Supply Chain Management in eCommerce: How to keep up with growth! (Part 1)
- Supply Chain Management in eCommerce: How to keep up with growth!
- Why optimized inventory management is a must-have for supply chain management in eCommerce
- Proactive planning as best-practice for supply chain management in eCommerce
Supply Chain Management in eCommerce: How to keep up with growth!
eCommerce has been a rapidly growing industry in recent years and, as in previous years, the eCommerce sector is slated to continue to grow. Last year, $394.86 billion of online sales were generated in the US – compared to $341.7 billion in 2015, which constitutes a rapid increase of approximately 15.6%. Already this year has seen growth through quarters 1 and 2, making supply chain management in eCommerce imperative for companies looking to grow.
In order to thrive in these rapidly changing business conditions, every company associated with eCommerce needs to adapt and be proactive. During such a rapid growth phase it’s also essential not to lose sight of the competition. New players enter the market continuously, so be prepared for increased competition.
The need for advancements in supply chain management affects various areas of the company. One of the most important core areas is logistics and inventory management since corporate growth goes hand in hand with an increase in inventory stock turnover. This has to be handled in order to operate economically! Below we will discuss why inventory management in particular will be a key driver for your growth and how you can master it.
Why optimized inventory management is a must-have for supply chain management in eCommerce
Product availability & service level as critical factors
As the leader of an eCommerce company, it should be abundantly clear to you that the availability of the products you offer dictates whether the purchase will be made with you or a competitor. Therefore a service level of 95%+ for core, non-captive products is essential for success in eCommerce.
In most verticals competition is fierce with numerous players, and online customers are very sensitive to how quickly a product is available. If the indicated delivery time is perceived as too long, the logical next step will be browsing other online stores. Having slow delivery increases your risk of losing potential customers or even results in negative reviews that can damage your reputation considerably.
From purchase and supplier management to inventory management, supply chain management, and logistics, processes have to be perfectly coordinated and optimized within themselves. If just one link of this chain doesn’t function properly it has negative impact on all others, resulting in reduced success and loss of revenue.
Customer reviews as quality criteria
Another important factor for your performance and growth is your reputation which can be measured by customer reviews and experiences. Price comparison search engines are often the first point of contact for online shoppers and, among other things, the ranking of search hits is done based on customer reviews. And how do you receive good reviews? By delivering the right product in the right quantity at the right time!
In addition to that, platforms like eBay and Amazon use internal key figures to assess the credibility of a distributor. That way, distributors who have distinguished themselves with reliable on-time delivery will be favored in the ranking of search results. That’s just one facet – these platforms also have supply chain KPI targets. If one falls below certain minimum values concerning service level, punishments – typically in the form of account suspensions – can be imposed.
We should also mention that apart from reviews, the reputation of your company can be tarnished much quicker in the eCommerce world than offline. For instance, through critical social media posts or a (negative) exchange about your company in forums or blogs. The risk that shoppers will find these while searching for your company and therefore chose another vendor is real. Therefore, you should remain loyal to the primary motto: offering a great shopping experience with a delivery reliability of 100%!
Excess inventory as a cost trap
Many aspiring eCommerce businesses reach the limit of their inventory management during their growth. As the company size increases, complexity – larger product portfolio, growing supplier base, surge in returns – continually grows at a rapid pace.
A common mistake is drastically increasing inventory in order to meet the desired customer service level. That’s exactly the wrong approach! Inventory is fixed capital and represents a major part of the total investment of eCommerce businesses. Excess inventory that can quickly mutate into obsolete stock is therefore synonymous to dead capital, which can quickly lead to an explosion in costs.
Added to this are high storage costs, which start-ups and fast growing businesses in particular are struggling with, since they usually don’t have large enough warehouses at their disposal. In these cases, storage space is often rented externally or the processing of specific products is outsourced (e.g. “sold by company ABC – shipped by Amazon”). Both cases entail a high risk for you as an entrepreneur to fall into the cost trap and hinder your growth.
This distributed order management is a big trend in the industry; however, it increases the risk of shortages as well as obsolete and excess stock. The big challenge for supply chain management in eCommerce lies in implementing a system that facilitates a central view of the inventory in all inventory holding locations in the network. The faster the exchange between your company and the stakeholders about inventory levels takes place, the more reliable and efficiently you can process orders.
Proactive planning as best-practice for supply chain management in eCommerce
Now that you’ve learned about the most common challenges facing supply chain management in eCommerce during growth, don’t worry! There are good solution approaches to help you get a grip on these challenges.
Proactive planning is essential, no matter the case. For instance, you have to be able to forecast demand at an early stage by using appropriate software instead of simply reacting when these trends are already established.
In part 2 of this article we will introduce specific approaches on how your business can prepare for the future and healthy growth. Take a look at it here: Supply Chain Management for Healthy Growth in eCommerce – Part 2.
In the meantime, please have a look at the following guidebook on the topic of supply chain management. Simply download it here: