[2023 Update] Supply Chain Management in eCommerce : Process, Benefits, Optimization

Running an eCommerce business is not just confined to setting up a digital store and selling products online. It also includes managing a whole lot of other essential components such as logistics, product configuration, infrastructure, secured payment gateway, and supply chain management. We will be discussing all these components in detail in our upcoming topics.

While there are a number of activities running parallely in the backend, following are the key areas of focus for supply chain management in eCommerce:

• Raw material procurement
• Managing demand and supply
• Inventory tracking
• Manufacturing
• Distribution and delivery of the right product to the customer
• Order management
• Order entry

A systematic and well-organized supply chain speeds up pretty much all the major e-commerce operations and distribution processes ensuring that the customers' expectations are constantly met.

What is a Supply Chain?

Consumers today utilize products/services more than ever and everything and everyone that is involved in getting those services and products to the consumers go into a supply chain. These include resources,  a system of activities, organizations, information, and the people involved.

Let’s understand this with a simple example. Consider fresh apples! For these apples to arrive at your breakfast table, a plethora of activities, transactions, and people are in the motion at the backdrop. All these are connected through the internal chain and are involved in planting, cultivating, delivering, and consuming apples. The internal chain connecting people, establishments, and activities ensures a timely delivery of apples to your doorstep.

Besides the proper flow of physical products like apples, a well-structured works the same way while availing virtual elements such as information and communication.

These related activities, functions, people and organizations when together make a supply chain, which comprises four primary activities including production, sales, distribution, and fulfillment process. Essentially, the supply chain is a value chain. To attain maximum value, every member of the chain must coordinate and carry out its function efficiently.

What is Supply Chain Management (SCM) ?

The supply chain is what keeps your business running competently. A proper supply chain management ensures an efficient movement of raw materials and optimized finished goods inventory. It offers an oversight from the point of production to getting goods in the hands of the consumer.

Simply put, supply chain management refers to a spectrum of activities that are required to plan, control, and execute procurement, manufacturing, and distribution of the goods to the end consumer.

The Different Types of Supply Chain Models

1.Continuous Flow Model 

A Continuous Flow Model [CFM] is a type of supply chain that hinges on stability in supply and demand with a continuous in and outflow of goods. Markers of the CFM model include low product prices and minimal design variations.

Best suited for: Enterprises and Established Brands with little to no volatility in demand. 

2.The Fast Chain Model 

The Fast Chain Model is an emerging name that is driven by marketing efforts. It is meant for companies that launch new arrivals in sync with what’s trending at the moment. 

Best suited for: companies offering products with brief life cycles.

3. The Efficient Chain Model 

The efficient chain model relies on high delivery efficiency levels and inventory management to get the most out of worker productivity and equipment utilization. As a result, it is the model most impacted by labor shortages and transportation delays.  

Best suited for: competitive sectors such as FMCG

4. The Agile Model 

The Agile Model has four characteristics: jointly managed inventory, collaborative product design, virtual integration and market sensitivity. Companies adopting agility should be in the position to track market demand changes in real-time and align processes across the supply chain to process high order volumes. Agile supply chain management is pricier than other models and applies when a certain order volume threshold is crossed.

Best suited for: niche products 

5. The Custom-configured Model

Custom-configured models are a hybrid of agile and CFM methodologies which allow for custom configurations. It works best for smaller batches of products, facilitating quicker turnaround times.

Best suited for: small-batch manufacturing and prototyping.

6. The Flexible Model 

A supply chain model is considered flexible if it meets three requirements:

1.Partial segmentation

2. Precise stocking algorithms and

3. Flexible planning. It can respond to dips in demand without the inventory overflowing. 

Best suited for: companies experiencing heavy seasonality and unexpected demand swings.

What are the Benefits of E-commerce Supply Chain Management?

There are an estimated 12 to 24 million eCommerce businesses as of today, with more being created every day. This has led to a surge of competitiveness among eCommerce businesses. For long term success, businesses not only require a user-friendly eCommerce platform but a well-connected supply chain as well.

eCommerce supply chains do not operate in silos. For them, proper supply chain connectivity during the entire process, from procuring to delivering, is necessary to generate more leads, build relationships, and grow sales.

With a pandemic looming at large, we have seen strong demand for eCommerce and online retail goods over the past few months. The aftermath of online shopping skyrocketing has laid the foundations for a whole new buyers’ journey and the sellers have to adapt to the rising demands and increasing expectations of the consumers. However, during the lockdown, many sellers saw long delivery delays, higher-order cancellation rates, and were stuck with dependencies from single logistics providers and services from Amazon. These findings reveal a good understanding of what has been happening to supply chains and distribution. As a result, merchants and eCommerce businesses of all sectors need to find some reliable supply chains and logistic partners to deliver their products on time.

The following are the major advantages of supply chain management in eCommerce:

Visibility across the entire network

Supply chain management brings transparency in the network and helps oversee the status of all the activities happening across supply, production, warehousing, and distribution. This ensures a more comprehensive tracking and management of all processes from procuring to shipping of finished goods to the end consumer.

Risk Mitigation

An efficient supply chain calculates and categorizes risk probabilities to stay a step ahead of them. They can then preempt them before they have a chance to disrupt operations- such as supplier issues, transportation delays, gaps in distribution network etc.

Enhanced Customer Relationships

Effective supply chain management ensures on-time deliveries, which makes a direct impact on strengthening customer relationships. Furthermore, SCM aids the brands to keep an eye on customer requirements. It makes sure that the business is attuned to the changes in the demands of the products and services. An eCommerce integrated supply chain helps businesses get feedback and requirements about their products directly from the consumers.

Cost reduction

One of the principal reasons due to which the customers invest their time and money in eCommerce is reduced costs. Probably, there are a lot of areas where business invests more than required. Some of such areas could definitely be streamlined. It’s worth taking a look at your supply chain to recognize areas where the costs could be cut down.

eCommerce based SCM can significantly reduce costs in the supply, production, and distribution processes, which, in turn, leads to higher profits.

Minimized Delivery Delays

Delayed shipment from vendors, holdups during production, and logistic errors in distribution channels massively impact brand reputation in the market. With an effective SCM, all activities can be coordinated and executed from top to bottom. Minimizing delivery delays can prevent losing out on business and streamline your image and relationships with the customer.

Scaling omnichannel practices

A well-structured supply chain management in eCommerce facilitates omnichannel engagement that ultimately leads to increased customer engagement on all major platforms.

eCommerce businesses in an omnichannel environment pretty much conclude the new shopping touchpoints of the majority of consumers today. It is incredibly crucial for brands to consider customer convenience and expectations first. And, it starts from the very first step of the supply chain. An adequately managed eCommerce supply chain assists brands with an omnichannel scaling of their businesses and expands their selling horizons with content customers spread across channels.

End-to-End Supply Chain Self-Assessment

Determining the best practices for your eCommerce business starts by assessing and auditing your supply chain management and warehouse operations.

To come up with best practices, first assess your distribution center’s processes and costs, then ask yourself these following questions:

• Will you keep stock?
• How will you ship to the customers in limited time and expense?
• The quantity you will be dealing with on a daily basis
• Will to resell or manufacture your items?
• How much are you willing to spend on labor in your warehouse?

The answers to these questions help you determine the best approach for a capable supply chain model for your eCommerce.

Best Practices for Effective Supply Chain Management in eCommerce

How can you prepare your eCommerce business to avoid supply shortages, shipping delays, excess inventory, and still maintain fully functional products for the long run? Besides doing our own reports from external market insights and analysis, we dug even deeper and consulted with the logistics network of several established businesses to learn from their experience. Based on this intense analysis, we came up with five best practices and learnings that will help you to harness and maximize your business values in the short- and long-run.

Here are the following takeaways for managing an eCommerce supply chain:

Diversify and use Flexible Warehouses as well as Suppliers  

Having a central distribution point from only one provider creates a dependency that might shake up your business if anything goes wrong.  It is always a good idea to rely on multiple suppliers and a higher number of locally maintained distribution points. In case anything goes wrong with one of your suppliers, you can easily source products from a different supplier.

For example, Nykaa, an online cosmetics company co-operates with other cosmetic brands and attracts high-quality suppliers to sell their products on their platform. When a customer places an order on Nykaa, it might be picked from Nykaa's warehouse or another supplier's warehouse. Doing this will ensure you don't have to worry about your business and still retain your customers.

Improve your Sales Forecasting

With an increase in demands, products are going to be moved from one location to another. To meet these demands, eCommerce businesses make the mistake of increasing their inventory drastically. At this stage time as well as sales forecasting is very critical.

Buying too much inventory would mean creeping costs, obsolete stock, and additional overload in the form of warehousing. As a merchant, using real-time data transparency will help you to control supply chains and react timely to changing demands.

By using a proper sales channel and management system, you can optimize their supply chains and stocks by receiving direct notifications when their supply reaches minimum thresholds.

Leverage and Embrace Supply Chain Software

Knowing that there are multitudes of tools to manage supply chains is good, but not taking advantage of them is like shooting yourself in the foot.

You can use various software dedicated to handling supply chains that can properly track and manage your inventory, process orders, manage suppliers, and more. Having said that, you can also use an inventory management software like EasyEcom to handle these operations and manage your B2B processes. Technologies such as data analytics, big data, warehouse management systems as well as inventory and logistics management can help you to increase your supply chain efficiency.

Alternatively, you can also pick a single platform such as an ERP system like SAP, Oracle, Navision, etc.  to manage most of the activities under one roof. This will support you to deliver your orders faster with a lesser chance of making any errors.

Decrease Processing Time by Managing Labor Effectively

Making use of barcode technology for warehouse systems and automation will gain efficiency in material handling, storage, product flow, and labor productivity. Try to implement barcode technology in areas such as picking, packing, receiving, put away, shipping, returns, labor tracking, and replenishment. If you don't achieve a favorable outcome on applying such technology automation, shift your strategic goal to managing labor more effectively.

Embrace Drop Shipping for your Ecommerce

In simple words, dropshipping is referred to as finding low-cost products in wholesale and selling them at a higher price. So essentially, you find and procure products from a supplier with a low wholesale price. You then place that product in your store with a higher retail price. It is a very popular practice on eCommerce platforms like Amazon, eBay, and Shopify.

Amazon’s drop shipping model is quite simple to understand and practice. When a consumer shows interest in a product you’ve listed on Amazon, wait for the transaction to finalize and then buy this product directly from the supplier after you receive the funds. You then provide the consumer information to the supplier and then they send the product to the consumer on their own.

Benefits of dropshipping:

• Keeping stock or buying inventory not necessary
• No prior redundant investment in stock
• Takes lesser time for delivery
• Add or change your range of products without any risk or investment
• Set up a start-up store at a low cost

However, finding reliable suppliers and quality products is the hardest part of drop shipping. Using drop shipping wisely can be the real revolution of your eCommerce business.

Outsourcing to 3PL and 4PL

Using 3PL and 4PL companies like UPS, DHL, Deloitte to optimize your supply chain management (SCM) is fairly common yet one of the most effective eCommerce supply chain management strategies. A 3PL company can enhance your customer service offerings with its already established distribution network or you can choose to go to a 4PL company that could offer you the best supply chain management solution for your eCommerce business using 3PL providers.

The logistics functions that can be outsourced may vary from business to business but they usually involve warehousing, distribution, and order fulfillment. Handling these activities constantly can be a daunting task and can get unmanageable for more complicated and critical supply chains.

Implementing a Management Software

Forget about eCommerce supply chain management strategies, investing in management software is always a good idea for a growing eCommerce business. An inventory management software, a WMS, or an OMS automate a lot of crucial business operations that you can’t do manually, and supply chain management is one such operation. Although, optimizing it requires much more than an automating software, implementing one is still a step in the right direction.

The e-commerce companies that are closely interconnected with supply chain management can readily customize their store with new products, launch new digital stores, and branch out to additional regions.

Even new technologies like Big data analytics, the Internet of Things (IoT), and cloud computing can be adopted to enhance the processes in terms of production level, system level, operational level, and decision-making level. A lot of management software come equipped with these technologies to make it easier for you to handle a range of activities in the chain. An integrated and clearly established SCM will help you gain an edge over your competitors.

Are you looking for an omnichannel inventory management solution with integrated B2B order management for your eCommerce business? Drop us a line at care@easyecom.io or directly sign up for a demo here.