Lockdowns following the COVID-19 pandemic have disrupted supply chains and logistics operations across the world and left industries rushing for last-minute supplies. As we adapt to the “new normal”, the need for a strong and resilient supply chain is clearer than ever. And while there are many studies on how to build a robust supply chain for conventional businesses, a D2C supply chain is very different for two reasons:
- A D2C business typically stocks products in a central location or a few satellite locations (rather than a network of distributors in a conventional business).
- The D2C business ships products directly to consumers in small packages. Thus, shipping and handling is an important part (and cost head) of the supply chain.
Therefore, a D2C business not only needs a resilient supply chain, it also needs to optimize for speed and cost, from the start. To do this, it is imperative to think of a four-level D2C supply chain.
A D2C company (whether manufacturing the product or sourcing from a supplier) needs to optimize shipping costs to the company’s warehouse. In an offline business, goods are shipped in bulk to distributors from factories and then transported locally to retailers. But for a D2C brand, goods travel from the factory to a parent hub and then move to a satellite warehouse or ship directly to customers. Thus, a gross margin of 60% or more is necessary for the business to be profitable and reducing supply costs will go a long way towards achieving this goal.
Having local suppliers (or in nearby areas) is ideal. This may be a tough ask for a newly created company, but in the long run it will make the supply chain modular and agile. Furthermore, it will not only reduce the cost of supply, but also the company’s carbon footprint, which is particularly relevant for D2C brands that cater to an increasingly environmentally conscious customer.
Warehousing and Fulfillment
An effective D2c warehouse should be all about speed. The physical structure, the shelving and storage of SKUs, the quality control process – everything should be designed to minimize the time spent on picking and packing. Between the time a customer places an order and the time it is handed over to the last mile partner, the gap should be less than 12 hours.
A D2C warehouse must also consider return-to-origin (RTO) orders. In India, about 15-20% of orders are returned by the customer for various reasons. There should be an efficient process in place to deal with RTOs where they are checked and returned to storage as soon as possible.
The last five years have also seen the emergence of distributed warehouse systems. Companies such as Pickrr, Shiprocket and WareIQ operate as aggregators and provide their customers with regional warehousing facilities which reduce the delivery time to the consumer. Faster delivery times not only improve conversion across all categories, but also reduce the risk of the customer rejecting the order.
Last mile delivery
For last mile delivery, a D2C brand may choose to work with companies that specialize in e-commerce delivery such as Blue Dart, Delhivery, Ecom Express, etc. But for a young start-up, it may be more convenient to go with an aggregator as they offer multiple benefits.
Newer brands may find it difficult to negotiate great rates directly with delivery partners, but with aggregators they may, as they ship for multiple brands, offer better rates. They also offer order management and tracking pages which can be used by a D2C business as a plug and play. This will help the brand avoid the technology investment needed to build something from scratch, especially when the business is just getting started. Aggregators also offer RTO prediction tools that use data from multiple brands across all categories and PINs to build robust prediction models.
Sell on marketplaces
Marketplaces like Amazon and Flipkart handle all aspects of warehousing, fulfillment, and last-mile delivery. However, a D2C brand must ensure that the product is marked and packaged correctly and has sufficient shelf life. Storing inventory in multiple warehouses in these markets requires GST registration in multiple states. But a little extra paperwork at the start can give the business greater long-term value.
For a D2C business, having an efficient supply chain is essential. It should be configured in a way that reduces the delivery time which, in turn, boosts conversion and reduces the cost of customer acquisition. On the other hand, warehousing and fulfillment can represent up to 12-15% of total turnover. So, when setting up a D2C supply chain, the main areas of focus should be minimizing cost and maximizing speed.
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