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

Direct-to-consumer supply chains: Not just for retail anymore

A survey by LCP Consulting and Cranfield University finds that the majority of manufacturers think that shipping directly to the consumer holds growth potential.

A survey of 100 manufacturing directors and department heads in the United Kingdom and around the world has found that the practice of shipping product directly to consumers is gaining considerable traction among manufacturing companies.

According to "Consumer Packaged Goods: How Manufacturers Are Meeting the Challenge of Customer Expectations," the vast majority (87 percent) of the manufacturers surveyed believe that direct-to-consumer (DTC) channels are a relevant strategy for their products and would be welcomed by consumers. The survey, which was jointly created by the consulting firm LCP Consulting and The Centre for Supply Chain Management at Cranfield University, both in the United Kingdom, also found that almost half (48 percent) of respondents are actively building out their direct-to-consumer channels.

The survey results corroborate a report issued earlier this year by IDC Manufacturing Insights, which predicted that a growing number of manufacturers will be looking to develop a DTC sales channel in the next few years.

Those manufacturers that are already developing DTC channels expect revenue from those channels to grow at a 5 percent compound annual growth rate (CAGR) over the next five years, according to the report from LCP Consulting and Cranfield. The research also found that over the same time period, these "DTC Leaders" plan to invest around 1.5 times more revenue into developing the channel than the rest of the respondents.

The report acknowledges that moving to a DTC model will not be straightforward for CPG manufacturers, and that it may not be the right move for every company. Before they start, the report recommends, CPG companies will need to consider such things as:

  • how they will establish a brand presence online
  • what the cost-to-serve will be
  • what their e-commerce platform will be
  • whether they will need to open supporting brick-and-mortar stores
  • what their strategy for distribution and fulfillment will be (particularly for the ever-important last mile)
  • what improvements they will need to make to their demand forecasting and planning processes

Survey respondents indicated that guaranteed delivery, speed of delivery, ease of access, and convenience will all be key success factors for the DTC channel. To these, the report authors add the need to personalize the experience for customers.

Despite the risks and investment required, the report highlights five advantages that manufacturers could realize from bypassing traditional wholesale and retail channels:

1. Better control and clarity around the brand's message
2. Better access and control of the entire customer experience
3. Faster speed-to-market for products without seasonal delays or other retail interruptions
4. Direct access to the customer, which will provide more timely data and insights
5. The ability to allow consumers to choose from the full product range, not just a limited sample.

This focus on developing a DTC channel shows that manufacturers in general are increasingly focused on gaining control of the supply chain through to the consumers, according to Richard Wilding, professor of supply chain management at Cranfield and one of the authors of the report.

"This benefits them by gaining direct understanding about consumer preferences with regards to products and services, thus reducing costs and increasing value for both parties," he said.

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