Crossover Businesses: Flexibility and Integration Needed to Support Business Model Evolution | Part Two

In Part One of this series, we talked about the phenomena of the ‘crossover business’ where a manufacturer starts selling direct to consumer (via ecommerce, and sometimes even with its own physical retail stores), retailers start manufacturing their own private label house brands, and distributors start doing both of these. We looked at how this changes a business, the systems it requires, outsourcing, and service. Here in part two, we look further at the impacts on invoicing and revenue recognition, fulfillment and order management, and multi-channel integration—and what it takes to lay a foundation for growth of crossover businesses.

The Need for ‘Universal’ Invoicing and Revenue Recognition

All-rounder cross-over businesses sell a broad mix of goods, services, subscriptions, and as-a-service offerings. For example, some progressive retailers have changed their business model to get paid by manufacturers according to the amount of exposure they provide (as measured by sensors and cameras) and the number of demos they do; essentially offering ‘showroom-as-a-service.’ A number of manufacturers offer their products as-a-service, such as selling lumens-as-a-service instead of selling light bulbs, or selling scans-as-a-service instead of selling MRI machines. Companies like Ryonet and RST Brands offer financing options to the customers to help individuals and small firms buy their equipment (printing presses from Ryonet and luxury furniture from RST).

Unified Billing

As a company’s mix of products, services, delivery, and payment models becomes more diverse, it requires a much more flexible and unified financial system that can support a single invoice and revenue recognition across all the goods, services, subscriptions, as-a-service, financing payments, and everything the company bills for. Nobody wants to receive several different invoices from the same company; one for products bought, another for subscriptions, and different ones for various services. That makes things messy and difficult for everyone. Customers want a single invoice, a single portal where they can check status or drill into the components of their bill to better understand what they owe and why, and a single way to pay everything at once. A good example of this is NetSuite’s unified billing and revenue recognition.

Fulfillment and Order Management—Flexible, Integrated Approach Required

A crossover business needs increased flexibility in their fulfillment capabilities. Traditionally, a manufacturer’s warehouse and transportation operations are optimized for bulk shipments of pallets in full or partial truckloads. Similarly, a retailer’s pre-ecommerce DCs were optimized for bulk shipments to replenish store stocks. Once manufacturers and retailers started doing ecommerce directly to the end consumer, they had to pick, pack, and ship much higher quantities of much smaller orders, typically consisting of one or a few items, primarily shipped via parcel carrier. These are radically different kinds of operations, from order management, to pick and pack, to transportation planning, to shipment execution, and tracking.

In many cases, manufacturers, distributors, or retailers start off with an ecommerce operation that is completely separate from their traditional bulk shipping operation. They hold separate inventory, use a separate labor force, and even use a separate facility, in order to isolate and more easily deal with the radically different operational requirements. But, increasingly companies have been realizing economies of scale by combing bulk and ecommerce fulfillment operations. That enables them to dynamically allocate inventory, space, and labor to whichever channel needs it the most (within constraints of course, such as ensuring minimum required stock is always available for store replenishment). This is a pretty sophisticated practice and requires a system that integrates demand, inventory, and operations across the different channels.

Building Synergies, Integration Across Channels and Across Retail, Wholesale, Manufacturing

In all these cases, integration is needed between the ecommerce front end, the store’s POS, and backend fulfillment and inventory management to ensure accuracy, efficiency, and timeliness. When ecommerce, store, warehouse, inventory management, and fulfillment are all on the same system, the required integration happens automatically, in an integral way.

Integration across systems and channels is a critical enabler of growth. Without it, labor and inventory is used inefficiently (due to lack of pooling of resources and time spent on unproductive activities, such as rekeying data between different systems), more mistakes are made (due to rekeying errors and systems being out of synch), and the business is just slower, requiring more people to do the same volumes. An example of how a unified system can enable growth is Blue Microphones. Before they implemented NetSuite about two years ago, they had isolated pockets of data all over the company. Now, they run all of their ecommerce operations and logistics (and soon automated marketing as well) on one system. Having all their processes and data consolidated into one system has been their vision from the start and has helped them grow—Blue Microphones expects to double or triple over the next five years.

RST Brands sells their furniture and flow walls through major retailers (such as Costco, Home Depot, and Lowes) and online through Amazon, as well as their own website. They run all of their channels and major functions on a single system. This includes their core financials, ecommerce, inventory management, warehouse management, marketing campaign management, and more. This enables RST to see exactly what inventory they have all in one place, more reliably promise against orders, accurately set customer expectations, and deliver personalized customer experiences across multiple channels.

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