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"It's becoming increasingly clear that the most successful brands we see are learning how to turn their supply chain from more of an afterthought and cost center into a competitive advantage that they use to grow both top and bottom-line sales." — Dana Peirson, Supply Chain Consultant, The Partnering Group
Building an optimized ecommerce supply chain isn’t only critical for getting goods into consumers’ hands faster; it’s also become an important way brands can drive profitability.
The pandemic taught brands they need to build a more nimble and resilient supply chain, but realizing this vision will take time, resources, and the right strategies.
Jamie Dooley, a partner in the digital commerce practice at The Partnering Group (TPG), a firm that provides research, insights, and best practices to the retail and consumer products industry, and Dana Peirson, a supply chain consultant at TPG, joined a recent episode of the "Unpacking the Digital Shelf" podcast to discuss how brands can modernize their supply chain operations.
During the episode, "Opportunistic Innovation in the Supply Chain for Profitable Growth," Peirson and Dooley share six best practices brands can implement to drive profitability and separate themselves from competitors. Here are their insights.
Peirson says creating a multi-functional team that brings together supply chain, ecommerce, and operations teams to participate in business discussions and innovation planning is one of the first and most important steps to drive supply chain innovation.
"If you give your supply chain representative a seat at the table in everything from strategy and master plan discussions to execution plans, it really helps bring profitability at the start," she says. "It helps you expedite speed to market. It just has so many benefits."
This team also should have access to a range of cross-functional data to support their decision-making.
One consumer packaged goods (CPG) company has employed this approach and boosted its revenue as a result. The company launched a direct-to-consumer (DTC) channel, but struggled with various parts of the execution, including timely shipping and profitability.
The company’s leadership considered shutting down the channel but first decided to bring a small, cross-functional team together to address the problem. The sales, marketing, research and development (R&D), and supply chain teams all worked together to come up with a solution, aligning on success metrics and holding frequent in-person meetings over the course of a week.
As a result, the new execution saw an almost 90% reduction in time from order to mailbox and more than a 500% increase in users. Most of these users turned into repeat customers.
"If you understand where other functions are coming from, what their metrics and goals are, it really helps you work more successfully together," Peirson says.
Brands also need to digitally optimize their supply chain processes. Artificial intelligence (AI) can help them build a more agile and resilient ecommerce supply chain.
The technology can help them pinpoint vulnerabilities in their supply chain, especially among their top-tier suppliers. It can help them digitize every touchpoint and process and gather higher-quality data across their end-to-end supply chain, which ultimately allows them to react faster and navigate disruption more effectively.
"I can't tell you how many times I see clients, companies, and brands that take advantage — if they have these agile supply chains — when their competitors are out of stock," Peirson says. "Especially in the digital age, you just go to the next available one [supplier] a lot of times. They're really able to take advantage of that and grow disproportionately."
One weak link in your ecommerce supply chain can have a negative domino effect on all the others, so it’s crucial for brands to ensure every part of their supply chain functions in unison.
"Making sure your suppliers, your shipments, your production all move at the same pace is very critical from an agility standpoint," Peirson says.
She adds that for brands the focus shouldn’t just be on improving their supply chain, but also redesigning it.
TPG recently worked with one brand manufacturer to accomplish this. The company made a $75,000 investment in its plant to reduce its changeover times from four to eight hours to a mere 45 minutes, which increased its production capacity by 30%. The company accomplished this turnaround in just 28 days.
"A lot of that is just changing your mindset that you can't make small improvements. You have to start at what is your lighthouse vision. Where do you need to go? And then, how do I get there? Take off one bite at a time." — Dana Peirson, Supply Chain Consultant, The Partnering Group
Dooley says improving data sharing is one simple lever brands can pull to accelerate supply chain modernization. However, only 1% of brands TPG currently works with effectively share data cross-functionally with their supply chain partners, he says.
This is another area where AI can make a difference. TPG has worked with several clients to implement AI-driven solutions to improve planogramming decisions and category management.
"Category management is making recommendations for planograms in stores, which have now become the shelves from which ecommerce sales are fulfilled for 90% of their omnichannel sales through curbside pickup and click-and-collect," Dooley says. "There's very little sharing of sales data to inform how the planogram should probably be rethought for that fulfillment, or even just from a forecasting standpoint, understanding how much do we need on the shelves to support omnichannel."
Dooley adds that sharing information about dimensional weight and cutoffs for what will be more profitable for ecommerce-specific packaging for home delivery is just one example of how brands can use data to transform their ecommerce supply chain into a profitability engine rather than a pure cost center.
By bringing teams together and using data to drive these conversations, brands make better-informed decisions that make both the physical and digital shelf more profitable.
Brands that have built stronger supply chains also focus on their packaging design strategy, leveraging it to drive down costs, delight customers, and share their message.
Peirson says these brands often carefully consider everything from the unboxing experience to sustainability and personalization.
"All of those things, if you get clear on what that strategy looks like and share it with your supply chain team, they can really help you create the package and supply chain that you need at a very affordable cost," she says.
Dooley says it’s critical also to think about packaging from an ecommerce perspective, especially with different price pack architectures.
Most brands only think about bundling from the standpoint of putting a multi-pack of two to four of the same items together.
"[However], the really sophisticated, progressive brands are thinking about kits or variety packs where it's multiple related items together," he says.
Proactively thinking through the ecommerce aspect of assortment planning and bundling, and working with ecommerce supply chain partners to optimize packaging, can better position brands to drive incremental sales without significantly increasing their costs or slowing their time to market.
Dropshipping has become a hot topic in commerce, but it can be costly and time-consuming to implement.
Dooley says though this is true, with the right strategy, brands can streamline the process. One approach is to focus on 1P dropshipping, where if an item goes out of stock on a retailer's site, it automatically defaults the order to go to a brand’s distribution center, so the brand can automatically drop ship the product.
"What a lot of brands don't know is that the retailer still pays for the dropshipping, so that is not a significant cost," Dooley says. "1P dropship is a more and more prevalent request that retailers are asking their brands for when they don't have as much capacity to carry as many items in their DC [distribution center]. So, it becomes a way for a brand to extend their aisle."
Brands also can use online marketplaces and 3P (third-party fulfillment) or retail fulfillment services like Amazon FBA, Shopify Fulfillment Network, or Walmart Fulfillment Services to quickly stand up dropshipping programs.
Embracing these capabilities could help brands boost their profitability, both in the short- and long-term.
From forming cross-functional teams to leveraging AI and building their dropshipping capabilities, brands can explore several strategies to create more nimble and profitable ecommerce supply chains.
Profitability and bottom-line growth are taking up larger portions of earning calls. Creating optimal supply chain strategies has become a top priority for many companies, so brands that want to win on both the digital and physical shelves need to make supply chain optimization a critical part of their strategic plans.
"It's becoming increasingly clear that the most successful brands we see are learning how to turn their supply chain from more of an afterthought and cost center into a competitive advantage that they use to grow both top and bottom-line sales," Peirson says.
To hear more of Peirson’s and Dooley’s insights on supply chain optimization, listen to the full episode.
