Shoppers across Europe are increasingly looking to purchase direct from manufacturers, but without the right fulfillment operations in place this trend could lead to frustration and failure.
In its Manufacturing Pulse 2016 report, JDA, looked at the relationship between consumers and manufacturers in France, Germany, Sweden, and the UK, and found that almost one third of European adults who shop online buy more products directly from a manufacturer now than thy did five years ago.
Over the last 12 months, 42% of European adults had bought goods online directly from a manufacturer. The lowest number of consumers that had gone direct was found in the UK (34%), while the highest was in Sweden, where over half (56%) had shopped directly with a manufacturer.
The JDA report also highlights research from Frost & Sullivan which predicts the online B2B market will grow to $6.7tn by 2020. Frost & Sullivan further predict that e-commerce relationships will shift from ‘one one-to-many, to many-to-many’, illustrating that manufacturers are only at the beginning of this huge growth curve.
While the JDA assessment of the state of the direct-to-consumer market indicates there is a significant market opportunity for manufacturers, manufacturers’ supply chains must be reshaped to be able to handle many more fulfillment locations, increased singles picking for customer orders, while at the same time offering choice and convenience. This echoing of the B2B delivery market transformation – where, for example, a single delivery of 500 pairs of contact lenses to a high street optician, has become 500 deliveries of contact lenses to people’s homes – brings with it the same balance of risks and rewards based around optimising networks on product volumes and the number of delivery destinations.
Being able to process returns without fatally wounding margins will also be an issue. Returns are widely reported as one of the key considerations customers base decisions on when it comes to placing orders. In JDA’s Customer Pulse 2015, 78% of respondents in Germany, 69% in Sweden, and 68% in the UK, said the ease of being able to return items factors into which retailers they shop online with.
Manufacturers will need to take note of findings such as these. As they grow their online channel, it is crucial they ensure their supply chains have the capability to manage costly, resource-heavy returns processing.
From a standing start manufacturer wanting to cultivate sustainable relationships with buying customers is facing high barriers where customer expectations are concerned; from speed or choice of delivery and collection, through to returns, customers are unlikely to settle for second best without a considerable incentive to do so.
Currently, price is clearly the main reason shoppers consider going direct to a manufacturer.
However, JDA found that across Europe shoppers can be easily dissuaded from buying direct if the right delivery and collection options aren’t available.
“The huge boom in omni-channel commerce is now also really starting to impact the manufacturing sector. Consumer goods manufacturers are at a crossroads when it comes to selling directly to consumers. To date, many have dipped their toes into direct selling and in the main have found it an unprofitable exercise. The question now facing the majority of manufacturers, is how do I make my online channel profitable?” said Hans Georg Kaltenbrunner, VP manufacturing industry strategy for EMEA, at JDA.
“We have already seen the retail industry grapple with the same challenges. Today’s manufacturing supply chains must be reshaped to handle more fulfilment locations and increased singles picking for customer orders, while at the same time offering choice and convenience. With the potential costs of fulfilling orders high, manufacturers must protect themselves now against any impact on their bottom line.”
On average, across the UK, Germany, France and Sweden, 68% opted to shop in-store and 53% opted to shop online. Notably, in France the in-store figure was slightly higher than average at almost three quarters (72%), which is thanks to the significant popularity of click-and-drive, which has allowed shoppers to pick up goods from dedicated drive-through pick-up points.
The increasing convergence of physical and digital retail will change how manufacturers prioritise the customer buying experience, creating the need for a digital supply chain that can support omni-channel fulfillment.
This is further borne out by a sense of frustration at stock shortages.