Can your ERP system overcome these three distribution challenges?
The key to meeting the growing demand for direct-to-consumer (D2C) shipping is efficiency, not speed. As John Weber, Director, Business Development and Product Management at Aptean, explains, distributors need to know that their ERP systems are up to the task.
Imagine this scenario: you shop for a product online, order it and then you wait...and wait. Your product takes just over a week to reach you, and you react with delight when it arrives. It's amazing that you received your item so quickly – and to your door as well. It would've taken your local store a month to wait for its next shipment.
This seems ludicrous today, but it's exactly how D2C shipping used to work – and it wasn't all that long ago, either. It shows just how much things have changed.
Imagine receiving that standard of service today. As the first, then the second day goes by, you'd wonder whether to get in touch to find out what's going on. Has the company forgotten about you? Surely, they should've shipped it by now. You check your emails to see if there's a confirmation. Nothing.
At this point, chances are you'd purchase the same product from a competitor who can get it to you quicker and cancel the original order. The first company loses out because they weren't fast enough, and – more likely than not – they'll be asking questions about their distributor. In direct-to-consumer shipping, speed is everything – and it's all driven by consumer demand. People want their packages sooner than ever, creating some major challenges for distributors.
The days of having a week or more to fill orders are gone. In just three years, the average time from order placement to delivery has dropped by 60%. Additionally, on top of an unprecedented increase in e-commerce volume (roughly seven in ten Millennials prefer to shop online), more than 60% of consumers are willing to pay for the convenience of same-day delivery.
High-speed fulfilment has become the new normal, and that makes life more than a little interesting for distributors – who often have a 24-hour shopping window to meet. Here are the three key reasons why you have to find new ways of working more efficiently:
- Faster processes mean more mistakes
It's not that the process involved (identify shipping requirements, pick items from the warehouse, dispatch items) has changed; it's that it's suddenly become a lot more intense.
For example, a key part of fulfilling an order is making sure the right products go out in the right packages. This is already a labour-intensive process but achieving it for a greater number of orders in less time makes it even more difficult, increasing the potential for mistakes. Get it wrong and you not only negatively impact customer satisfaction, but you also increase the time spent handling items when they're returned to correct an order. This cuts into your profits even before you deal with the potential for costly chargebacks from the retailer.
- Order volume and complexity is increasing
Another challenge that distributors face due to the demand for direct-to-consumer shipping is an increase in order volume. Before, you might have dealt with hundreds of bulk orders direct to the retailer’s distribution center, now you're looking at thousands of small, individual orders shipped direct to the customer.
This high order volume and small pick quantity is a costly way to do business and can quickly become unsustainable if you're not careful. Think about it: instead of picking 50 identical orders, your teams are now running around fulfilling 50 unique orders – each with their own quantities and attributes. You either have to find a way to work more efficiently or you'll lose money. It's that simple.
- Compliance is becoming more difficult
Maintaining compliance is also a growing concern for retail distributors trying to meet the rising demand for high-speed fulfilment. Vendors continue to increase chargeback fines, leaving you exposed - with some retailers even counting these fines as up to 13% of their account revenue.
A common issue you might have to deal with is branding. When working for a major retailer, they expect you to dynamically customize the shipping labels and pack slips for thousands of orders to maintain their branding in the eyes of customers. You're effectively acting on behalf of their brand, and failure to meet their requirements often results in chargebacks for noncompliance – further cutting into your margins.
If you're grappling with these challenges, it’s probably time to take a closer look at your enterprise resource planning (ERP) system and decide if it's capable of meeting the demands of the direct-to-consumer shipping model. If not, you may well need to invest in new technology that can keep pace with consumers and retailers.
Take the labelling process. An advanced ERP can brand and print shipping labels and pack slips within the solution with tracking numbers. No more portal hopping, printing and manually matching the labels and pack slips with their respective orders – it’s all streamlined within the picking process. This is just one example of how an advanced ERP can reduce the complexity of your operations – and the potential for mistakes.
Another thing to think about is how your ERP system integrates with EDI and WMS. Without that integration, you'll have little to no chance of fulfilling a high volume of orders with tight deadlines for distribution. When you have a 24-hour turnaround time to get an order out, you simply can't afford to waste time getting orders from other EDI systems, inputting that data into your ERP, then transferring it to the WMS. Integration between these three processes is vital if you expect to fulfil orders on time, while keeping warehouse costs low and preventing retailer chargebacks.
There's no going back. Consumers will continue to demand high-speed shipping, which means that the requirements retailers impose on their distributors will only get tougher. Retailers won't accept a situation where delivery times increase in line with the number of deliveries going out – they'll still want to offer their customers the same turnaround on a purchase, and that expectation will be passed onto the distributors to fulfil.
Based on this, it can be tempting to try to increase your speed by throwing extra people at the task or hiring temporary workers. However, an inefficient process will still be inefficient – no matter how quickly you operate it or how many people you involve (in fact, it's likely to become worse at scale). Also, you have to protect your margin as much as possible, which isn't exactly compatible with a sudden influx of new hires.
You need a plan. Map out your current business and take a closer look at your existing systems. This means searching for flaws or areas that need too much manual intervention to make them work. Remember to ask yourself whether you have the right ERP solution in place to improve the efficiencies you find, or the right software partner to support you as the D2C shipping trend continues to grow.
Fail to do this and you'll struggle to keep up with rapidly increasing demand. Worst-case scenario, you risk losing retail customers as they look to your competitors for a distributor that can meet their 24-hour shopping needs. Now's the time to act. Do so before it's too late.
NTT DATA Services, Remodelling Supply Chains for Resilience
Joey Dean, the man with the coolest name ever and Managing Director in the healthcare consulting practice for NTT DATA and is focused on delivering workplace transformation and enabling the future workforce for healthcare providers. Dean also leads client innovation programs to enhance service delivery and business outcomes for clients.
The pandemic has shifted priorities and created opportunities to do things differently, and companies are now looking to build more resilient supply chains, none needed more urgently than those within the healthcare system. Dean shares with us how he feels they can get there.
A Multi-Vendor Sourcing Approach
“Healthcare systems cannot afford delays in the supply chain when there are lives at stake. Healthcare procurement teams are looking at multi-vendor sourcing strategies, stockpiling more inventory, and ways to use data and AI to have a predictive view into the future and drive greater efficiency.
“The priority should be to shore up procurement channels and re-evaluate inventory management norms, i.e. stockpiling for assurance. Health systems should take the opportunity to renegotiate with their current vendors and broaden the supplier channel. Through those efforts, work with suppliers that have greater geographic diversity and transparency around manufacturing data, process, and continuity plans,” says Dean.
But here ensues the never-ending battle of domestic vs global supply chains. As I see it, domestic sourcing limits the high-risk exposure related to offshore sourcing— Canada’s issue with importing the vaccine is a good example of that. So, of course, I had to ask, for lifesaving products, is building domestic capabilities an option that is being considered?
“Domestic supply chains are sparse or have a high dependence on overseas centres for parts and raw materials. There are measures being discussed from a legislative perspective to drive more domestic sourcing, and there will need to be a concerted effort by Western countries through a mix of investments and financial incentives,” Dean explains.
Wielding Big Tech for Better Outcomes
So, that’s a long way off. In the meantime, leveraging technology is another way to mitigate the risks that lie within global supply chains while decreasing costs and improving quality. Dean expands on the potential of blockchain and AI in the industry.
“Blockchain is particularly interesting in creating more transparency and visibility across all supply chain activities. Organisations can create a decentralised record of all transactions to track assets from production to delivery or use by end-user. This increased supply chain transparency provides more visibility to both buyers and suppliers to resolve disputes and build more trusting relationships. Another benefit is that the validation of data is more efficient to prioritise time on the delivery of goods and services to reduce cost and improve quality.
“Artificial Intelligence and Machine Learning (AI/ML) is another area where there’s incredible value in processing massive amounts of data to aggregate and normalise the data to produce proactive recommendations on actions to improve the speed and cost-efficiency of the supply chain.”
Evolving Procurement Models
From asking more of suppliers to beefing up stocks, Dean believes procurement models should be remodelled to favour resilience, mitigate risk and ensure the needs of the customer are kept in view.
“The bottom line is that healthcare systems are expecting more from their suppliers. While transactional approaches focused solely on price and transactions have been the norm, collaborative relationships, where the buyer and supplier establish mutual objectives and outcomes, drives a trusting and transparent relationship. Healthcare systems are also looking to multi-vendor strategies to mitigate risk, so it is imperative for suppliers to stand out and embrace evolving procurement models.
“Healthcare systems are looking at partners that can establish domestic centres for supplies to mitigate the risks of having ‘all of their eggs’ in overseas locations. Suppliers should look to perform a strategic evaluation review that includes a distribution network analysis and distribution footprint review to understand cost, service, flexibility, and risks. Included in that strategy should be a “voice of the customer” assessment to understand current pain points and needs of customers.”
“Healthcare supply chain leaders are re-evaluating the Just In Time (JIT) model with supplies delivered on a regular basis. The approach does not require an investment in infrastructure but leaves organisations open to risk of disruption. Having domestic centres and warehousing from suppliers gives healthcare systems the ability to have inventory on hand without having to invest in their own infrastructure. Also, in the spirit of transparency, having predictive views into inventory levels can help enable better decision making from both sides.”
But, again, I had to ask, what about the risks and associated costs that come with higher inventory levels, such as expired product if there isn’t fast enough turnover, tying up cash flow, warehousing and inventory management costs?
“In the current supply chain environment, it is advisable for buyers to carry an in-house inventory on a just-in-time basis, while suppliers take a just-in-case approach, preserving capacity for surges, retaining safety stock, and building rapid replenishment channels for restock. But the risk of expired product is very real. This could be curbed with better data intelligence and improved technology that could forecast surges and predictively automate future supply needs. In this way, ordering would be more data-driven and rationalised to align with anticipated surges. Further adoption of data and intelligence and will be crucial for modernised buying in the new normal.
These are tough tasks, so I asked Dean to speak to some of the challenges. Luckily, he’s a patient guy with a lot to say.
On managing stakeholders and ensuring alignment on priorities and objectives, Dean says, “In order for managing stakeholders to stay aligned on priorities, they’ll need more transparency and collaborative win-win business relationships in which both healthcare systems and medical device manufacturers are equally committed to each other’s success. On the healthcare side, they need to understand where parts and products are manufactured to perform more predictive data and analytics for forecasting and planning efforts. And the manufacturers should offer more data transparency which will result in better planning and forecasting to navigate the ebbs and flows and enable better decision-making by healthcare systems.
Due to the sensitive nature of the information being requested, the effort to increase visibility is typically met with a lot of reluctance and push back. Dean essentially puts the onus back on suppliers to get with the times. “Traditionally, the relationships between buyers and suppliers are transactional, based only on the transaction between the two parties: what is the supplier providing, at what cost, and for what length of time. The relationship begins and ends there. The tide is shifting, and buyers expect more from their suppliers, especially given what the pandemic exposed around the fragility of the supply chain. The suppliers that get ahead of this will not only reap the benefits of improved relationships, but they will be able to take action on insights derived from greater visibility to manage risks more effectively.”
He offers a final tip. “A first step in enabling a supply chain data exchange is to make sure partners and buyers are aware of the conditions throughout the supply chain based on real-time data to enable predictive views into delays and disruptions. With well understand data sets, both parties can respond more effectively and work together when disruptions occur.”
As for where supply chain is heading, Dean says, “Moving forward, we’ll continue to see a shift toward Robotic Process Automation (RPA), Artificial Intelligence (AI), and advanced analytics to optimise the supply chain. The pandemic, as it has done in many other industries, will accelerate the move to digital, with the benefits of improving efficiency, visibility, and error rate. AI can consume enormous amounts of data to drive real-time pattern detection and mitigate risk from global disruptive events.”