Behind every product-based business lies a complex supply chain, ensuring goods reach customers as expected. When an order is placed, inventory must be accurately tracked, items picked and packed, and shipments coordinated to arrive on time.
Your supply chain is not just a logistical pathway, it’s the lifeline of your ecommerce business. Here’s what you need to know about effective supply chain management in ecommerce.
What is ecommerce supply chain management?
Ecommerce supply chain management is the strategic coordination of logistical processes to manage the flow of goods from suppliers to online shoppers. Supply chain management includes procurement, inventory management, order fulfillment, warehousing, and logistics. Overall, it helps optimize operations, reduce costs, and deliver products quickly and effectively, ensuring customer satisfaction and competitiveness online.
Stages of ecommerce supply chain management
- Planning and demand forecasting
- Sourcing and procurement
- Manufacturing and production
- Inventory management and warehousing
- Logistics and distribution
- Returns and reverse logistics
Ecommerce supply chain management involves a series of interconnected stages, each a critical link in the chain that ensures the smooth operation of your ecommerce business. Let’s examine these stages in detail:
1. Planning and demand forecasting
Planning and demand forecasting require analyzing market trends and customer data to predict product demand. The goal is to balance supply and demand to avoid overstocking or stockouts.
Effective planning ensures that inventory levels meet consumer demands without the business incurring unnecessary inventory carrying costs. For example, by analyzing past sales and current trends for your apparel business, you might order just enough winter jackets to meet forecasted demand, avoiding surplus and the cost of storing unsold seasonal products.
2. Sourcing and procurement
Sourcing and procurement involve establishing relationships with reliable suppliers and manufacturers who can provide the appropriate quality and quantity of products in the required time.
Negotiating favorable terms and managing these relationships is critical. For instance, by negotiating bulk purchase discounts with a supplier, you can reduce costs, and ensure a consistent supply of goods and a high profit margin. However, it’s important to balance the savings against potential increases in storage and carrying costs for holding large inventories.
3. Manufacturing and production
At this stage, a well-managed supply chain ensures the efficient flow of raw materials to production lines. It monitors the transformation into finished goods through advanced processes like 3D printing or traditional assembly lines.
Supply chain management means synchronizing manufacturing schedules with incoming raw material deliveries and outgoing shipments to maintain a balanced inventory, avoid production delays, and ensure timely fulfillment.
Here, efficient supply chain management involves rigorous quality control and smart product packaging. This prevents waste, safeguards against damage, and facilitates efficient storage and transportation.
4. Inventory management and warehousing
A well-organized warehouse is the heart of the ecommerce supply chain, ensuring quick access to products and efficient order fulfillment critical for meeting customer expectations.
Warehouse management systems (WMS) provide real-time insights into inventory levels and facilitate quick packaging and dispatch. A WMS can immediately alert warehouse staff when the stock of a particular item is running low. This allows for timely replenishment to maintain order availability for customers.
5. Logistics and distribution
The logistics and distribution stage, or simply delivery, involves moving goods from the warehouse to the end consumer. Planning efficient delivery routes, scheduling regular deliveries, and choosing the right delivery partners are all part of this phase.
Whether deliveries are made by in-house teams or through third-party logistics (3PL) providers, the aim is to ensure timely and cost-effective transportation of products to customers. It is important to maintain the integrity of the goods throughout the journey.
6. Returns and reverse logistics
Handling returns, or reverse logistics, is just as important as the forward movement of goods. This stage involves processing returned items, managing exchanges or refunds, and dealing with defective products.
One method for handling reverse logistics is having a dedicated portal for customer returns. This expedites the refund process and gathers data to identify why items are returned, preventing similar future issues.
Tips for optimizing ecommerce supply chain management
- Conduct a comprehensive supply chain audit
- Implement advanced inventory management software
- Embrace automation in order processing
- Optimize warehouse layout and management
- Enhance supply chain visibility and tracking with RFID
- Streamline inbound and outbound logistics
- Respond swiftly to supply chain challenges
- Partner with reliable third-party logistics providers
To stay ahead in the competitive ecommerce landscape, take the time to refine your supply chain management practices. Here are nine tips to help you optimize your ecommerce supply chain:
Conduct a comprehensive supply chain audit
Begin with a thorough audit of your existing ecommerce supply chain. Evaluate the flow of raw materials, products, data, and finances to identify profitability issues and pinpoint inefficiencies. Understanding your current supply chain operations allows for informed decisions that improve efficiency and reduce costs.
Mustard Made, founded by sisters Jessica Gray and Becca Stern, sells colorful, vintage-inspired lockers. When the company ventured into US shipping, it recruited potential customers to evaluate its delivery system. Testers, offered complimentary products, provided insights through photos, correspondence, and feedback on the product’s condition upon arrival.
“We had a real ‘test, test, test’ policy,” Stern says in an interview with Shopify Masters. “Before [you] leap in, just practice as much as you can. The more knowledge you can gain, the more you’re going to be able to help your customers.”
Implement advanced inventory management software
Inventory management software is key to keeping track of products. This technology helps prevent stockouts and overstocking, ensuring your ecommerce integrated supply chain remains lean and cost-effective.
Embrace automation in order processing
Automated order processing streamlines order processing when integrated into inventory management software. When a customer clicks Buy, it extracts order details, confirms stock levels, allocates the item from inventory, and generates packing slips and shipping labels—all without manual entry. This reduces lead times, allowing for quicker fulfillment and faster shipment. As a result, you can provide swift and reliable service for customers.
Optimize warehouse layout and management
An efficient WMS is essential for ecommerce, enabling precise inventory tracking and better use of warehouse space. By strategically organizing stock, a WMS ensures quick product retrieval and expedited shipping. This directly improves order processing speed and accuracy, streamlining the fulfillment cycle.
Enhance supply chain visibility and tracking with RFID
By integrating radio-technology frequency identification (RFID) into your supply chains, you can achieve real-time tracking of materials and products. This system uses RFID tags attached to items, which transmit data to RFID readers. The information is then processed and monitored, providing instant visibility at every stage of the supply chain.
This level of transparency allows for swift adjustments in response to fluctuations in demand or supply disruptions. Enhanced tracking can lead to more efficient operations and better inventory management, allowing you to effectively meet customer demands.
Streamline inbound and outbound logistics
Managing incoming and outgoing goods efficiently can reduce delays and cut costs. Establishing solid partnerships with dependable suppliers and distribution centers can ensure raw materials and finished products are transported smoothly through the supply chain. This helps avoid any hold-ups that may affect customer satisfaction.
A practical strategy for optimizing logistics is to develop long-term relationships with your partners to achieve a consistent and reliable flow of goods. “Something that we’ve always done is kept with the same manufacturer,” Mustard Made co-founder Jessica Gray tells Shopify Masters. “For us, the consistency with our products has been really key in our success.”
Respond swiftly to supply chain challenges
While data is valuable, not all supply chain issues can be foreseen. In these cases, you need to be flexible. Mustard Made has experienced various logistics hurdles, including supply chain issues from COVID-19 and complications related to the Suez Canal incident. This prompted the company to make a difficult choice: ending pre-orders.
“To tell customers that [their order] is going to be delayed is upsetting,” says Jessica. “We make sure that we’re only selling products that we have the stock of, and it is sitting in our warehouse currently.”
Partner with reliable third-party logistics providers
Outsourcing logistics to specialized third-party providers can help you tap into a network of global distribution centers and advanced supply chain technology, optimizing shipping routes and reducing transit times. These providers offer scalable solutions that can adjust to fluctuating demand, manage inventory precisely, and provide real-time tracking information to you and your customers.
Supply chain management in ecommerce FAQ
How does ecommerce supply chain management work?
Ecommerce supply chain management involves overseeing the flow of goods from suppliers to customers, including procurement, inventory management, order fulfillment, and logistics, all coordinated through digital platforms for supply chain efficiency and real-time tracking.
What is a supply chain and a value chain in ecommerce?
In ecommerce, a supply chain refers to the end-to-end process of moving a product from raw material to the end consumer. In contrast, a value chain represents the steps a company takes to add value to raw materials, culminating in the final product sold to consumers.
Is the supply chain part of ecommerce?
Yes. The supply chain is a critical component of ecommerce, as it involves procuring, moving, storing, and delivering products sold through ecommerce stores.
