Supply chains are central to optimal eCommerce results. The supply chain includes everything from ordering raw materials from suppliers to ensuring products are delivered to consumers in the best condition. Needless to say, any issues in these intricate processes and lack of Supply Chain optimization leads to customer dissatisfaction and a poor reputation.
Supply chains are an intricate collection of processes. Issues in one portion of the chain will disrupt every downstream process. As a business owner, optimizing your supply chain for efficiency will reduce these issues and help you build strong customer and vendor relationships.
In short, if building a robust eCommerce business is your goal, you must optimize your supply chain.
Here are 3 ways to achieve Supply Chain optimization.
1. Operational Planning
Your operations are an integral part of the supply chain. Daily production activities impact supply chain efficiency. For instance, the quality of inventory storage and manufacturing efficiency impact delivery lead times.
The best way to begin is to review your operations for gaps. Are your processes achieving their stated goals? More importantly, are you measuring the right metrics? Measuring wrong metrics might paint a great process in a bad light, leading to wrong conclusions.
It’s best to involve your vendors when planning new operational processes. You don’t have to involve them deeply, but letting them know in advance is essential. Communication of this kind will prevent any procurement delays.
Metrics such as rework rates or defective products help you understand how well your operations are working. Examine every point of the manufacturing process and pay attention to on-site inventory storage. Damage often originates from in-house storage, leading to costly reverse logistics.
Benchmark your manufacturing efficiency against your competition using tools such as the ones from Sana Commerce. These tools will help you track the right KPIs and measure performance accurately.
2. Financial Planning
Supply chains and your finances are intricately connected. Your financial models will inform tasks such as procurement and capital needs. For instance, when do your sales spike, and how much cash will you need to order raw materials? When will you place your orders, and what are your suppliers’ lead times?
Growing eCommerce companies often run into issues when planning purchases. Their inventory needs increase exponentially as more customers buy their products. However, a lack of financial planning leaves them in a working capital hole. Most business owners sell equity to keep the cash flowing, losing a significant chunk of returns in the process.
Good financial planning takes funding options into account as well. Instead of opting for costly equity or debt financing, seek supply chain-based financing and tie cash injections to your procurement needs. For instance, tools from eCommerce financing company 8fig help you plan supply needs and schedule cash injections at the right moment.
When projecting financial needs, make sure you stress test your assumptions. For instance, double your expected expenses and stress test your margins. Model your results if delays hit logistics. The benefits of this exercise are enormous. You’ll automatically create processes to address worst-case scenarios and will build a more robust business.
3. Contingency Planning
Stress tests will naturally lead you to visualize and prepare for all contingencies. For instance, if one of your suppliers suffers a factory shutdown, how will you cope? You can’t think of all the things that can go wrong, much less plan for them. However, this exercise will help you cover the common risks affecting the supply chain.
Supplier disruption is one of the leading causes of eCommerce product delivery delays. Large manufacturers relying on agile manufacturing processes build several contingencies into their plans. Smaller companies can draw a leaf from large manufacturers’ books to build their plans.
For instance, large companies never concentrate raw material orders with a single supplier. They spread orders out. Smaller companies cannot spread their orders thin without experiencing significant cost increases. However, do not rely on a single supplier just for the sake of boosting your margins.
Many business owners think concentrating orders with a single supplier creates gross margin efficiency. However, it creates an inefficiency in the bigger picture. The moment your supplier faces issues, your supply chain is disrupted. By spreading orders you’ll bear additional costs. However, you’re less likely to suffer a negative brand image when one supplier goes offline.
You must also avoid relying on a single logistics partner or fulfillment agency. Overreliance on a single partner is never a good idea in the supply chain. Spreading your business between multiple vendors gives you the chance to choose the best performers and prioritize them.
Supply chains are critical to your eCommerce business’ success. Take the time to execute the tips mentioned in this article, and you’ll create Supply Chain optimization. Higher revenues, net margins, and increased customer satisfaction will naturally follow.