Dusty Dean is a former manufacturing executive and co-founder of BITCADET. He is a member of Forbes Business Council. About Dusty Dean
Every day, there’s a new headline on supply chains problems. No one is spared — from businesses to consumers — from this global issue, with shortages of just about everything from cars to microwave ovens. While Covid-19 continues to threaten the global economy, the fragmented U.S. supply chain is also wreaking havoc. Nearly 30% of executives in a recent McKinsey Global survey actually listed supply-chain disruptions as a top risk.
A recent White House report also stresses the importance of manufacturers getting ahead of their vulnerabilities. This is particularly important with respect to their dependence on Asia to import critical goods such as electronic chips, which has caused major backlogs in the manufacturing of electronic components for cars and appliances. This problem is expected to continue and affect more manufactured goods and raw materials as China is facing an energy crisis, causing manufacturing plants to decrease production at a time when they should be ramping up.
This leaves a wide opening for manufacturers who can fill this gap. Consumers are getting tired of paying higher prices and waiting for months for products that are consistently delayed. At this point, consumers are getting more creative with their search queries, looking for companies that will be able to fulfill their needs.
This is a prime time for American manufacturers to not only reevaluate their production and distribution channels but to focus on building a direct relationship with their customers. Although they could consider selling through retailers, this option would destroy pricing controls and work to reduce margin. This would leave them at the whim of the retailer at a time when over 20% of surveyed consumers say they won’t wait for a retailer to restock before shopping elsewhere.
Given this situation, selling direct for many suppliers can be the answer to survival (and growth). A direct-to-consumer (DTC) business model may not only reduce waste and improve margins and customer relationships, it enables manufacturers to bypass global sources of products and raw materials that are severely impacted by current supply chain and logistics backlogs.
If a manufacturer chooses to seize this opportunity and sell direct, there are six critical questions they should ask themselves. If the answer to most of these questions is yes, then a DTC model would likely work well for their business.
1. Is your product considered premium or higher quality in your competitive market?
2. Do you have either the inventory or the capacity to not stock out during this supply chain crisis?
3. Are you being financially boxed in by your vendors, or do you think your vendors aren’t advocating for the sale of your product?
4. Do you have parts or accessories your customers would be searching for?
5. Does your leadership team have the vision and drive to push this strategy to become reality?
6. Does your company have the human capital to undertake this project completely or to work with an outsourced service provider?
This is a big strategic shift for many companies. Many larger companies did not anticipate the current supply chain problems and are working hard to localize their operations. According to a recent article by Deloitte, as of mid-2020, 75% of companies planned to re-shore operations closer to home or their customers because of supply chain issues. It will take them a while to catch up, leaving an opening for more nimble companies.
The world’s supply chains have a long way to go to rebuild a fractured system. Those companies that are ready to pivot and sell directly can gain competitive advantage because when given the option, many consumers want to buy directly from American manufacturers.
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