Direct-to-consumer brands are only as successful as their product distribution strategy. Delays and poor quality control by the supplier, manufacturer, and freight company can quickly kill a would-be successful business before it even gets off the ground.
What’s more, DTC companies are held to a higher fulfillment standard by their customers, meaning inefficient, slow, or costly fulfillment can damage the brand’s reputation or ruin otherwise healthy margins. The businesses that scale successfully establish a strategic, high-quality distribution strategy early in the company’s life.
Many ecommerce brands start out fulfilling their first orders on their own. In the earliest days of a company’s life, packaging and shipping the products can be a great learning experience for the founders, delivering insights on dunnage needs and customer preferences, but that’s where the benefits stop.
It’s important that ecommerce brands quickly determine their long-term solutions for distribution, which includes every step of a product’s journey, from manufacturing to last-mile delivery, and most often involves outsourcing. It’s an arduous process but will pay dividends as order volume grows—because it ensures the company is able to scale to match demand.
“For us, there was a lot of learning involved in that first fulfillment, but the goal was never to try to do that long-term. Shipping products out yourself is taking away from selling or getting in front of the customer or trying to reach new customers. – David Bronkie, co-founder of Siblings
In ecommerce, distribution consists of three major elements: manufacturing, freight transport, and fulfillment.
Except for a few brands that are vertically integrated (Warby Parker and Rothy’s, for example), most ecommerce companies outsource distribution, including product manufacturing, to a third party. Manufacturing is often one of the first vendors a company sources since the brand can’t launch without a product to sell (crowdfunding campaigns notwithstanding). So the question becomes: is that manufacturer a good partner for the long haul?
In many cases, the answer is no, because high-quality manufacturers that will accept the small orders that most newly founded companies can afford are few and far between (more on this later). The optimal manufacturer will be able to ramp up production as sales volume increases, at which point the cost per unit should fall. Brands will also need to take the manufacturer’s location into consideration, as this will affect import and export tariffs and freight costs, which are factored into a company’s landed costs and can affect product margins.
Getting product from the manufacturer to the warehouse or distribution center is an often-overlooked expense. Freight forwarding can help the company find the most cost-efficient route from factory to fulfillment center, but it’s also important to consider lead times. If the manufacturer can complete an order in a month but it takes anywhere from two to six weeks for the product to make its way to the warehouse, the company may run into issues with inventory management, including backorders and inaccurate reorder points.
Order fulfillment is the last step of the distribution chain and the most complex. Every small change made to the business—from packaging to adding a new supplier—has the potential to disrupt the fulfillment process.
Finding a reliable fulfillment partner is hard, but keeping one may be even harder. Whether it’s a change on the 3PL’s part (like management staff turnover) or on the business’ part (like an increase in sales volume), the relationship between the fulfillment provider and the business customer is delicate.
The ideal long-term partner will have the infrastructure to facilitate your company’s continued growth and the flexibility to change SOPs as they fit your needs.
In ecommerce, distribution and fulfillment are often used interchangeably, but they are distinct operations.
Distribution is the entire process of getting a product from the factory to your customer’s front door. Fulfillment is an element of distribution: it’s the storage, picking, packing, and shipping of a customer’s order once it arrives at a fulfillment center warehouse.
Both are critical to ecommerce, but fulfillment is the most complex, volatile, and often the most expensive element of distribution.
Outfitting your company with distribution partners that can empower your brand to scale is paramount to steady, healthy growth. As ecommerce brands scale, they’ll face three growth stages specific to fulfillment—each with its own unique challenges.
New companies face an uphill battle. Manufacturers either decline to work with new companies due to low volume or charge exorbitant prices to produce a few hundred or thousand products. Third-party logistics warehouses pose the same barriers to entry: they often turn young companies away due to product complexity, inefficient packaging, and unpredictable sales volume (over concerns about the length of time the warehouse will store orders before they’re shipped to a customer).
Every element of distribution is a numbers game that benefits large, established companies. Unlike modern ecommerce platforms, which offer the same industry-standard shopping experience for companies of all sizes, high-quality manufacturers and fulfillment providers are often impossible for young businesses to access. The lone workaround comes from leveraging connections between providers, such as a strong partnership between fulfillment companies and shipping carriers, or suppliers and manufacturers.
There’s a balancing act that plagues every early-stage DTC company: they need to provide an excellent experience for customers, but they also need to generate sufficient revenue from those customers to afford to improve their product quality and fulfillment strategy with more reliable (and more expensive) vendors. Each individual order becomes more precious as the company strives to earn consumers’ trust and grow sales.
At this stage of the company’s life, distribution costs and other business expenses are enormous because they’re working with small quantities and little brand recognition. Scaling becomes a race to lower expenses and improve margins, marking either an inflection point for successful companies or the collapse of the business entirely.
This is also the stage where most DTC companies outsource fulfillment, but the timing of doing so matters significantly. Many founders make the critical mistake of not seeking a scalable solution until it’s become an emergency, ultimately sacrificing quality and efficiency.
Third-party logistics companies notoriously lack transparency, which means most DTC companies cycle through a handful before they find a reliable partner. Highly successful businesses begin testing 3PLs before they’ve reached critical mass with in-house fulfillment so they can ensure fulfillment doesn’t impede growth down the line.
“In order to grow, we needed a reliable fulfillment partner, but these small shops felt like they were hitting a ceiling just doing a few hundred orders a week. Shipping was inconsistent, and I couldn’t imagine doing thousands of orders with them.” – Cordell Yee, partner at Superculture
When the brand has proven baseline success and achieved healthy margins, it’ll typically begin to explore growth opportunities like product expansion, wholesale distribution, and international shipping. Most of these changes tend to occur in tandem, and each one has the potential to wreak havoc on the entire distribution chain.
“Our warehouse used a third-party provider to link a ton of pieces together, we had multiple contracts and communication across various teams, and it was overall very disorganized. On top of that, there were lots of surprise fees for maintenance, API access, and ambiguous pick and pack fees. We learned that for our next 3PL we wanted a smooth and clear technical integration and dedicated customer support to help us out.” – Matt Mayberry, co-founder of Temper
With every single change to the business comes a fundamental shift in fulfillment strategy. Fulfillment is extremely volatile, and pricing is unpredictable. Mistakes scale with order volume and costs rise accordingly. How the company prepares for and responds to these challenges separates those that will successfully scale and those that will ultimately fail.
Airhouse was designed to empower high-growth ecommerce brands to flourish. To learn how our managed network allows brands to scale without delay, schedule a call with our fulfillment experts.
