Changes toward Online, Direct Market approach
The Covid-19 crisis accelerated the shift towards online shopping, and away from the traditional in-premise shopping all around the world. In this context, Brazil is not an exception.
The online shopping of first necessity goods of medicines, processed food, fresh foods, beverage, and even fashion goods as clothes and shoes, are in considerable rise, and the retail industry is leading the changes in the customer needs fulfilment.
Parallel to this movement, the manufacturing industries are aiming at the Direct Market approach, and D2C (Direct to consumer), B2B2C (Business to Business to Consumer) and D2E (Direct to Employee) sales are deemed in the short-term strategy for the big fast-moving consumer goods (FMCG) industries in Brazil.
As part of this new arrangement, our long time client, a major beverage manufacturer is planning to work with the retail sector to improve the customer experience when purchasing their products.
Here are some considerations for enhancing the on-line purchase, considering directly attending the customer’s needs:
Last-mile delivery challenge
When analysing the opportunities for our client (a manufacturer), we identified some challenges for them to overcome traditional retailers, especially if you consider that the traditional retail chains already have their physical stores and many consumers still have the willingness to go to the store.
On top of that and increasing the challenges for a manufacturer to reach directly its market, there are few last mile delivery strategies that were created to increase efficiency, such as “Buy online and pick-up in stores” and “Ship from store”. Furthermore, the “Micro-fulfillment center” model is also growing for both Traditional and D2C retailers.
Buy online, pickup in store – BOPIS
Buy online, pickup in store (BOPIS) model and other more social distancing-friendly adaptation as the “sidewalk delivery” were vastly adopted during 2020 by retailers to overcome the Covid crisis. An interesting point on the BOPIS model is that it is relatively inexpensive for the traditional retailers, as the last mile delivery cost stays with consumers.
Buy online, ship from store – BOSS
Buy online, ship from store (BOSS) involves a higher level of commitment and higher expenditure from retailers, but it also can have important effects on inventory and on transport optimization.
Retailers can search their network for available stock and simultaneously identify which location has the lowest shipping cost option.
Stores can initially implement BOSS on an ad-hoc basis, by setting a small space for order picking, preparation and packaging. The company can choose to distribute BOSS activity across all their location or only specific ones in a given geographic area. As the demand increases, it can consolidate an area from the sales floor.
For both BOPIS and BOSS models, revenues are usually part of store´s P&L and incentivizes the good performance.
Micro-fulfillment Centers (MFC)
The micro-fulfillment Centers model or the urban DC´s model allow any ecommerce retailer to provide good service, in line with BOPIS and BOSS models, but with the absence of a real shop in the region. It can also be called as “dark shop” or “no-customer shops”, and it can be built to ship to the clients using fast delivery vehicles, such as mini-vans, motorcycles and bicycles.
Technologies for improving the operations within the walls
On the other hand, some strategies can be developed to improve the operations within the walls of manufacturers, improving their performance both at the economic level and at the customer experience level.
To implement such GTM (Go-to-market) models, some handling technologies are being reviewed to enhance the speed and to reduce costs in the Distribution Centers and Fulfillment Centers.
Flexible slotting configurations
Usually the slotting is done at the SKU-level. However, for some ecommerce model it is possible to configure the slot by category level (e.g.; shoes, hats, kitchen appliances, etc). Then, it is recommendable to assign fixed pickers to specific categories so they can develop in-depth familiarity with items and perform in their activity. This method optimizes picking speed per order. Seasonality should also be considered, and products should be slotted for quick access and fulfillment.
Single Unit Orders
As the purchases are more impulse driven, many of the purchases from the Covid-era tend to have small item numbers, and sometimes they have time or temperature restrictions (as is the case with hot foods, cold beverages or frozen products). In such cases, the supply chains should be designed to have “pick to polybag” structures, where the order-to-delivery is minimized and the cost of the single unit delivery is reduced by the routing systems. In the urban areas in great cities, the fast delivery vehicles have a crucial role.
Third-party Logistics Integration
With the instant order accomplishment culture, the third-party logistics (that can be the picking and/or the last mile delivery) gains relevancy. Information about the delivery whereabouts should be uploaded into the order Application, and send immediate information about the order status and location.
Reverse Logistics Integration
Finally, the reverse logistics pathway should be designed thoroughly, so it can reduce costs and increase customer satisfaction. Reverse logistics pick-ups done in a timely and professional matter will guarantee the customer satisfaction in this order and the preference in the next one.
In several FMCG industries (beverage, snacks, industrialized foods), the market trend is to strengthen the direct approach to the end clients, through D2C (Direct to consumer), B2B2C (Business to Business to Consumer) and D2E (Direct to Employee) sales. This is driven not only for widening the market share but for shortening the distance between the manufacturers and the final consumers. The industries can gain precious consumer´s preferences information and market trends sensibility.
The technological and processual changes are being studied, and several pilot models are being implemented.
Therefore, industries aiming at succeeding in the fierce competition with traditional channels and well-developed retail, should focus not only in the tech and process side, but specially in the customer experience aspect, offering some new experiences that the consumers are still “dreaming” on. Personalized consumer products, like personalized bottles and packaging, chocolates with photos for special occasion, special diet products or celebration date products are at the sight of manufacturers (not retailers) and will arise from those consumer´s preferences information. Those new experiences will only be possible when manufacturers start knowing better their end consumers.
About the authors
Peter Shimizu is BSc in Electrical Engineering. Senior Engagement Manager at ALG. pshimizu@alg-global.com
Guilherme Esmanhoto is BSc in Civil Engineering and MBB. Partner at ALG. gesmanhoto@alg-global.com
For more insights, please check www.alg-global.com