. But this fast-growing trend is also having a major effect on manufacturers, according to the analyst group IDC Manufacturing Insights. In addition to selling to retailers and resellers, IDC says, manufacturers are increasingly interested in being able to directly fulfill consumer demand. .In fact, in its recently published "IDC Futurescape: Worldwide Supply Chain 2017 Predictions" report, the analyst group anticipates that "by the end of 2020, 50 percent of all manufacturing supply chains will have the capability, either in-house or outsourced, to enable direct-to-consumption shipments and home delivery."

This prediction is based on analysts' conversations with both manufacturers and software and applications vendors, which indicated that more and more manufacturers are focusing on how they can better serve the end customer, according to John Santagate, research manager, supply chain execution, for IDC.

Direct-to-consumer fulfillment will require manufacturing companies to completely rethink and redesign their supply chains, according to IDC. Traditionally, manufacturers have only focused on fulfilling cases and pallets. Now, however, they will also need to be able to handle individual items, or "eaches." Instead of developing those capabilities in-house, Santagate anticipates, many manufacturers will look to external partners, such as their existing third-party logistics (3PL) providers. "The network is there; it's a matter of engaging with the partners that may already be there to do the shipment of eaches versus pallets, truckloads, and cases," he said in an interview.

The "Supply Chain Predictions" report recommends that manufacturers assess the capabilities of their current 3PL and determine whether that provider can support direct fulfillment to the end consumer. Manufacturers need to start taking more advantage of the value-added services that 3PLs offer, such as breakbulk, repackaging, and light assembly, Santagate said.

"The 3PLs are getting better at recognizing the need to modernize their facilities and technology in order to provide these value-added services," he said. "Now it's time for their customers step up and take full advantage of them."

New partners, new models

To handle direct-to-consumer fulfillment, Santagate says,some manufacturers might also consider working with new partners such as Flexe, a marketplace for on-demand, short-term warehousing space. Another possibility is that manufacturers could work with more traditional partners in less traditional ways. For example, manufacturers that take orders directly from consumers might still have a retailer handle actual fulfillment of those orders.

Whichever route they choose, manufacturing companies will need to redesign their supply chains so they can position smaller amounts of inventory in more local facilities that are closer to the end customer. IDC calls this strategy "micrologistics."

To be sure, not all manufacturers will see the value in selling directly to the consumer or at the point of consumption. For many, it may make more sense to sell only through a retailer or reseller. But the IDC paper stresses that even these companies will need to rework their operations to better serve the end customer rather than designing around their supply chains around their products or their business-to-business customers.

The growth in direct-to-consumer fulfillment is just one of 10 predictions that the IDC report has made for manufacturing supply chains. See the full list of supply chain predictions here.

Susan Lacefield is Executive Editor of CSCMP’s Supply Chain Quarterly.

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