back to article You've made the product, now get it to the customers

Logistics may not seem as sexy as, say, R&D or social-media marketing – but messing it up could easily ruin your business. There are several things SMEs should think about when planning the part of their business that gets products out to customers. Far too many companies miss out this key part of the business equation, warns …

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  1. Don Jefe

    Why Pay for Logistics or Accept Returns?

    There's some good stuff in this article, but there's a pretty gigantic step that seems to have been bypassed. If you're manufacturing there's absolutely no reason to go direct to the end user with your products. It's obscenely expensive to do that and your margins tend to fall faster than new growth revenue can offset. You get paid in wee tiny chunks and have to deal with end users, which is quite nearly universally a horrible experience.

    If you've got any kind of volume it's far cheaper and easier to stick your product in the channel and let the distributors and wholesalers sort out all the crap. Doing it this way you get paid in much larger chunks, costs of growth and demand spike compensation are channel issues and screw returns. If a retailer wants to accept returns then that's fine and dandy. But a manufacturer accepting returns not related to warrantable issues is just stupid. The norm is to give your channel partners ($x) amount of merchandise return credit, based on the value of their annual purchase commit and you let them sort it out with retailers and whoever else they're selling to.

    Logistics is your channel partners issue as well. Let them work it out. The factory/warehouse is (here) and so is the product. Let us know when your carrier is scheduled to arrive and we'll set it on the loading dock. Bring your own fork truck.

    I've been in manufacturing for a long time and I've seen many, many companies be eaten up from the inside by a cost structure that's simply too complex, expensive and static to cope with the uneven nature of end user markets. The channel smooths those bumpy spots out and keeps revenue humming along at a happy place which is where you want to be in manufacturing.

    People new to manufacturing tend to see nothing but the difference between unit production cost and end user cost and they get all excited. Once volume really starts moving they hit that same big cost wall as everybody else. You can run out there on the ragged edge for a long time (hello Dell) but when things get rough, and they will, you absorb all that damage directly and it's lethal (bye Dell).

    Like I tell the companies we invest in, the channel is a dirt cheap way to add an extra couple of layers to a business. People see it as money going out of the company, but it's generally a lot less than they'd spend keeping it all inside. People always underestimate the resources required to deal with end users. If you want to be a manufacturer focus on manufacturing a great product and channel partners won't give a shit if they have to walk to your factory and carry the stuff home on their backs. Stick to manufacturing and be great at it. Let the other people work out how to deal with logistics. They won't mind, hell, you can charge them for it. It's a nice setup.

  2. A Long Fellow

    Learning...

    Thanks for the insights, Don Jefe & Robin Birtstone.

    However, I believe that the discussion is chiefly applicable for established, commodity products shipping a few containers per year. I'm currently working with an innovative quasi-publishing project; getting my product into the channel now is going to be practically impossible. However, I suspect that two years down the road, with an established brand and proven sales figures, I might be able to farm out the order fulfillment and product delivery process.

    Between now and then, however, I suspect we'll be moving from kitchen to (heated) garage and then (VCs willing) to office/workshop before I have the luxury of worrying about logistics. Besides, early product updates will be based heavily on feedback that comes from direct contact with customers.

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