Supply Chain Management in eCommerce: A Complete Guide

Supply-Chain-Management-in-eCommerce blog image

A supply chain is a network of interconnected processes and activities that work in unison to deliver a product or service to the end customer. Supply chain management plays a pivotal role in the success of an ecommerce business.

This blog post will guide you on the key principles, best practices, and challenges related to supply chain management in eCommerce. It will help you optimize your own eCommerce supply chain operations to maximize the potential of your eCommerce store.

Takeaways
  • eCommerce supply chains heavily rely on technology for order and inventory management, demand forecasting, and transportation optimization
  • Accurate prediction of customer demand is crucial to avoid stockouts or overstocking
  • Balancing inventory levels is crucial to minimize carrying costs and prevent stock outs or excess stock
  • Efficient and accurate order fulfillment and responsive customer service are essential for building customer loyalty
  • Last-mile delivery can be costly and complex, requiring efficient route optimization and cost-effective solutions

What Is Supply Chain Management (SCM)?

Supply Chain Management (SCM) refers to the planning, coordinating, and controlling of all activities related to the flow of materials, information, finances, and services from the initial supplier of raw materials to the final customer.

SCM aims to create a streamlined and efficient process that minimizes costs, maximizes efficiency, and ensures timely delivery of products or services.

Why Is eCommerce Supply Chain Management Important?

Supply chain management in eCommerce is what helps online businesses thrive.

It’s an important element in eCommerce for various reasons:

  • Customer Expectations: In eCommerce, customers expect quick deliveries and a seamless shopping experience. SCM helps meet these expectations by ensuring efficient order processing, inventory management, and last-mile delivery services.
  • Global Reach: eCommerce often involves international suppliers and customers. SCM helps businesses manage the complexities of global supply chains, including customs, regulations, and international shipping.
  • Inventory Management: Efficient SCM enables eCommerce businesses to optimize their inventory, reducing holding costs while ensuring products are in stock when needed.
  • Cost Efficiency: Proper SCM can reduce operational costs by minimizing waste, reducing overstock or stockouts, and enhancing resource utilization.
  • Competitive Advantage: Businesses that excel in SCM gain a competitive edge. Efficient supply chain operations can lead to better pricing, faster delivery, and improved customer satisfaction, making customers more likely to return.
  • Risk Management: In eCommerce, various risks, such as delays, product defects, or geopolitical issues, can disrupt the supply chain. SCM includes strategies for risk mitigation and contingency planning.

Stages in an eCommerce Supply Chain

eCommerce Supply Chain

An eCommerce supply chain consists of several stages, each crucial in efficiently delivering products or services to the end customer.

Here are the typical stages in an online retail supply chain:

  1. Sourcing and Procurement

This is where the supply chain begins. eCommerce businesses source their products or raw materials from suppliers, which can be local or international.

eCommerce businesses carefully choose suppliers based on factors like product quality, pricing, reliability, and location. Procurement involves negotiating contracts, selecting suppliers, and ensuring a steady supply of goods.

  1. Product Development

For businesses creating unique products, there may be a product development stage. This involves designing, prototyping, and manufacturing in-house or collaborating with suppliers.

The business has to decide how and where to manufacture the product while maintaining product quality at every stage of development.

  1. Production or Manufacturing

If the ecommerce business manufactures its products, this stage involves the actual production process.

This can range from sourcing raw materials, assembling components, and transforming the raw materials into finished products.

  1. Warehousing and Inventory Management

Once products are procured or manufactured, they are stored in warehouses or eCommerce fulfillment centers.

eCommerce businesses often employ multi-location warehousing to be closer to customers for quicker delivery.

It involves monitoring stock levels, tracking products, and managing inventory to optimize stock turnover, minimize overstocking, and avoid stockouts.

  1. Order Processing

When a customer places an order on the ecommerce platform, the order processing stage is initiated.

This involves picking the ordered items from the inventory, packing them, and generating shipping labels with order details and delivery information.

  1. Distribution and Fulfillment

In this stage, the packed orders are dispatched to fulfillment or distribution centers for delivery.

Distribution can involve various modes, from in-house delivery teams to third-party logistics (3PL) providers. eCommerce fulfillment centers play a vital role in ensuring accurate and speedy order delivery.

  1. Last-Mile Delivery

The last-mile delivery is the final leg of the journey, where products are delivered to the customer’s doorstep.

This stage is often the most critical for customer satisfaction. eCommerce businesses can utilize courier companies, postal services, or in-house delivery teams to complete the final delivery.

  1. Returns Management

If the customer is unsatisfied with the product delivered, eCommerce supply chains must also handle returns efficiently.

This involves inspecting returned items to determine their condition and whether they can be restocked, refurbished, or need disposal.

Benefits of eCommerce Supply Chain Management

eCommerce Supply Chain Management (SCM) offers several benefits that can significantly impact a business’s operations and competitiveness.

Here are some of the most profound benefits of eCommerce SCM:

BenefitDescription
Improved Efficiency
  • Optimizes operations by automating tasks and providing real-time visibility into the supply chain.
  • Leading to faster and more accurate order processing, reduced errors, and improved inventory management.
Cost Reduction
  • Reduces costs through process automation, lower labor expenses, and inventory control optimization.
  • Helps minimize carrying costs and prevent overstocking and stockouts.
  • Data analytics enable informed, cost-saving decisions.
Enhanced Customer Service
  • Results from quicker order processing, shorter delivery times, and real-time tracking, leading to higher customer satisfaction.
  • Reduced errors in fulfillment improve customer experiences, and personalization features cater to individual customer preferences, fostering stronger customer relationships.
Increased Product Variety
  • Facilitates the expansion of product offerings.
  • Efficient inventory management accommodates more products.
  • Dropshipping and third-party fulfillment options enable a broader range without stocking everything in-house.
Scalability
  • Designed to grow with the business.
  • Cloud-based solution are flexible and adapt to changing demands without hefty upfront investments.
  • Integration with various sales channels and marketplaces supports expansion into new markets and sales avenues.
Inventory Optimization
  • Uses advanced algorithms and data analysis to strike a balance in inventory management, ensuring the right amount of stock on hand – not too much to tie up capital and space and not too little to risk running out when customers order.
Demand Forecasting
  • Involves analyzing historical sales data and market trends to predict future demand
  • Enabling more accurate inventory decisions and reducing the risk of holding excess inventory or not having enough to meet customer demand.
Global Reach
  • Allows expansion into international markets with logistical and operational support to serve customers worldwide
  • Increases potential for revenue growth and market diversification.
Sustainability
  • Includes practices like waste reduction, optimized transportation routes to minimize emissions and eco-friendly packaging materials.
  • Aligns with environmental goals and contributes to a positive brand image.
Competitive Advantage
  • Effective SCM strategies enable businesses to stand out in a competitive marketplace
  • Faster and more accurate order processing and superior customer service attracts and retains customers, providing a competitive edge.
Data Insights
  • Provides a wealth of data for valuable insights into supply chain performance, helping businesses make informed decisions, identify areas for improvement, and adapt to changing market conditions.
Risk Mitigation
  • Identifies potential risks and disruptions in the supply chain, from transportation delays to natural disasters.
  • Enables proactive risk mitigation ensuring a more resilient supply chain.
Compliance and Quality Control
  • Ensures products meet regulatory standards and quality control criteria
  • Reduces the risk of legal issues, product recalls, or reputational damage due to non-compliance or subpar product quality.

10 Best Practices for Supply Chain Management in eCommerce

Effective supply chain management is crucial in eCommerce to ensure smooth operations and meet customer expectations.

Here are ten best practices for supply chain management in eCommerce:

  1. Demand Forecasting
  • Analyze historical data and market trends to accurately predict future demand
  • Plan inventory levels to ensure products are available when customers need them.
  1. Multi-Channel Integration
  • Seamlessly integrate your eCommerce platform with other sales channels
  • Centralize order and inventory management across various channels, including marketplaces and brick-and-mortar stores
  1. Supplier Collaboration
  • Foster strong relationships with suppliers to streamline the supply chain
  • Good communication and collaboration ensure timely deliveries
  1. Real-Time Visibility
  • Implement systems that provide real-time visibility into your supply chain
  • Track inventory, orders, and shipments to identify and address issues promptly
  1. Robust Warehouse Management
  • Invest in technology, automation, and layout design to enhance warehouse operations
  • Minimize errors and delays, ensuring faster order fulfillment
  1. Transportation Optimization
  • Optimize transportation routes and carriers to reduce shipping costs and delivery times
  • Consider using data and software for efficient eCommerce logistics planning
  1. Returns Management
  • Develop a streamlined process for handling returns to improve customer satisfaction and save costs
  1. Quality Control
  • Implement quality control procedures to ensure products meet the highest standards
  • Reduce the risk of returns and enhance customer satisfaction
  1. Data Analytics
  • Leverage data analytics to gain insights into supply chain operations
  • Make informed decisions, identify improvement areas, and enhance efficiency
  1. Continuous Improvement
  • Regularly review and update supply chain processes
  • Streamline operations, reduce costs, and enhance customer service to stay competitive in the eCommerce industry

Supply Chain Management Challenges in eCommerce

Supply chain management in eCommerce faces several challenges due to the complex nature of online retail.

Here are five top eCommerce challenges in supply chain management:

  • Demand Volatility: eCommerce businesses often experience unpredictable spikes in demand, such as during sales promotions, holidays, or unexpected events like the COVID-19 pandemic. Managing and forecasting these fluctuations can be challenging.
  • Inventory Management: eCommerce requires a delicate balance in inventory management. Overstocking ties up capital and storage space, while understocking leads to lost sales and dissatisfied customers.
  • Last-Mile Delivery: Delivering products to the customer’s doorstep (the “last mile”) is often the most costly and complex part of the supply chain due to issues like high delivery costs, delays, and customer accessibility.
  • Returns and Reverse Logistics: eCommerce experiences higher return rates than traditional retail due to factors like buyer’s remorse or product dissatisfaction. Handling returns and reverse eCommerce logistics is a complex and costly challenge.
  • Technology Integration: Integrating and managing the various technologies, platforms, and software systems used in eCommerce can be challenging. This includes managing your eCommerce website, order management system, inventory software, and more.

Tips to Help Optimize Your eCommerce Supply Chain

Optimizing your eCommerce supply chain is crucial for efficient operations and customer satisfaction.

Here are five more tips to help you achieve this:

  1. Data-Driven Decision Making

Utilize data analytics to gain insights into your supply chain performance.

Analyze historical data, track key performance indicators (KPIs), and use this information to make informed decisions.

For example, demand forecasting, inventory management, and route optimization can all benefit from data analysis.

  1. Automation and Technology

Embrace eCommerce automation and technology to streamline your supply chain. Automate routine tasks like order processing, inventory tracking, and order fulfillment.

Invest in eCommerce management systems like warehouse management systems (WMS), inventory management software, and other technology to manage your operations efficiently.

  1. Multi-Channel Integration

If you sell through multiple channels (e.g., your website, marketplaces, and physical stores), integrate these channels to centralize order and inventory management.

eCommerce integrated supply chain ensures consistency and accuracy, making managing and fulfilling orders from different sources easier.

  1. Dynamic Routing and Delivery Windows

Implement dynamic routing for your last-mile deliveries.

Use software solutions that can adjust delivery routes in real-time based on traffic, weather, and order volume.

Additionally, offer customers flexible delivery windows to reduce missed deliveries, allowing them to choose a time that suits their schedule.

  1. Dropshipping and On-Demand Manufacturing

Consider incorporating dropshipping or on-demand manufacturing for certain products.

This eCommerce strategy reduces the need to stock large inventories, saving storage costs and reducing the risk of overstocking.

It allows you to fulfill orders as they come in, optimizing inventory levels and reducing carrying costs.

What Is an eCommerce Supply Chain Audit, and How Do I Complete One?

An eCommerce supply chain audit is a comprehensive review and assessment of all the processes, systems, and components of your online retail supply chain.

The goal is to identify areas for improvement, potential weaknesses, and opportunities for eCommerce supply chain optimization.

Here’s how to complete an effective eCommerce supply chain audit:

  1. Start by defining your objectives and outlining what you want to achieve with the audit.
  2. Gather all relevant data, including process flows, inventory records, supplier contracts, and technology systems.
  3. Create a visual map of your supply chain, detailing the flow of goods and information from sourcing to customer delivery.
  4. Evaluate the performance of your suppliers and partners, considering factors like reliability and cost-effectiveness.
  5. Assess your technology and systems, such as inventory and order management tools.
  6. Examine your eCommerce inventory management practices, looking for excess or obsolete stock. Also, assess order fulfillment processes for supply chain efficiency and accuracy.
  7. Review transportation and logistics to optimize routes and reduce shipping costs. Also, evaluate customer service and how you handle returns and complaints.
  8. Consider sustainability and ethical considerations, assessing if there are ways to reduce environmental impact and support ethical sourcing.
  9. Evaluate your quality control procedures and ensure your eCommerce supply chain complies with laws and regulations.
  10. Identify potential risks and develop strategies for mitigating them.
  11. Compile your findings and recommendations, and create an implementation plan with timelines and responsibilities.

What Metrics Should I Track in My eCommerce Supply Chain?

In your eCommerce supply chain, it’s essential to track key performance metrics to monitor and improve operations.

Here are some critical metrics to consider:

  • Order Fulfillment Rate: Measure the percentage of customer orders successfully fulfilled. This indicates how well you meet customer demands.
  • Inventory Turnover: This metric shows how quickly you sell your inventory. A high turnover rate signifies efficient inventory management.
  • Customer Order Cycle Time: Track the time it takes from order placement to delivery. Faster delivery times can enhance customer satisfaction.
  • Shipping Cost as a Percentage of Sales: Monitor how much you spend on shipping relative to your total sales. Lowering this percentage can improve profitability.
  • Perfect Order Rate: Measure the rate of accurate orders delivered on time and damage-free. A high perfect order rate indicates efficient eCommerce supply chain processes.
  • Inventory Accuracy: Monitor how closely your recorded inventory matches physical inventory. High accuracy reduces errors and improves efficiency.
  • Return Rate: Track the percentage of orders returned by customers. Reducing returns can lower costs and enhance customer satisfaction.
  • On-Time Delivery Rate: Measure the percentage of orders delivered on time. Consistently meeting delivery promises is crucial for customer trust.

What Strategies Can eCommerce Companies Use to Scale Their Supply Chain Operations?

Scaling up your eCommerce supply chain operations is crucial for accommodating eCommerce growth while maintaining efficiency.

Here are the strategies to help achieve this:

StrategyDescription
Invest in TechnologyImplement advanced digital supply chain management software, automation, and data analytics to enhance visibility, streamline processes, and support decision-making as your operations expand.
Leverage Cloud-Based SolutionsUtilize cloud-based supply chain technology for scalable solutions that can grow with your business. This approach reduces the need for significant upfront investments in hardware and software.
Optimize Warehouse OperationsImprove warehouse layouts, invest in automation, and implement efficient picking and packing processes to handle increased order volumes without a proportionate increase in labor.
Flexible Supply Chain NetworksDesign an agile and scalable eCommerce supply chain network with strategically located distribution centers to reduce shipping times and costs as you serve a broader customer base.
Supplier DiversificationWork with multiple suppliers or manufacturers to ensure a continuous flow of products. Supplier diversification reduces the risk of supply chain disruptions during periods of growth.
Supply Chain Risk ManagementDevelop strategies for mitigating supply chain risks arising during expansion, including planning for potential disruptions and having contingency measures in place.
Continuous ImprovementRegularly review and optimize supply chain processes to identify areas for improvement. Scaling is an ongoing process, and you should adapt to changes in your business and the market to maintain efficiency and competitiveness.

Conclusion

Supply chain management is one of the critical aspects of running an eCommerce business.

With the supply chain strategies and best practices discussed in this article, you can effectively manage your eCommerce supply chain and help your online business grow.

Start building your eCommerce business today using the best website builders and apply these supply chain management strategies to achieve maximum return on investment.

Next Steps: What Now?

Learn More About eCommerce

Frequently Asked Questions

How has eCommerce affected the supply chain?

eCommerce has significantly impacted the supply chain by shifting how products move from manufacturers to consumers. It has accelerated the demand for faster and more flexible delivery options, increased the need for efficient inventory management, and led to changes in transportation and eCommerce fulfillment strategies.

What is an example of an eCommerce supply chain?

An example of an eCommerce supply chain is the process of getting a product from an online retailer to a customer’s doorstep. This includes sourcing products from manufacturers, warehousing, order fulfillment, transportation, and last-mile delivery.

Is the supply chain a function of eCommerce?

Yes, supply chain management is a critical function within eCommerce. It involves the planning, execution, and monitoring of all activities associated with the movement of products and information. Efficient supply chain management ensures timely order fulfillment, minimizing costs, and meeting customer expectations.

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