How Manufacturers Are Using eCommerce to Reduce Distribution Layers and Improve Margins?

Decades have passed following the traditional chain to reach users for anything. Manufacturer, then wholesaler, distributor, then retailers, and after all this, the product finally lands in the customer’s hands. When you look at it this way, you realize that such a long chain not only increases the marketing retail price (MRP) and leaves just ⅕ of the margin, but may also cause product damage and shipment issues. These are only the surface-level issues that are visible. Supply chain mismanagement is a distribution layer issue that causes deeper challenges.

However, this kind of hassle is upending the next-gen marketplace, a manufacturer-to-customer model. Also known as Direct-to-Customer (D2C), this approach is commonly referred to as eCommerce. But you might be wondering why manufacturers are finding this model worth the investment, especially after being positioned at the bottom of the traditional supply chain. The reason behind it stems from the challenges mentioned above.

These manufacturers understood the value of their product and the revenue being lost at different levels of the traditional supply chain. Rather than using multiple distribution layers, selling directly to customers opens up profit margins and allows them to build their own brand identities. To support this shift, many decision makers opted for eCommerce website development, while others have adopted a hybrid model that combines traditional and direct-to-customer revenue streams. That said, we understand that entrepreneurs like you need guidance and benefit-focused breakdown to make informed decisions about modernization.

Why D2C Shift is Different From Traditional Distribution Model

For a better understanding of eCommerce for manufacturing businesses, we built this table indicating the drastic model change that directly affects the distribution layers and increases margins. Not only that, manufacturers can save money by receiving direct feedback and modifying the product more efficiently compared to the traditional format. Considering that, take a look at this table:

Benefits of eCommerce for Manufacturing Differences

While we have already stated the benefits of eCommerce web solutions for manufacturers, it is essential for an entrepreneur to understand them clearly. The following are the advantages that businesses reported once they choose eCommerce web development for building a direct online presence or decided to go hybrid.

1. Better Profit Margins

Since every distribution layer aims to benefit from the manufactured product, the MRP can only leave a small share for the manufacturer. As we mentioned above, manufacturers in the traditional model were receiving just ⅕ of the MRP, which in itself reflects a significant loss. However, when they switched to the D2C model and created an online presence to directly target the customers, their margins increased, even while offering discounts to customers.

2. New Customer Relationships

Going systematically, once the website is live, it means that you are building a relationship with customers who are bypassing retailers for their shopping needs. By maintaining a hybrid model, you benefit from both the traditional distribution-level revenue and the new income generated from a direct customer base.

3. Operational Efficacy

Once customers begin placing orders, eCommerce solutions and web setup increase operational efficacy. For instance, it has been reported that product damage rates are reduced, shipment and inventory statistics are updated with the manufacturer, and product-based changes can be made at an early stage.

Real-World Success Stories Indicating Margin Improvement and Distribution Layer Reduction

Talking about such a transition without mentioning success stories would fail to demonstrate the real-world change. Since case studies are essential to contemplate the value of eCommerce web development services, here we bring forth the ones that are being discussed in the context of their augmentation.

1. Red Wing Shoes

2. Dr. Squatch

3. MUSH Foods

These manufacturing firms are the initial transitioners who took eCommerce web development assistance and modified their business model. While some went distributor-less, others doubled their margins.

Common eCommerce Transition Challenges and How to Overcome Them

As we move forward, we understand that restructuring is not always straightforward and often comes with challenges. However, these challenges can be addressed through proper research and development. Among the many, here we present the most common ones based on the industry's nature. While the challenges are common, the solutions are easier to track and can help begin modernizing the entire process of eCommerce web development.

What are the eCommerce-Focused Strategies to Transition From the Manufacturing Model?

Once businesses overcome the major challenges, it becomes imperative to skim through strategies that are proven to be worth the investment at the beginning of the transition. Just as Rome wasn’t built in a day, the same applies here. Every business takes time, an eCommerce web development service provider, a marketing team, full-proof project planning, and an understanding of user data. With time, these elements come together and are reflected in the outcomes of the transformation.

1. Build a User-Focused Website

In the priority plan, a storefront is the most imperative aspect of the journey. That being said, you always need a frontline to connect with customers and showcase the products in your inventory. This frontline can often be a traditional brick-and-mortar store or an online presence built with eCommerce web development services.

2. Initiate With a Hybrid Model

Not every manufacturing business has the funds in the bank to restructure their entire business model. Many choose to initiate a hybrid model that combines working both ways and strengthening their revenue flow with distributors and an online storefront. This way, not everything is at stake and is operational if the online presence fails.

3. Work on User Feedback and Data Analytics

Among the many popular strategies, working on user feedback and data received is modernizing business decisions and assisting in monetizing the insights. This way, you can directly work on the product feedback and optimize it to change the overall representation.

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