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Creating an Omnichannel Supply Chain for Branded Manufacturers: The Untapped Potential for Growth

February 28, 2017 • INNOVATION, OPERATION, Business Process, Supply Chain

By Michael Hu and Sunil Chopra

In today’s omnichannel world, the distinction between brands and retailers is of little interest to consumers. They will buy from whoever is best able to “deliver the goods.” Branded manufacturers can take advantage of this unprecedented opportunity to get closer to the consumer, if they manage to acquire the requisite fulfillment and supply chain capabilities.

 

The Untapped Potential of Branded Manufacturers

The consumer journey is becoming truly frictionless, thanks to advances in digital commerce technologies and disruptive innovations which continue to push the frontier to enable consumers to buy what they want, how they want it.

Consumers today are spoiled for choice. No matter where they live they have at their fingertips a vast assortment of products, a stunning array of delivery options, and a never-ending parade of novelties, exclusive products, and special offers. The consumer journey is becoming truly frictionless, thanks to advances in digital commerce technologies and disruptive innovations from the likes of Amazon and Alibaba, which continue to push the frontier to enable consumers to buy what they want, how they want it.

What’s more, consumers don’t care who gives them what they’re looking for. Can a retailer deliver the goods? Fine. Is it easier to find and buy what they want from a branded manufacturer? That’s fine too. And, in fact, the lines between retailers and brands are becoming increasingly blurred. Retailers are mimicking branded manufacturers, offering exclusive SKUs and innovative products under their own brand. Amazon, IKEA, and Sainsbury, for example, are investing significantly to expand their private label business. In contraposition, brands are establishing frictionless direct-to-consumer fulfillment options. In many countries across Europe and Asia, online Samsung stores offer products for direct home delivery. Direct-to-consumer is the fastest growing sales channel at L’Oréal and other traditional beauty manufacturers. In the past, retailers tried to discourage – and even thwart – direct sales by branded manufacturers. Today, however, some retailers are actually renting out space where brands can set up a showroom to feature their long-tail SKUs. This tactic, besides allowing retailers to take advantage of surplus space on the sales floor, also enables them to benefit from the brands’ halo effect.

Presently, branded manufacturers’ omnichannel sales – that is, sales fulfilled by the manufacturer, regardless of whether the customer makes the purchase at a third-party retailer, a manufacturer-owned store, or online – typically account for between 5 and 8 percent of total revenue. We believe brands can increase that percentage to between 15 and 25 percent over the next three to five years. Such a shift will not only improve brands’ operating margins, but it will also create greater stickiness with end customers and increase their market power.

Our work helping more than a dozen brands across different sectors such as CPG, Beauty, apparel, and consumer electronics to achieve their full growth omnichannel potential has taught us they must follow a systematic three-step approach to transform their underlying fulfillment capabilities and supply chain:



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