Managing Your Supply Chain in Ecommerce
by Jaidyn Farar
Ever heard the phrase “the weak link?” Well, in an ecommerce supply chain, just one weak link can spell disaster. When suppliers fall behind, fulfillment centers get overwhelmed, or carriers go on strike, the negative consequences spread like ripples in a pond.
Fortunately, with careful planning and a solid strategy, you can manage your logistics effectively and keep disaster at bay. Let’s dive into the what, why, and how of ecommerce supply chains.
What is the ecommerce supply chain?
The ecommerce supply chain consists of a series of interconnected logistics processes including procurement, manufacturing, warehousing, inventory management, order management, delivery, and returns.
Every person or business that helps create a product and get it to customers is part of the ecommerce supply chain. These moving parts can include:
- Vendors and suppliers
- Manufacturers
- Wholesalers
- Retailers
- Transportation companies
- Fulfillment centers
- Third-party logistics providers
With a well-managed supply chain, your business will achieve two things. First, you’ll deliver high-quality products. Second—and just as importantly—you’ll give customers a top-notch buying experience that boosts loyalty and helps enhance your reputation.
What is ecommerce supply chain management?
Ecommerce supply chain management (SCM) is the control and coordination of the entire supply chain, and it includes all the processes involved in getting products from suppliers to customers.
Some of the most important elements of supply chain management in ecommerce include planning, procurement, warehousing and inventory management, order management, distribution and delivery, and returns. Read on for a closer look at each one.
Planning
Planning is the foundation of the ecommerce supply chain. It’s all about making sure that the right products are procured, warehoused, and distributed in the right quantities at the right time. When you plan effectively, you reduce costs and increase supply chain efficiency.
During the planning phase of supply chain management, you forecast demand—the amount of inventory customers will buy within a specific time frame—to determine supply, or the amount of inventory needed to meet demand.
Demand forecasting starts with analyzing data to learn about customer preferences, market trends, and seasonal fluctuations your business has experienced in the past. Based on demand forecasts, you can make important decisions about supply: where to source products from, what supplier relationships to form, and what inventory levels to maintain. You can gather customer data from the following sources:
- OMS (order management system)
- WMS (warehouse management system)
- POS (point of sale system)
- CRM (customer relationship management) software
- Market research
Sourcing and procurement
Before you can make a sale, you have to have a product. That’s where sourcing and procurement come in. The terms go hand-in-hand, but they have slightly different meanings.
Sourcing means finding third-party vendors and suppliers who provide necessary products and services, while procurement refers to the larger process of negotiating contracts and maintaining relationships with these organizations. Sourcing is a subset of procurement.
During sourcing and procurement, you should be on the lookout for suppliers that can provide enough inventory to meet customer demand (as determined during the planning stage). And don’t forget to factor product quality into the mix.
Warehousing and inventory management
Once products are procured, they’re stored in warehouses or fulfillment centers until it’s time to ship them to consumers. These facilities vary in size and complexity, but they often involve lots of components: workers, forklifts, shelves and bins, software, and sometimes even robotics. A warehouse management system can help keep things running smoothly in your warehouse.
Closely tied to warehousing, inventory management is all about having the right amount of inventory; not too much, and not too little. In order to maintain this delicate balance, you have to know how much inventory you have at any given time and the rate at which you expect it to sell out.
Order management
The order management process begins when customers place orders on your ecommerce site, and it ends when the product is delivered. Order management includes picking, packing, and shipping products and can be streamlined using an order management system (OMS).
Distribution and delivery
During delivery, carriers pick up packages from the warehouse or fulfillment center and drop them off on customers’ doorsteps. Coordinating delivery requires choosing the right carriers and shipping routes (more on that below).
Returns
The returns process, otherwise known as reverse logistics, happens when customers are unsatisfied with their purchase and want to return a product to your business. After a customer initiates a return, your business approves or denies it, then provides instructions for sending the product back to one of your distribution centers. Once the item arrives, workers evaluate its condition and decide whether to restock, refurbish, recycle, or dispose of it.
The benefits of successful ecommerce supply chain management
One reason companies don’t focus on implementing a supply chain strategy is that they have other urgent business priorities (almost 25% report this as a major obstacle).
However, the benefits of creating a strong supply chain in ecommerce should be enough to convince any organization to make it a priority. With successful supply chain management, you save money, boost efficiency, and craft a better customer experience.
- Accurate forecasting. By properly managing inventory, you prepare your business to navigate the sometimes murky waters of supply and demand. You can forecast future demand, prepare ahead of time for demand fluctuations, and know when it’s time to reorder stock.
- Fewer delays. A well-designed supply chain makes it easy to track shipments, allowing you to predict and prevent delays. Additionally, supply chain management involves creating contingency plans so that when disruptions happen, you can still fulfill orders.
- Better shipping rates and times. Forty-eight percent of consumers say that the number one change they’d make to the delivery process is to speed it up. When you understand the factors that influence shipping rates and times, you can find faster and more cost-effective options.
- Greater visibility across the supply chain. When it comes to the ecommerce supply chain, ignorance isn’t bliss. With great supply chain management, you open up lines of communication to both suppliers and customers, leading to greater efficiency and transparency.
- Enhanced customer experience. Giving customers a stellar purchase experience is the central goal of the ecommerce supply chain. A streamlined supply chain impacts customer satisfaction in three big ways: it decreases shipping costs, improves delivery speed, and enhances order accuracy. To learn more, check out this Unboxing Logistics podcast episode on the supply chain and consumer experience.
Challenges of ecommerce supply chain management
Supply chains are made up of complex interactions between people, businesses, and technology, so keeping them running smoothly can be a challenge.
Three areas have the potential to be particularly difficult: inventory management, warehousing, and transportation.
- Inventory management. Lots of factors make inventory management difficult: seasonal fluctuations, sudden demand spikes, shifting market trends, and more. When you throw multiple products—each with varying demand patterns—into the mix, it gets even harder to maintain inventory visibility. This might be why 42% of businesses are planning to change their inventory management practices in an attempt to mitigate inventory issues.
- Warehousing. When you have multiple warehouses, you need to make sure the right products are available at the right location. This involves some complex coordination, and getting it wrong could lead to inaccurate inventory and inefficient order fulfillment.
- Shipping. Ecommerce shipping is quite the balancing act; you have to keep costs as low as possible while still making sure that deliveries are as fast and accurate as possible. As you partner with more carriers and gain new customers, shipping only increases in complexity.
But don’t let the challenges get you down—with the right know-how and tools, any business can optimize its ecommerce supply chain. Keep reading to learn how to get started.
Tips to optimize your ecommerce supply chain
Use the following tips to measure your performance and make impactful improvements to your supply chain.
Audit your supply chain
Improving your supply chain is like looking at one of those huge maps at the mall: until you can pinpoint where you are, you don’t know how to plan your path forward. A supply chain audit is how you can add the “You are here” stamp to the logistics map.
Take a deep dive into your current supply chain. Are suppliers and carriers meeting contractual requirements and quality standards? Is your inventory management effective? How much visibility do you currently have into your supply chain?
Conducting a supply chain audit will help you uncover bottlenecks, delays, and places where your business can cut costs.
Track key metrics
You can measure your supply chain’s performance using key metrics such as the following:
- Order-to-delivery: how long it takes to fulfill an order from the moment it’s placed to when it’s delivered.
- Supply chain cycle time: how long it would take to fulfill an order if you had zero inventory when the order was placed. This measures the time it takes to complete every phase of the supply chain cycle.
- Stock levels: how much inventory is on hand at a specific point in time.
- Inventory turnover: the number of times inventory is sold over a specific period.
- Fill rate: the percentage of customer orders that are filled in full.
- Perfect order index: the percentage of orders that are filled perfectly.
- Cash-to-cash time: the time it takes to convert cash spent on inventory back into cash from sales.
Consider the best shipping options
Shipping plays an important role in customer satisfaction. Delayed deliveries, misplaced orders, and damage caused by mishandling will all cause customers to lose trust in your brand.
Your business can curate a great delivery experience by choosing reliable carriers, optimizing shipping routes, verifying addresses, and allowing customers to track their packages in real time. Shipping APIs like EasyPost automate these processes, taking the guesswork out of ecommerce shipping.
Optimize your warehouse layout
Warehouse optimization simply means choosing the warehouse layout that makes the best use of all the available space. When you find the perfect layout, all the pieces fall into place. Products are stored exactly where they need to be, staff save time picking and packing orders, and the warehouse runs like a well-oiled machine.
Use multiple fulfillment centers
For the greatest customer reach, fastest delivery times, and lowest shipping costs, you should use more than one fulfillment center. When you distribute your inventory across several locations, you decrease the distance that products have to travel to reach customers.
“[One] important piece [of] inventory accuracy is making sure that that inventory is distributed where your demand is. That will eventually help your consumers have more confidence … because it allows you to get the product to the customer faster.” — Jill Barron, practice lead at Summit Advisory Team
Automate your processes
With labor costs high, many businesses turn to technology to not only save money, but create stronger supply chain processes and procedures. In fact, one study found that automation is the aspect of fulfillment that respondents are most eager to improve in the near future.
Automating processes doesn't necessarily mean creating a human-free workforce. The beauty of automation is that leaves employees free to focus on value-adding activities rather than tedious manual tasks.
Simplify your supply chain with EasyPost
As one of the final links in the ecommerce supply chain, shipping has a critical part to play. It can make or break a customer’s experience with your brand, regardless of how effective every other part of your supply chain is.
EasyPost gives a competitive edge to ecommerce supply chain management systems. By automating your shipping, you’ll save your team time and ensure that customers come away happy.