Direct ship — where suppliers deliver direct to consumers — makes sense for all concerned, keeping retailers’ costs down while allowing a broad offer. But such practices must not be at the expense of good service. Alison Clements reports
Buying a mountain bike from boots.com or a fridge-freezer from Tesco Direct would have seemed peculiar 10 years ago. Today, it barely raises an eyebrow.
With familiar retail names, customers feel confident that the best products and prices have been sourced, and that their order is in safe hands. For the likes of Tesco, Boots, Marks & Spencer, Sainsbury’s and Asda the race is on to accumulate a vast product range to sell online, and cash in on this goldmine of brand loyalty as the nation’s passion for online shopping intensifies.
So it’s perhaps not surprising that direct ship is rapidly gaining popularity for multichannel retailers.
Also known as drop ship and supplier home delivery, direct ship involves suppliers delivering directly to customers, enabling retailers to greatly expand their product offer without investing in large amounts of stock up-front.
As one retail supply chain director remarks: “Manufacturers hold the stock, which takes a couple of legs out of the supply chain, cuts out the warehousing costs and reduces the risk of being lumbered with large amounts of expensive products that you can’t sell.”
Many retailers have gone down this route, and it was for decades the old mail order process, particularly for bulky furniture and white goods or high value goods such as cameras.
But as Unipart Consumer Logistics head of e-fulfillment Mark Mearns says: “With the explosion of e-commerce the difference now is who is using direct ship and the way they are selling.” It has become an attractive model for pure-play e-tailers, large multichannel retailers and small businesses selling through eBay. And they’re all using it to grow quickly, rather than simply fulfill orders on ‘nuisance products’.
This also provides an efficient way for suppliers to get their wares in front of consumers without needing to put up the infrastructure of a web operation themselves. “For them it’s like having a concession in Debenhams,” says Mearns. “You can put your stock in with one or several online retailers and you will give those facilitators a cut of your profit margin.”
Metapack chief executive Patrick Wall predicts direct ship will have a significant impact on online shopping in the coming years.
“This is a hot topic just now. Retailers are bound to be interested because not only does it extend their offer, it also reduces their working capital,” he says.
“We all talk about people being promiscuous online, but most web shoppers are actually quite loyal. They will stick to four or five favourite sites. If retailers can extend their range and use the loyalty of that captive audience to grow sales, without needing to invest heavily in stock and storage themselves, it’s a great growth strategy.”
Matthew Henson, European retail industry director for e-commerce solutions provider Wesupply also understands the attraction of direct ship.
“With people like Tesco selling everything from flowers to bathroom suites to diamond rings, the supply chains of several different product departments need to be kept separate to gain efficiencies of scale,” he says.
“Tesco will seek the most cost-effective way to grow into new areas of business so it makes sense for them to team with a specialist supplier, of say, washing machines, and hand over the direct fulfilment of orders.”
Pitfalls of direct ship
There are pitfalls though. One is losing control of delivery costs. When operating direct ship, the retailer will pay one price that covers both the cost of the product and the cost of delivery, but they won’t have control of how the delivery is being handled. Mearns says: “It could be that cost savings in packaging and carrier costs could be made, but the retailer won’t have a say in doing so, and therefore could miss out on margin.”
Customer service is also a concern. Scott Weavers-Wright, managing director of baby products retailer Kiddicare.com, says direct delivery from suppliers is only used for a few large wooden items such as furniture and nursing chairs.
“The other 3,500 skus are kept in stock and shipped by us because I want to keep control over the shipping,” he explains. “We offer our customers the ability to rearrange their delivery by text message and we cannot offer this service for items shipped directly by manufacturers. We also state all items ordered before midday are shipped for next day delivery, and again our suppliers cannot do this.”
Lombok managing director William Lansdale has similar reservations. “Because we import our stock in containers we have bulk orders and long lead-times, and we really need to check stock for damage in our own space before it goes out to customers. The complications and cost of trying to get a table from Indonesia straight to Mrs Jones in Kingston rule out direct ship for us,” he says.
UK-manufactured sofas are delivered direct from the factory to Lombok customers, but this only works because Lombok is in close contact with one trusted supplier, and customers understand that the lead time to delivery depends on the made-to-order manufacturing process.
For successful, large-scale direct shipping to work, there needs to be real-time integration of the retailer’s order-taking system with the supplier’s systems. Without it the delivery process risks being too slow to meet customer expectations, says Henson at Wesupply. “If orders are being consolidated onto a spreadsheet and fed through to suppliers at the end of the day, you’re not going to be able to commit to next day delivery,” he says.
Furthermore, tracking of orders, now an accepted part of the home delivery process, may not be possible if systems aren’t integrated. For many items, proof of delivery is required for security reasons, and if parcels are held up on their journey to a customer’s home, there needs to be instant visibility of where it is in the network.
Wall at Metapack says: “With direct ship orders can go into a black hole in terms of information.” He suggests that order management systems such as those supplied by Kewill, Sterling Commerce and Manhattan Warehouse Management Systems, would start to overcome the visibility issue. “With these systems in place any supplier can log into the host retailer, print the retailer’s branded labels and adhere to the customer service requirements of that retailer, but only if the systems are properly integrated,” he says.
Wesupply provides an online platform that enables the live exchange of information between the retailer and the supplier, which also links into carriers’ systems to give real-time updates on delivery scheduling.
Henson says: “Retailers have robust order management systems and some third party logistics providers have incredible IT capabilities at their end, but not all suppliers will have the ability to link through to these,” says Henson. “Wesupply has been able to act as the glue in the middle so that the process can be properly managed, end-to-end.”
Integration with carriers can then speed up delivery times and overcome home delivery complications.
At the SME level, suppliers are cropping up which have sophisticated IT in place, trading specifically to fulfil the direct ship requirements of online entrepreneurs selling through eBay and similar online marketplaces.
For instance Direct2U Footwear, which started trading from a Wolverhampton warehouse in 2007, enables web businesses to download a pack of products to sell – fashion shoes and boots – with all the product information and delivery details, so that they can be sold online or added to a catalogue.
“Once a customer’s details are inputted online and they have confirmed an order, our system picks it up and we send out the shoes with our return address on the packaging,” explains Direct2 U Footwear employee Simon Patterson. He says tracking codes for parcels going through Royal Mail or Interlink can be provided to the retailer, who then takes responsibility for customer care.
“We ship worldwide and use about six different carriers who can all provide tracking,” continues Patterson. “At least 90 per cent of our business is for eBay selling. With something like footwear it‘s very difficult to manage inventory because there are so many size, colour and style variations. Because we have the space for all that stock and the expertise, it makes sense for small players to use us to deliver direct.”
As consumers demand more choice, ease and speed when shopping, and everyone from the retail giants to small-fry online sellers rush to grab a piece of the e-com action, so the supply chain is adapting. Direct ship isn’t for everyone, but when cash flow and sales growth are so vital just to survive, few would rule it out.
Why Ebay sellers love direct ship
A woman’s handbag sells every three seconds on eBay. No wonder so many people are becoming niche retailers overnight. eBay estimates that 178,000 users run a business or use eBay as their primary or secondary source of income (eBay.co.uk data, January 2008). And the fact that eBay now facilitates around 50 per cent of sales at set prices rather than through auctions suggests consumers are shopping here just as they would any other online store.
“In the last six months we have knocked down the barriers for doing business on eBay,” says a spokesman. “Anybody can sell at a set price and the cost for having multiple listings has been reduced right down to literally pennies. We’re becoming a serious market place, and sellers that offer the best prices and reliable delivery are doing incredibly well, particularly since the credit meltdown.”
The traffic is unprecedented - eBay.co.uk’s unique audience reached over 16 million in November 2008 (Nielsen/Netratings, November 2008), but success is based on your price and the service you provide. So while direct ship helps a business to grow quickly and without vast investment, not controlling delivery yourself is a risk.
“Users give reviews of the delivery service they get, and that’s what drives people to use certain sellers repeatedly,” says the spokesman. “You need to be very confident in your supplier and the delivery network they’re using, or you’ll fail.”