How Supply Chain Management Helps the E-Commerce Industry
Supply chain management is a crucial component of e-commerce. It helps e-commerce companies maintain optimum efficiency at all operational levels. That’s why it is so important for e-commerce businesses, especially as they grow in size. It’s because, with their expansion, inventory also expands. Excess inventory can lead to dead stock, while too little stock can impact customer satisfaction. Supply chain management improves cost-effectiveness and provides several other benefits to e-commerce companies.
What does e-commerce supply chain management entail?
Supply chain management in e-commerce is a complex process, but it broadly consists of the following three stages:
- Procurement of raw material
- Distribution of the manufactured products at the right time.
Besides the above three processes, managing these two vital components are very important for e-commerce companies:
Inventory Management: Inventory is one of the most critical components of supply chain management. Traditionally, businesses used their warehouses to stock products and then sold them directly to customers. But, the e-commerce businesses of today follow the following two strategies for better inventory management:
- Risk-pooling strategy: In this model, e-commerce companies do not hold their inventory; they rather outsource their inventory to a larger wholesaler. This way, they can alleviate the risks associated with keeping their own inventory.
- Drop-shipping model: Besides the risk-pooling model, many businesses adopt the drop-shipping model for managing their inventory. In this model, an e-commerce company does not store the product it is selling on its website; instead, it purchases the product from a third party and ships it to the customer.
Reverse Logistics: Online retailers also have an SCM structure that involves reverse logistics, in which goods are moved from the point of consumption to the point of origin. In other words, the returned or exchanged products are taken back to the seller. Although beneficial for the customers, the facility of exchange and returns increases the need for logistics for e-commerce companies.
How does Supply chain management help optimize e-commerce operations?
Effective supply chain management helps optimize e-commerce in the following ways:
- It helps to maintain better contact with the manufacturers.
- E-commerce companies can plan for surges or dips in demand ahead of time.
- E-commerce companies can keep track of their distributors. For example, Amazon and eBay use Key Performance Indicators to assess the credibility of distributors. If the KPI is below certain minimum values, then their account can be suspended.
- Successful optimization of e-commerce also means businesses can mitigate issues their buyers face. Slow delivery, for instance, can negatively impact the business. Supply chain management helps coordinate and optimize all the links in the supply chain so that customers don’t have to face inconvenience.
With the help of the right data and a well-managed supply chain, e-commerce companies can cut costs for their businesses and offer their customers an online sales and revenue channel that maximizes communication, transparency, and customer satisfaction.