How Direct-to-Consumer Brands and Retailers Can Fix These 4 Costly Inefficiencies
Direct-to-consumer (DTC) brands and legacy retailers are looking to increase profitability, and they can do so by improving operational processes and reducing inefficiencies. Focusing on profitability should, in theory, always be the case, but it is especially true today as economic headwinds have retail executives focused on operational cost-savings more than growth.
DTC brands are pursuing partnerships with national retailers to establish physical outposts to complement their digital presence and are also going into wholesale. These endeavors give them an opportunity to achieve greater ROI via operational excellence across their new channels right away instead of kicking the can down the road. This seems imperative, as industry observers are predicting many DTC brands won’t make it through 2023’s headwinds.
Whether they were launched as DTC players or traditional retailers, the principles for efficiency are the same. Here are four costly inefficiencies that they can correct with process excellence.
Supply Chain Bottlenecks
Retailers often face challenges in managing their supply chain, such as delayed deliveries, inaccurate orders, and poor supplier communication. These inefficiencies can lead to lost sales, higher costs, and dissatisfied customers. Process excellence can help retailers identify bottlenecks and inefficiencies in their supply chain by analyzing in real time the data from different systems, such as enterprise resource planning (ERP), warehouse management system (WMS), and transportation management system (TMS).
This allows for on-demand visualization of the flow of goods and information, letting retailers understand the root causes of delays, errors, and waste in their processes. Then they can take restorative actions to improve efficiency, reduce costs and find value opportunities in their supply chain. It’s why a notable retail brand such as IKEA has made finding and fixing costly inefficiencies mission-critical for more than the last half-decade across operations, resulting in increased customer satisfaction, improved sustainability, and more streamlined operations. DTC brands such as Resolve, which reportedly gets 80 percent of its sales from distributing third-party brands and has a complex e-commerce operation, should take note.
Demand Forecasting Errors
Merchants need to forecast demand accurately and optimize inventory levels. Inaccurate forecasting can lead to excess inventory or stockouts, which can be costly. Further, retail players need to identify other issues, such as delays in data collection or manual data entry errors, to improve the accuracy and timeliness of their forecasts. Additionally, process excellence can help retailers analyze historical sales data to identify patterns and trends in demand, allowing for more informed decisions about what to keep in stock for their customers.
Process excellence can also help identify where there are issues within the forecasting process based on actuals and provide recommendations as to how to operate more effectively in the future. And it can drive cross-department collaborations—between sales and marketing, for instance—to gather and widely share new, accurate insights. This gets the whole business singing from the same data songbook.
Accounts Payable and Receivable Missteps
Many DTC, retail and CPG brands have finance offices that still rely on AP/AR processes that can be time-consuming, inaccurate, and costly. Data-driven process excellence can cure those ills.
More efficient AP processes enables retailers to pay their most valued wholesalers and distributors promptly, strengthening vendor relationships and encouraging a priority status that can be critical when the supply chain is strained. Process excellence will also save DTC brands and retailers cash by identifying and eliminating duplicate payments. For AR, greater process efficiency can bolster rapid cash flow, enable better risk management and reduce non-payments.
Retail CFOs have an incredibly valuable opportunity to drive permanent cost reduction and greater liquidity, ensuring they are set up for long-term success.
Customers want to see sustainability from retailers; this industry has taken note. Process excellence can make a huge impact on this area.
For instance, it can help retailers track their carbon footprint by analyzing data on energy usage, transportation, and emissions in their logistics. Retailers can use the data to identify areas and set targets for reducing their carbon footprint. And DTC brands and merchants that make branded items can use process excellence to optimize their product design and reduce waste.
In conclusion, the more DTC brands and retailers improve operations for supply chain, demand forecasting, AP/AR and sustainability, the more profitable they become. In this economic environment, process excellence is more than worth the effort—it’s a crucial business practice.
Lindsey Peters is the retail and consumer goods industry lead at Celonis, process mining and execution management software.