Supply Chain Management in ECommerce: How to keep up with growth! (Part 1)

5 min read

Tags: Blog, Demand forecasting, Demand forecasting, Inventory management, Inventory management, Purchasing & replenishment, Purchasing & replenishment, Purchasing & replenishment

Dominik Seidel   26 October 2017


eCommerce Inventory Optimization

Index

  1. Supply Chain Management in ECommerce: How to keep up with growth!
  2. Why optimized inventory management is a must-have for supply chain management in eCommerce
  3. 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, is poised to hit record sales growth. Last year, €157 billion of online sales were  generated in the UK – compared to €114 billion in 2015, an increase of approximately 38%.

Supply Chain Management in ECommerce

In order to thrive in these rapidly changing conditions, every company within eCommerce needs to adapt to not to lose sight of the competition. New players continually enter the market so be prepared for increased competition.

One way to remain competitive is to optimize processes for the different areas of the organization. The important thing to remember is that all areas of the company need to grow together for success. For example, a company with a growing sales team and manager network needs to be able to support an increase in sales with their supply chain. eCommerce companies in particular often encounter this scenario. Below we will discuss why inventory management in particular is 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

1. Product availability & service level as critical factors

Supply Chain Management in ECommerce, keeping up with the growthCompetition has never been fiercer between companies; eCommerce has helped spawn the customer expectation of instant gratification. If you are unable to fulfill customer orders quickly and accurately, it’s easier than ever to find a competitor who will. Not only do you lose that sale, but you likely also lost that customer’s business in the future as well. Therefore a service level of 95%+ for core products is essential for success in eCommerce. 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 and logistics, processes have to be perfectly coordinated and optimized. If just one link of the supply chain doesn’t function properly it can be felt down the entire supply chain, resulting in reduced success and loss of revenue.

2. Customer reviews as a quality criterion

Supply Chain Management in ECommerce and selling on Amazon

Reputation, measured by customer reviews and experiences, is another important factor that impacts company growth. Price comparison search engines are often the first point of contact for online shoppers and search engine ranking is done based on customer reviews among other things. And how do you continually receive good reviews? By delivering the right product in the right quantity at the right time!

In addition to reviews, 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 favoured in the ranking of search results. That’s just one facet – these platforms also have supply chain key performance indicator (KPI) targets. If one falls below certain minimum values concerning service level, penalties – typically in the form of account suspensions – can be imposed.

eCommerce companies are especially vulnerable to negative feedback since the reputation of your company can be tarnished much quicker online than offline. Not only do eCommerce companies need to watch out for search engine reviews, but also 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 shoot for one thing: offer a great shopping experience with a delivery reliability of 100%!

3. 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 can quickly mutate into obsolete stock (becoming dead capital), and can quickly lead to an explosion in costs.

Supply Chain Management in ECommerce to avoid an overstocked warehouse

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”). As an entrepreneur, both cases entail a high risk for you 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! We have the solution to help you get a grip on these challenges.

Proactive planning is essential, no matter what. For instance, you have to forecast demand at an early stage with 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, take a look at our guidebook on supply chain management. Download it here:

12 question inventory management self assessment eBook