When direct-to-consumer brands form retail partnerships, they immediately enter into business-to-business (B2B) arrangements. And with this new business opportunity comes the need to modify their business practices—particularly their approach to inventory management.
Whether selling wholesale or retail, inventory is a business's most valuable asset. Through effective inventory management, you can satisfy your customers, increase revenue, and save money. In this article, we'll explain how your approach to inventory management should differ between DTC and B2B sales.
While the DTC business model works by selling directly to customers online, in a wholesale model, brands sell their products in bulk to another business that acts as the “middleman” between the brand and consumers.
This bulk buying means the volume of product in a B2B wholesale order is far greater than in DTC, so the brand has to rethink every element of its inventory management strategy, including:
Achieving the optimal balance between supply and demand is challenging, any way you look at it. It becomes even trickier when you throw in unpredictable demand shifts—like a busy holiday season or an influencer sharing your product. Who could have predicted, for example, that the Stanley tumbler would become TikTok’s latest viral obsession? With searches for “#stanleytumbler” already topping 137 million views, snagging one is almost as difficult as scoring Taylor Swift tickets.
Your goal, whether fulfilling individual ecommerce orders or wholesale POs, is the same: avoid backorders and surpluses. It’s how you meet that goal that changes. You need to consider order size, order frequency, and minimum order quantity (MOQ).
In a DTC model, digitally native brands can test the waters with small, frequent orders. This approach relieves them of the risk of having dead stock—when inventory is essentially unsellable. If all goes well, they can gradually increase their order sizes.
Since these brands are in direct contact with their audience, they know their behavior. When they run campaigns or the holidays roll around, they expect a surge of shoppers knocking at their online storefront’s doors. Replenishing inventory more frequently or in larger quantities around this time can help avoid the risk of backorders and keep customers happy.
Maintaining optimal inventory levels requires a different approach when it comes to wholesale. Since B2B orders are larger and less frequent, there needs to be a greater focus on predicting demand early and accurately based on the quantity and size of POs. And while getting inventory restocking wrong when fulfilling ecommerce orders can lead to a handful of disgruntled customers and 1-star reviews, when selling wholesale, it can be disastrous. A single wholesale order can easily be worth hundreds of individual customers—or more. And a poor fulfillment experience can harm the relationship between the brand and retailer.
Brands often rely on B2B inventory management systems to eliminate the guesswork of predicting ideal wholesale inventory levels. It allows them to keep track of current and historical inventory levels, which provides important insight to make accurate predictions of future demand. Producing and restocking in bulk enables brands to more readily accommodate large wholesale orders.
Another factor to consider is timing. Since B2B customers typically don't pay until the inventory has been delivered, optimizing inventory levels helps brands better control and monitor their cash flow. Large wholesale orders also typically take longer to arrive given longer production times, so brands will benefit from planning ahead.
Minimum order quantity refers to the lowest number of units a business will sell. In the DTC world, brands don’t usually stipulate how many items their shoppers may purchase from their online storefronts. They encourage consumers to buy more using various strategies like free shipping at a certain subtotal threshold and product bundles. But if a shopper checks out with just one product, it’s okay. No problem.
In contrast, B2B merchants will want to set an MOQ with retail partners. Since wholesaling typically comes with lower profit margins, setting an MOQ ensures they’re purchasing sufficient quantities for you to turn a profit. In addition, it keeps your products in constant motion, preventing dead stock accumulation.
You could set a minimum order quantity (1,000 units) or a minimum order price ($10,000). An MOQ of 500 to 1,000 units is often a good place to start. Other brands may want to begin with a smaller MOQ to test the waters. There’s also the option of sliding-scale pricing, where the bigger the order volume, the bigger the discount.
However you choose to price your wholesale orders, set a standard MOQ that will ensure your business doesn’t incur losses when fulfilling POs.
Whether an order is sold DTC or B2B, your aim is to get the products into the hands of customers as fast and as securely as possible. But the similarities end there, as their packaging priorities differ and they face different shipping obstacles.
Fulfilling DTC orders requires preparing the product for the end user. The inventory must be individually wrapped, picked from the warehouse, packed in a carrier-ready parcel with dunnage, and adorned with a shipping label.
The fulfillment costs associated with DTC orders are primarily the fees associated with pick and pack, packaging materials, and carrier rates, which can be optimized to minimize the expense the brand incurs.
Wholesale orders are an entirely different beast. The purchase orders are delivered to a retailer’s loading dock, so packaging is optimized for efficiency over presentation. Your fulfillment considerations will need to pivot from custom boxes and crinkle paper to pallets and weight distribution.
Wholesale orders must adhere to retailers’ strict guidelines concerning labeling, organization, and documentation. These specifications, sometimes called rulebooks, have virtually no standardization from retailer to retailer, further complicating B2B fulfillment.
Pro-tip: Don’t forget to consider the impact your inventory storage will have on your B2B fulfillment costs. If your warehouse is preparing wholesale orders using DTC inventory, you’ll be incurring a pick fee for every individual unit. The inventory that is sent to retailers should arrive at your fulfillment center bundled and palletized for freight distribution to keep costs low.
When shipping individual orders direct to the customer, shipping costs fluctuate based on a few different variables, including carrier options and rate tables, surcharges, and destination. By leveraging their fulfillment partner’s resources and services, DTC brands can offer customers faster and more economical delivery options.
In a B2B model, you’re delivering wholesale inventory to a few retailers rather than to scores of households. And although it sounds like it’d be more straightforward since there are fewer destinations, the process is actually more complicated.
First, your retail partners need you to be electronic data interchange (EDI) compliant. This allows you to share accurate digital business documents with them within specific timeframes, including purchase orders, invoices, tracking, payments, and other reports. (We’ll discuss this in more detail in the section on warehousing below.)
Retailers also have specific delivery windows—and you'll be subject to sanctions and fines if you don’t comply. For instance, big box retailer Walmart maintains an on-time in-full (OTIF) policy with a 98% delivery rate target. If not met, you’ll have to pay 3% of the value of the goods that weren’t delivered. And if you keep missing the target, they can remove you from their roster of suppliers altogether.
Finally, the responsibility of freight coordination lies with your brand. Some 3PLs offer freight coordination services, but it’s something you’ll need to specifically seek out with the provider. Since the cost of shipping large wholesale orders depends on size, density, weight, freight rates, and seasonal trends, a fulfillment company’s exclusive warehouse network can also help you navigate the surges. This way, you can make your products readily available at the warehouse nearest their final destination, cutting costs.
While DTC fulfillment is characterized by many small orders and a plethora of destinations, B2B fulfillment involves sending a fewer number of much larger orders to a handful of endpoints. If you’re expanding into retail partnerships, you may need to rethink how you store your inventory and when you choose to restock.
DTC inventory typically requires less storage space overall, but the products must be organized and made accessible for picking and packing. Most brands store their best-selling, high-velocity items closest to the packing station to maximize efficiency.
In contrast, B2B inventory may require a larger storage area. If you’re a DTC brand expanding into retail, it’s crucial to ensure your current warehouse can support these storage requirements and has a loading dock to accept freight deliveries and shipments. The good news is that since the products don’t need to be accessible for pick and pack, you may be able to stack wholesale inventory. This allows the warehouse to maximize floor space, which often results in lower storage costs for you.
Warehouses tend to specialize in one type of fulfillment or another. The fulfillment centers that are well-versed in DTC requirements like pick and pack efficiency and shipping carrier negotiations tend to fall short of B2B fulfillment requirements. The same is true vice-versa.
Before you launch a retail partnership, be sure to vet your warehouse’s capabilities until you’re confident they can effectively handle both fulfillment models. These dual warehouses are rare but invaluable.
You likely already rely upon your fulfillment provider’s warehouse management system, or WMS, to manage order flow. Ideally, the WMS will be robust and user-friendly enough to act as your inventory management record, too.
But B2B inventory management also requires sharing a communication network with your trade partners through EDI. Because retailers have strict requirements about how and when they receive order documentation, wholesale orders are nearly impossible to manage without EDI— transactions become complicated, time-consuming, and inefficient, requiring a great deal of paperwork and staff time and running the risk of chargebacks.
You could invest in EDI on your own, but it’s generally simpler and more cost-effective to work with a compliant fulfillment partner. Understanding different retail partners’ EDI requirements—let alone complying with them—is a labor-intensive task and an added expense for your business.
As your business grows, it’s natural for your inventory management system to evolve. For DTC brands expanding into wholesale, adopting a new business model will dramatically change your inventory management processes. And while that can sound daunting, it doesn’t have to be. Whether you’re fulfilling individual consumer orders or large B2B wholesale orders, an end-to-end operations and logistics platform can help deliver your goods to eager consumers—without the headaches, sleepless nights, and unnecessary costs.
Inventory management is one of the biggest challenges of running a wholesale business—but Airhouse can help. Talk with one of our fulfillment experts to learn how we can help you streamline order fulfillment and logistics.