These days, more and more traditional manufacturers are seeking to break from the mold and sell their products directly to consumers. Inspired by significant advances in eCommerce technology, as well as new market realities created by the ongoing pandemic, manufacturers are turning to direct-to-consumer (DTC) models to grow sales and revenue. However, manufacturers have unique needs and requirements that make a pivot to true DTC eCommerce infinitely more nuanced and complex.
Based in Deerfield, Ill., Liberty Technology Advisors (LTA) is a consulting firm that helps manufacturers succeed by improving processes, technology, and performance. Through digital transformation, business process reengineering, and more, LTA brings manufacturers into the 21st century. Codal frequently partners with LTA to deliver innovative technology solutions to enable clients to grow, scale, and offer superior customer experiences.
Both Codal and LTA are extremely familiar with the challenges and opportunities manufacturers face when transitioning to a DTC eCommerce model. Recently, Codal COO Matt Gierut sat down with LTA President Joel Schneider—who founded the company in 1995—to discuss how eCommerce has reshaped manufacturing, best practices for manufacturers looking to adopt eCommerce solutions, and much more. Read their conversation below.
Joel Schneider: “The manufacturing industry has historically been 100% B2B. If I look on my desk here, I’ve got a coffee cup. A manufacturing company would build not one coffee cup, but they would build a box full of them, a case full of them, a pallet full of them, a truck full of them. And they would sell them to another organization that would go through distribution to sell it to end consumers. That end consumer could be another business. For example, it could be a restaurant supply company that wants to buy coffee cups. Or it could be you, Matt, who wants a coffee cup for your house.
But, a manufacturing company would sell to the middle man, that distributor or large business like a restaurant supply company—or a large restaurant chain—who needs to buy 1,000 coffee cups. Well, eCommerce put everything on its head. It literally turned the industry upside down. Because consumers have figured out, ‘Why do I want to go buy that coffee cup at a home goods store because that store is marking it up 50%? Why don’t I go right to the manufacturer?’ Well, the manufacturer said—and this goes back eight years ago—’No, we don’t sell to you, Matt, we sell to the home goods store.’ And the reason they did that is because they had no procedures, they had no systems, they had no way of capturing customer information down to the customer level to process an order for one lousy cup. So eCommerce changed the game because now, eCommerce solutions allow manufacturing companies to sell that cup in 10 different colors and 10 different sizes. And you can sell plates along with it and silverware along with it. So manufacturing companies implemented eCommerce solutions because it made it easy for the consumer to buy products.
So, how does a manufacturer place an order for one cup, process that order for one cup, and then pick, pack, and ship it, and invoice it? Because the ERP system that they were using was meant to process things like a home goods store ordering 10,000 cups that would be shipped to 1,000 stores. So their customer database was just that home goods store. Now, Brad wants a cup, Julie wants a cup, Carmen wants a cup, Matt wants a cup. So now you’re mucking up the system with 10 million customer names that it was never designed to handle.
But eCommerce solutions said, ‘Don’t worry about it, I’ll take care of that whole front-end stuff, the CRM, commerce, payment.’ Manufacturing systems were never set up to do that. So it changed the game. Manufacturing companies have now developed internal processes to take that order, make that product, store that product, pick, pack, ship, and invoice that product in a way that is individualized for the consumer.”
Matt Gierut: “There are a lot of manufacturers that are hiring engineers in-house and individuals are actually building and engineering the product on the digital side. We’re now seeing eCommerce managers, eCommerce directors, and infrastructure managers on the technology side. One of the biggest changes that we see is the personnel that manufacturers are bringing in to their organizations. This is giving some manufacturing companies a challenge. Companies like LTA and Codal are sometimes assisting in bringing on some of those additional people. We help them define who they need to bring in, who should run the eCommerce channel, and how they should run the eCommerce channel.”
JS: “What is the biggest reason why a manufacturing company wants to go direct? To collect data. I now know that Matt bought my mug, who lives in Idaho. I never knew that before, because I shipped all this stuff to a big box store’s distribution center. Now think of all the data. I can now know who Matt is—he filled out a warranty card. I’m going to put him on my email list, my marketing list. I could cross-sell him more items. If you look at the one reason why manufacturers have gone to eCommerce, it’s the collection of data.”
MG: “We’re seeing—if they are able to successfully launch direct-to-consumer—the channels they can expand on, the different products they can expand on, the regional expansion they can bring. We see a lot of customers examining regions and then realizing their product is being sold in regions that they never thought were possible.”
JS: “Too many of our traditional manufacturing clients think that doing eCommerce is easy. They think it’s simple, it’s plug-and-play. I think the one thing that companies like Codal bring to the table is realistic experience and expertise to make sure companies understand what this actually takes. It takes time to plan this out, to set expectations. Matt, you mentioned this. There might be changes in responsibilities that they never had before. If companies don’t appreciate the effort it takes to think about this, to plan it out, to see if it’s the right thing for them, they’re going to pick the wrong company to do it for them and it’s not going to go very well.
We have a client that we advised against doing this. But, they said, ‘No, we have to go business-to-consumer.’ It’s about a $100 million company and, after spending hundreds of thousands of dollars putting in an eCommerce solution, I think they sold maybe $10,000 worth of product.
Companies can’t just rush into this. They need to bring on companies like Codal whose expertise is thinking about the impact of this. The tools that are needed. The impact on the organization. The responsibilities and roles of people that you probably don’t even have in place today. Companies are too excited about, ‘Go, go, go.’ We’re of the opinion of the old saying, ‘Measure twice, cut once.’ Think through it. Let’s think through this so when we execute, it’s successful.”
JS: “The key here is not necessarily the word ‘best practices.’ It’s to identify any new processes that need to be created and existing procedures that need to be adjusted. Too many companies think, ‘Well, Matt is just going to buy a mug from us, what’s the big deal?’ Well no, think about all of the processes that are going to have to change. Whether it’s how to take an order for an individual person, or how to pick it, how to pack it. What’s the box going to look like? Because you’re not going to ship it in the big carton that you ship to a big box retailer. The consumer doesn’t want pallets showing up at their front door—a big truck to drop off one mug. Think about all the processes that need to change. It could be a CRM. It could be ERP. It could be integration. It could be customer service. It could be inventory. It could be procurement. It could be inventory planning. And then you look at CRM and think about customer sales analysis. How many companies forget to take advantage of this?”
MG: “That’s something that when we go to manufacturers, we help them break down their goals. We often have to educate them on what those eCommerce tools can even do.
Education is probably the number one thing throughout the whole process. It doesn’t just happen at the sales standpoint, it doesn’t just happen at discovery. It happens throughout the whole project.
COVID has opened up direct-to-consumer as a new sales avenue, but it is also changing how business is done. We’ve seen outdated systems, archaic systems, manual systems. We’ve talked to sales individuals that were used to interacting in-person. Now, it’s all changed to where a business can connect with your business online—and a lot of these eCommerce platforms are offering that aspect. In some situations, eCommerce platforms are doing that out of the box.
We help businesses work through that process. Sometimes that first gap of those first personnel hires are tough. Manufacturers have never had to think about hiring an eCommerce manager. That’s a different personality, a different team member. A lot of what we’re seeing is the internal work that organizations are having to do on top of all the consumer-facing work. Instead of machinery decisions or software decisions, these companies are having to make decisions on large third-party costs to help, say, connecting inventory, or whatever that may be.”
MG: “The biggest mistake we see is overinvesting upfront. We often jump into an organization where they are evaluating this eCommerce platform, they’re evaluating this ERP, this third-party tool. Or someone from the marketing department—newly hired—brought in this solution, or someone who works with architecture did the same. There are a lot of tools out there, so it’s important to pull back the layers and say ‘How do we get to the right solution?’
In an engagement that we worked on together, you helped guide that path, develop that ecosystem, create a roadmap, look at all available tools. We do it on the tech side, you do it on the business consulting side. We also work on build vs. buy analysis. ‘Is this something that we should build?’ ‘Is this something that we should buy?’ ‘If we integrate Netsuite’s ERP, what is that going to do to our organization’s global ecosystem?’ ‘Or is it a Salesforce ecosystem that we want to join into?’ These are all the business decisions that can affect different departments. I think LTA does a really good job at helping to identify that ecosystem and partnering with strategic partners to get those questions answered. Asking Codal, ‘Hey, what is it going to cost to build this?’ And then pulling up a third party and asking, ‘What is it going to cost to integrate this?’ A lot of people overinvest and get too deep into instead of taking the slow approach to crawl, walk, then run.”
JS: “We educate the client by saying, ‘This is not a project that is only owned by marketing,’ or, ‘ERPs should only be done by one department.’ These solutions touch every department, So our approach is to make sure we get representatives from every department to understand how this whole thing is going to fit together. Because if you don’t get all the departments involved, it’s not going to work well because, by definition, a business process will span departments.
So you can’t have an eCommerce system without talking to IT. It doesn’t happen without talking to marketing. It doesn’t happen without talking to sales. And then most people forget about shipping. If I’m used to shipping a case, and now I have to take one item out of a case and ship it to Bob Smith. It’s not that it’s a foreign idea, they just don’t have the processes to deal with that. They don’t have the paperwork for it. They don’t have the tools to do that. So you have to get the whole company involved and top leadership, top management. This is not an initiative for marketing. You’ve got to get someone to sponsor it at the executive level. Someone at the top level has to say, ‘This is an initiative we’re going to do. It’s going to take the whole team to make this happen.’ Then you formulate a team—a project team, whatever you want to call it—to make it happen. Otherwise, it’s not going to work. It’s going to be an isolated system and it’s never going to achieve the benefits.”
MG: “A lot of companies that reach out to us need to go through that process before they even get to making an evaluation. Especially in a large organization. It gets stuck in a department and that one dept tries to own it. And we really have to work with them to break through and make sure we’re capturing all the requirements to put our best foot forward in the partnership.”
MG: “I think LTA and Codal have good stances on this. You’re platform agnostic, so are we. We don’t have partnerships that we exclusively focus on. We don’t say, ‘Everyone needs to go to Shopify Plus,’ or, ‘Everyone needs to go to Marketo or Salesforce.’ Our best interest is in the business. We want to educate the business on what their best options are. We don’t have a partnership with, say, SAP, so we don’t try to feed SAP to everyone and make SAP fit everywhere. We’re evaluating all kinds of ecosystems and then educating clients on what their options are, which I think you guys do as well quite a bit.”
MG: “COVID-19 has changed the landscape completely. We’re seeing less human interaction. Less overhead is really important during the pandemic. We see a lot of people investing in technology for back-end processes as well. Not only are they looking to go direct-to-consumer, they are looking to optimize their warehouses. They want to optimize their fulfillment, they want to look to third parties to help optimize their customer service and improve customer experience. All of the things that we’re seeing right now with less people in the warehouse or less people in the office—or consumers wanting less and less to pick up the phone. We’re actually working with a lot of our clients who have originally gone direct-to-consumer who are now looking to optimize on their technology in the back end, like inventory management, shipping, customer retention, marketing, or just a better all-around customer experience.”
JS: “What we’ve learned over the past year is that consumer behaviors change quickly and rapidly, but they still expect similar results. People have been stuck at home for 10 months, but they still need to get things accomplished, they still need to buy things, they still need to get things. So consumers use their phone, their tablet, their computer as opposed to going to the store—the distributor—to get things accomplished. We’ve seen consumer behavior change dramatically. Now the question is, is it going to stay that way? In another couple of months when we’re out of lockdown, will we go to retail stores to buy things, or will we still do eCommerce?”
MG: “Likewise on the business application end. We’ve seen an increase in clients developing dashboards and investing in technology to help manage things remotely in the warehouse or in the manufacturing facility. Instead of having a locally-hosted application, they are bringing it into a cloud environment so they can access it remotely. Individuals, executives, and managers may be going into the office less. They need to get that data at home. Business didn’t stop, production didn’t stop. In order to limit individuals within the facilities, they invested in software so that management can oversee things digitally. So it’s not just consumers adjusting, it’s businesses as well.”
Interested in learning how eCommerce technology can transform your manufacturing business? Connect with Codal today.
LTA’s expert advisors can help your business chart a course for true success in manufacturing eCommerce. Contact LTA to learn more.