What Is Supply Chain Management in Ecommerce Omer Riaz July 7, 2022

What Is Supply Chain Management in Ecommerce

e-commerce supply chain flow cart

The world of supply chain management in ecommerce is continuously evolving, and if you think that having a fantastic website and extensive product catalog are the only factors that can enhance your business, you are wrong. 

You need a properly developed system to send products to customers as soon as possible at minimal costs. However, compromising on quality and integrity is not an option. At this point, the role of supply chain management comes in. 

Nowadays, the landscape of e-commerce is highly competitive, and you have to be capable enough to meet the changing expectation of buyers. Your customers can find thousands of alternatives similar to your product. Effective supply chain management can play a pivotal role in retaining customers for a long time, increasing profitability, and enhancing customer experience to dominate the market. 

Supply Chain Management in Ecommerce

 

Customers expect fast delivery (one or two days) on their online purchases. Therefore, effective supply chain management is crucial to enhancing customer experience. 

In this article, we will communicate to you what is supply chain management in e-commerce and how you can optimize your e-commerce supply chain strategy. 

Supply Chain Management in Ecommerce 

Within e-commerce supply chain management, the flow of information, finances, and resources are managed at different stages, from supplying raw materials to delivering the final product to the end consumer. 

The members included in the supply are: 

  • Suppliers 
  • Vendors 
  • Logistical companies 
  • Fulfillment centers 
  • End consumer 

Every entity plays a crucial role in maintaining your supply chain management and retaining customers. Ensure that each above entity works effectively to smoothen your market operations. 

Working on e-Commerce supply chain 

The process of an e-commerce supply chain starts from the supplier side and ends on the consumer. The main component of your supply chain is the end consumer, who will rate the product quality and services. 

The product flows from the supplier to the end consumer within the supply chain working process. The manufacturer converts the raw materials suppliers provide into a final product, then transports them to the warehouse, fulfillment centers, and finally to the consumer who ordered the product. 

After a long time, supply chain management systems have developed to a large extent. The manual handling of the supply chain is replaced by the latest tools or software to increase the efficiency, productivity, and speed of business operations.

Stages of E-commerce Supply Chain 

Following are the different stages of e-commerce supply chain management. 

  • Planning: In this stage, you are supposed to collect data on the inventory needed to meet your customer’s needs and demands. 
  • Sourcing: At this stage, you are looking for vendors and suppliers who can provide you with the required inventory to meet the rising customer demand. 
  • Manufacturing: Here, you convert the raw material into finished products. After testing the product, it is properly packaged and stored for consumer delivery. 
  • Delivering: In this stage, the product is transferred to the end consumer. 
  • Managing returns:  In this process, you manage the return orders from your customers due to any defect or expiration. 

Every stage of supply chain management is vital to improving the efficiency of supply chain management. 

Benefits of Optimizing Supply Chain Management in Ecommerce Ecosystem 

Following are the key benefits of optimizing your supply chain management process. 

  • Operations Visibility: Optimized supply chain management provides you visibility on the real-time data so you can identify any problems to resolve them instantly. 
  • Cost Reduction: Working with optimized supply chain management will ensure that your customer receives the exact ordered product. It will automatically reduce the uncertainty of product returns and sales loss. Hence, your operating costs will decrease, and profits will escalate. 
  • Minimizing Delays: An optimized supply chain management always ensures proper and proficient communication with suppliers and warehouses to provide immediate response and delivery to customers. It leads to increased satisfaction of your customers, and you get more revenue. 
  • Precise Forecasting: The availability of real-time data provides you with the changing aspects of consumer behavior, your warehouse capacity, demand for the product, and transportation services. Having this data available allows you to correctly forecast the demand for products from the consumer side and manage your inventory accordingly to meet consumers’ demands. Resultantly, you avoid overstocking the products, which can easily result in lost revenue. 
  • Instant Response to Fluctuation: Optimized supply chain management ensures that all the entities in the supply chain are communicating effectively. The operative communication between the entities enables instant response to any fluctuation or changes in the demand side. 
  • Stock Availability: It’s a highly influential factor to keep your stock levels filled with meeting the customers demand and providing a high level of service. Suppose a customer places an order, and you are out of stock, then the chances of losing the customers increases. 
  • Market Expansion: If your supply chain is well established, you are more likely to expand your market and reach more consumers. 

On the other side, your business can face multiple challenges if you work with weak supply chain management. For instance, lack of transparency, poor communication between supply chain entities, and absence of accurate forecasting can easily lead to business loss or even complete shutdown of the business. If your customers are not receiving the orders on time, you can never retain them for a long time. 

How Can You Optimize Supply Chain In Ecommerce?

Your supply chain management should be capable enough to meet the rising demand of customers without overstocking and delaying in-order delivery. Below are some potential strategies to optimize your supply chain management process. 

Analyzing the current situation of your supply chain management in ecommerce

Conduct an audit of your current supply chain and identify any gaps impacting business performance. Examine among the entities that either they work effectively and where you are facing any weaknesses. After finding the problem, work on resolving the matter. 

Essential Things to Track 

Look for the key performance indicators of your supply chain management and track them. Following are the essential KPIs for your supply chain. 

  • Supply chain fill rate: This KPI represents the total percentage of orders you can meet based on an available stock without losing a sale. It helps you to manage your orders without overstocking or wasting them. If you want to calculate your supply chain fill rate, simply divide the total number of orders shipped to the customers by the number of orders placed and multiply it by 100. 
  • Inventory turnover: It’s a valuable metric that determines how many times you have successfully sold your inventory in a particular timeline. Your inventory turnover reflects the efficiency of the supply chain. If the turnover is low, it means poor performance. To calculate the inventory turnover, divide sold goods cost by average inventory. 
  • C2C time: C2C stands for cash to cash time which reflects the total time taken to send cash to suppliers and the time customers take to send money to you. 
  • Perfect order index: This metric represents the performance of your supply chain management in ecommerce. You can simply calculate the perfect order index by multiplying the percentage of timely delivered orders by the percentage of complete orders by the percentage of orders that are damage free by the percentage of orders with accurate documentation by 100. 

Create constructive strategies to improve each KPI. For instance, if the perfect order index is low, it indicates an unsatisfied customer experience. If you reduce the delivery time, it can improve the perfect order index, and customers will be satisfied. 

Create Constructive Strategy 

Develop strategies to improve your KPIs and reduce the cost of fulfillment and labor while maintaining customer satisfaction. Here are a few techniques you can follow. 

  • Understand the behavior of your customers and meet their changing demands. You can do it after conducting surveys, analyzing competitors, and examining your sales trends. 
  • Use the effective inventory management tool to accurately forecast future demand, so you don’t miss out on sales. It’s also beneficial to keep the stock filled 24/7. 
  • You should reduce the delivery time and costs in your outbound and inbound supply chain. 
  • Simply outsource your inventory and fulfillment concerns from third parties. It will make your life easy and help you focus on other important aspects of your business. 
  • Create a supply chain structure that is easily adaptable to the changes in the market.  

Using software 

Invest in the best inventory management software to automate your crucial supply chain management in ecommerce aspects. It will automatically increase your delivery speed and improve efficiency.

Best Practices to Follow 

After knowing all about what is supply chain management in ecommerce now comes the best practices to develop an effective supply chain management process. 

  • Use the best inventory management tool to manage your inventory and trigger automation. 
  • The communication between the supply chain entities should be compelling enough to ensure efficiency and make better decisions. 
  • Instantly respond to your customers’ changing needs and queries. Moreover, deliver the products on time to ensure efficiency. 
  • Increase the capacity of your warehouse as your business expands. 
  • Implementing barcode technology will make your life easy and provide an accurate location of products and their movement. 
  • Use a reliable third-party logistic company service.  

FAQs

What is the role of supply chain management in ecommerce?

E-commerce allows businesses to reduce overall costs, improve data accuracy, refine supply chain processes, and improve customer satisfaction. 

What is supply chain management, with example?

Supply chain management in ecommerce is the combination of multiple activities that starts with obtaining raw materials from suppliers and ends up delivering the final product to the consumer. An example of a supply chain includes manufacturing, packaging, etc.