Ecommerce Supply Chain Management Guide & Tips
The ecommerce supply chain encompasses a variety of moving parts that all work together to complete the fulfillment and delivery of customer orders. Without a doubt, the efficiency of your supply chain management (SCM) is a determining factor in your company’s growth — and its longevity. But building a strategic (and functional) supply chain takes a solid understanding of the individual stages and key metrics that define and measure this process from start to finish.
In the following guide, we’ll take a deeper look at exactly that: the six stages of the modern ecommerce supply chain, the most important metrics for you to track, and how to design the most effective supply chain for your unique business model.
What is the ecommerce supply chain?
The ecommerce supply chain is made up of a series of logistics processes, including the procurement of raw materials, manufacturing of finished products, warehousing, fulfillment, inventory management, and last-mile delivery. In addition, an ecommerce supply chain typically oversees supply and demand, inventory tracking, and various distribution schedules. The primary goal of ecommerce supply chain management is to ensure quality products and consistent product offerings, as well as to guarantee customer satisfaction with every order.
What are the stages in the ecommerce supply chain?
Each stage of the ecommerce supply chain plays a pivotal role in operating a successful product-based brand (with an exemplary service level). Generally speaking, this type of supply chain can be categorized into six different segments: supply and demand; warehousing; inventory tracking; order entry; order management; and distribution, delivery, and returns.
Supply and demand
Supply and demand is a familiar concept within the world of ecommerce, as it has a significant impact on how retailers institute product pricing and how quickly they can fulfill customer orders. There is an elusive equilibrium point where supply and demand are the same, meaning the price (and quantity) of a vendor's goods matches the consumer demand for said items. Because this equilibrium point is rarely reached — and rather, constantly in motion — it becomes the responsibility of the ecommerce supply chain to react and respond to these fluctuations.
Warehousing is an integral component of any supply chain management strategy, as it involves both inbound and outbound functions like housing finished goods and packing physical orders. In other words, warehousing facilities serve as the hub for all aspects of receiving, storing, and distribution. Everything from product identification (via product categories) and dispatching for shipment falls under the jurisdiction of your warehousing operations. Today, many retailers use a warehouse management system (WMS) to keep their warehouse operations running smoothly.
If you run an ecommerce business, one of your most basic duties is to make sure you’re stocking the right inventory in the right quantities. Since your inventory is constantly in flux (thanks to customer orders and incoming replenishment), it’s incredibly important to know which products you have available at any point in time. As its name implies, inventory tracking is a method for tracking (or monitoring) your inventory levels throughout the supply chain, so you can readily meet consumer demand, prevent overselling, and reduce excess inventory items.
Order entry refers to the process of recording an order slip (i.e. a customer’s order) into your order handling system, where it’s then internally reclassified as a sales order. With this sales order in tow, retailers can schedule the necessary activities to fulfill that order — like raw materials procurement, production, warehousing, picking, shipping, and invoicing. Sales orders actually play a central role in ensuring each sale is well-documented and properly conducted, so both your store and the customer know what to expect in terms of fulfillment and delivery.
Order management interacts with nearly every stage of your ecommerce supply chain, as it begins when a customer places an order and ends once the delivery is complete. Simply put, order management supports online retailers in coordinating their entire fulfillment process, from inventory visibility and order collection, all the way down to service availability. Fortunately, an order management system (OMS) can help simplify this order lifecycle, by providing automations for inventory tracking and generating real-time insights on inventory data.
Distribution, delivery, and returns
Delivery and distribution are focused on product movement from the supplier or manufacturer to the final point of sale; distribution management, then, is an overarching term to describe supply chain actions like packaging and warehousing. Product returns, on the other hand, exist in contrast to delivery and distribution, since they’re considered a part of reverse logistics. This means that returns reverse the common flow of raw materials and finished goods throughout the supply chain, and instead move items from the customer back to their seller or manufacturer.
What key metrics should you track in the ecommerce supply chain?
The truth is, it’s next to impossible to understand how well your supply chain is performing (and where you have room to improve) if you’re not actively tracking key metrics or analytics. With that said, the most valuable metrics for your business can be divided into three distinct categories: diagnostic metrics, predictive metrics, and prescriptive metrics.
Diagnostic metrics are used to analyze supply chain issues and ‘diagnose’ the cause behind these concerns. In essence, they catalog supply chain events to evaluate why something happened, as well as to inform where improvements can (and should) be made. Implementing diagnostic metrics often includes processes like data mining and/or data discovery.
Predictive metrics help forecast what’s likely to occur within your supply chain in the future. More specifically, they take historical data and feed into a machine learning model to examine key trends and buying patterns. This information is then applied to current inventory data to help determine what’ll happen next, like a surge in sales following a new marketing campaign.
Prescriptive metrics recommend specific actions your business can take to affect its predictive outcomes. Once you have an idea of future happenings within your supply chain, prescriptive metrics can suggest a course of action to navigate these events with ease. If you’re anticipating an increase in sales, these metrics make sure you have enough stock to meet demand.
How to design an effective ecommerce supply chain
When it comes to establishing an effective ecommerce supply chain, there are a number of actionable tips you can use to ramp up your ongoing operations. Among the most useful and accessible strategies are lowering your shipping cost and delivery time, reorganizing your existing warehouse space, and implementing advanced software solutions.
Reevaluate your current supply chain situation
Regardless if you have a single sales channel or you’re an experienced omnichannel retailer, there’s a good chance your company would benefit from reevaluating its supply chain strategies. In doing so, you can uncover issues within your workflow to figure out which of your vendors are causing bottlenecks or product delays. Look for flaws in your fulfillment activities or for areas of congestion that when cleared, could really enhance your supply chain as a whole.
Lower your shipping costs and delivery times
The reality of modern ecommerce is that customers expect lightning-fast delivery times, on par with those of Amazon shipments. One of the best ways to meet (and even exceed) customers’ expectations is by lowering your shipping costs and subsequent delivery windows. Keep in mind, if you offer free shipping, lower rates will boost your profit margins; if customers pay for shipping, however, they’re more apt to give positive feedback when those costs are low.
Better manage your workforce
The majority of fulfillment centers around the world still rely on manual labor, which can get pretty expensive as your company continues to grow. If you can't secure a favorable ROI by leveraging automation, the next best thing is to manage your employees more effectively. With the help of productivity benchmarks and improved time management, you can create a better managed workforce that will lower your cost per order (CPO) and increase your order fill rate.
Reorganize your existing warehouse space
Moving to a larger warehouse facility is not always practical, nor is it always possible for small businesses or up-and-coming brands. Instead of scoping out more square footage, you can reorganize your existing warehouse space so it becomes more functional and profitable. By reimagining the layout of your distribution center, you can address inefficiencies related to storage capacity and inventory movement so your ecommerce supply chain flows freely.
Increase the number of picked orders
Order picking is the first step in the order fulfillment process, and involves the retrieval of products from their respective warehouses. Accurate order picking is paramount to the success of the ensuing fulfillment stages, from packing, to shipping, to post-sales activity. If your brand can increase its cumulative picked orders, it’ll translate to faster shipment and an elevated customer experience (which is the key to driving revenue in both the short and long-term).
Use technology to decrease processing time
Barcode technology has essentially revolutionized the way warehouse logistics operate. Barcode scanners and labels allow ecommerce stores to track the who, what, and when of all warehouse activities, which increases accuracy to a notable degree. On top of that, utilizing barcodes decreases the processing time for receiving, replenishment, returns, and more — all of which adds up to a more efficient (and effective) ecommerce supply chain.
Team up with a third-party logistics provider
If your store doesn’t have the funds or capacity to manage its own fulfillment center, you might benefit from teaming up with a third-party logistics provider (3PL). While this strategy may not be appropriate for every brand, certain ecommerce companies can gain a lot from partnering with a 3PL. Entering into this kind of relationship can regulate all the moving parts of your supply chain, as well as connect your business to a large network of fulfillment locations.
Implement advanced software solutions
Advanced software solutions — like an ERP or an OMS — can transform your ecommerce supply chain in a major way. Not only do inventory and order management systems offer automations to streamline and synchronize your operational tasks, but they directly contribute to cost savings, as well. What’s more, inventory management software delivers around-the-clock data and analytics to help you maintain inventory control and optimize your reordering process.
How to improve supply chain management with Skubana
Skubana is an all-in-one ecommerce solution designed specifically for online merchants. The Skubana system is renowned for its ability to unify, automate, and grow your business in this new age of retail, so your store can deftly handle all its incoming orders and upgrade its supply chain management in a cost-effective fashion.
Make data-driven supply chain decisions
Skubana’s platform supports everything and everywhere you sell, thanks to its unified dashboard that brings clarity to every stage of the supply chain. In addition to uniting your operations within a convenient database, Skubana also assists with inventory tracking, minimum order quantities, and production lead time across every supplier. This way, you gain greater visibility into your inventory levels to make more data-driven supply chain decisions.
Improve the efficiency of the ecommerce supply chain with automation
The inventory management system from Skubana is equipped with numerous automations to drive productivity, lower costs, and amplify business intelligence. By automating your order management rather than relying on error-prone manual processes, you can easily improve the efficiency of your supply chain functions. Skubana’s multifaceted automations track your order status, monitor counts throughout your warehouse, and source real-time data on your inventory.
Acquire relevant insights for better decision-making
Skubana has the inventory management tools needed to power (and grow) your ecommerce success for years to come. With Skubana’s innovative forecasting features, your business can increase its profits across each of your warehouses and channels, all the way down to the SKU. Plus, retailers can continually track savings and acquire the relevant insights they need to encourage more informed decision-making — and to better serve their end customers.
Frequently Asked Questions
What is the purpose of inventory?
The purpose of inventory is to provide retail operations with an ongoing, perpetual supply of goods and materials. To see this purpose fulfilled, your business needs to find a ‘sweet spot’ between carrying too much and too little inventory, without ever running out of stock completely. This balance (often achieved with the help of inventory management software) will provide a notable increase to profitability and keep your company’s services running smoothly.
What are the main types of inventory?
While inventory is an umbrella term for the array of goods you sell or produce, there are actually separate subcategories of inventory you’ll want to pay attention to. The five types of inventories are: raw materials, work-in-progress, finished goods, packing materials, and MRO supplies. Although there are other kinds of inventory on the market, these five are generally the most popular or prevalent, and most often found on a company’s official financial accounts.
What does inventory reveal about a business?
Tracking and/or analyzing inventory data is a great indicator of business performance, especially when looking at inventory turnover. When a company is able to sell its inventory faster than its competitors, it’s likely to enjoy lower holding costs and better profit margins — which, in turn, lends itself to greater efficiency of sale and more success in the long run.
Matthew Rickerby is the Director of Marketing at Extensiv, the leading solution for multichannel, multi-warehouse D2C brands. For the past ten years, he’s covered e-commerce topics ranging from SEO to supply chain management.