4 Misconceptions Manufacturers Have About Digitization

Here are the top four most common misconceptions—and why they don’t hold true.

Mnet 209915 Digitalization
Michiel SchipperusMichiel Schipperus

The manufacturing industry has long been one that is content with a satisfactory status quo. There is a defined way of operating within the supply chain that has performed well enough, for the time being, leading many manufacturers to deem digitization unnecessary.

With product lifecycles getting shorter and competition tightening among industries (even among players within the supply chain), manufacturers can’t leave well enough alone for much longer. Nonetheless, many are choosing complacency over improvement, in part due to a handful of widespread myths about what it means to embrace digitization, how manufacturers can benefit, and whether the cost-benefit scales tip in manufacturers’ favor.

Here are the top four most common misconceptions—and why they don’t hold true.

No. 1 - Our Current Way of Working is Fine As-Is

Manufacturers, along with distributors, wholesalers, and retailers, have struck a seemingly perfect balance. Each partner carries their share of the production, distribution and sales operation, and in turn, gets a share of the profits.

The landscape of B2B buying, however, is changing. Customers want more self-service options, more competitively priced products, and a shorter timeframe from purchase to delivery. By shorter, they don’t mean marginally faster; they have expectations molded by “The Amazon Effect” and they want their merchandise as close to instantly as is possible.

Today, before a B2B buyer ever contacts a potential supplier, they’ve already completed as much as 70 percent of the buying process (beginning with online research). This means that your internal team is largely getting cut out of the equation, and you have to find new ways to cater to customer needs during the first three-quarters of the buyer journey. The obvious answer is e-commerce.

No. 2 - E-Commerce is An Unnecessary Risk (and Cost)

With e-commerce, you can put your business back in the forefront of your customers’ minds. Regardless of this potential, however, many manufacturers remain unconvinced. Unsure that e-commerce can be much more than an extraneous part of their business strategy, a large number of manufacturers argue that the cost of implementing and maintaining an e-commerce experience is too high. They also argue that this cost may not be justified. What benefit can they be guaranteed from launching a web store?

The successes of manufacturers who do have a web store can speak for themselves.

As a result of direct-to-consumer (D2C) e-commerce sales, 82 percent of manufacturers selling directly to consumers improved their customer relationships, and 76 percent improved customer experience.

Last year, more than one-third of B2B consumers bought directly from a brand manufacturer’s website, specifically due to more convenience, better product quality and faster, more reliable shipping.

What this tells us is that there is a gap to fill. E-commerce can not only make you money, but it can make you the go-to choice for customers who are dissatisfied with retailers’ and resellers’ e-commerce experience. That is an invaluable advantage.

By selling online as a manufacturer, you’re satisfying the growing number of customers who already want a way to bypass third-parties and resellers, and you’re giving your buyers a way to engage with and interact with your brand on-demand at any time.

No. 3 - Direct-to-Consumer (D2C) Sales Will Hurt Our Channel Partner Relationships

When it comes to the distribution of profits within the supply chain, the reality is that for the most part, distributors make a significant share of the overall revenue. With third-party retailers also marking up the price of goods, it’s clear that the supply chain has started to become a unit of businesses looking out for their individual best interests. Unfortunately, it also means manufacturers are getting the short end of the stick from the start, and then not making any more profit from the products they’re creating, even when there’s more end-revenue up for grabs.

There is a way to keep the supply chain harmonious, profitable, and efficient, and it starts with getting D2C sales right. Luckily, some manufacturers have already gotten started (and are already reaping the benefits). This doesn’t mean, however, that channel partners can’t win, too.

Within the supply chain, distributors, manufacturers, and retailers have to work together, profit individually, and offer a strong product and experience for the end-consumer. Fortunately, there are many ways they can do so, and they’ve already begun to strike this balance.

Almost half of manufacturers feel that a D2C model has boosted the flow of incoming leads for their channel partners and has resulted in a growth in sales. The key to success is to understand the most efficient use case for each channel partner. Boost efficiency and profitability by shifting order fulfillment for larger orders through to distributors and retailers. Let manufacturers fulfill orders for lower-volume inventory items or test the success of new products before passing them along to retailers. Understand where your players’ strengths are and act accordingly for the best outcome.

No. 4 - Emerging Technologies, Like the IoT and M2M Innovation, Are A Better Fit for B2C

It’s true that B2C brands, especially retailers, are typically the first to ride the digital innovation train. They’re often the pioneers for implementing emerging and unperfected technology into the core of their sales strategies in hopes of capitalizing on the bulk of early-stage profits. This doesn’t mean, however, that manufacturers don’t have a strong use case—and perhaps even a better use case—to do the same.

The Internet of Things, 3D printing, cloud-based technology and artificial intelligence (AI) can help with supply chain visibility, with the elimination of organizational siloes, with forecasting for product production schedules, and with automating processes (especially in warehouse management).

Intelligent technology fosters intelligent, informed, and purposeful business. Use these blossoming technologies to create a digital ecosystem of real-time and predictive data. Then, use that ecosystem to inform the streamlining of current processes and shape future approaches to product development and distribution.

Like most businesses dabbling in a trial-and-error approach to a strategy that’s not a surefire quick win, it’s possible that many manufacturers embracing emerging technologies won’t succeed immediately. Nonetheless, taking the first step to digitization is critical to setting the foundation for a future-facing approach to manufacturing. Getting a head start on being even a single beat ahead of the competition, in such a tight race, can make all the difference—and it all starts with the right investment (financial or otherwise) in digital.

Michiel Schipperus is CEO of Sana Commerce.

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