23 Nov How does a Retail Supply Chain Work in E-Commerce?
Every e-commerce business goes through the supply chain process. You have to source materials from suppliers and deliver your products to customers. A retail supply chain is the connected network of raw materials, processes, and information systems required to make and deliver products. In simple terms, it’s the process that moves a product from the manufacturer to the customer. However, there are some details you need to consider to understand how the retail supply chain actually works. For retailers, successfully managing supply chains is essential to their survival. Being able to source the right products, at the right price – for them to be delivered on time – can make the difference between a great quarter and layoffs. Or worse.
Managing your retail supply chain is how you can effectively optimize the processes to make them as efficient as possible.
THE RETAIL SUPPLY CHAIN NETWORK
Your retail supply chain is made up of a number of processes and third parties working together to deliver your products to your customers. These include:
- Planning the inventory and manufacturing processes to ensure supply and demand are balanced.
- Manufacturing or sourcing materials needed to create the product.
- Assembling parts and testing the product.
- Holding inventory in a warehouse.
- Packaging the product for shipment.
- Transporting and delivering the finished product to customers.
- Providing customer service support for returned items.
The supply chain starts with the raw materials – that make the products you will eventually buy – and doesn’t end until the customer purchases the final product.
SUPPLY CHAIN MANAGEMENT
Managing your retail supply chain is how you can effectively optimize the processes to make them as efficient as possible. Supply chain forecasting is essential in e-commerce and a major facet of supply chain management. Without supply and demand forecastings, it is hard to run a smooth e-commerce supply chain without any predictions on future demand, pricing trends, and even product or material availability. Not setting budgets based on where you think the business will be in the future could result in overspending, making it hard to take advantage of opportunities as they come up. Effective forecasting is a delicate process of stock management, understanding the market and your customers, and interpreting the data.
LOWER SHIPPING COSTS
Customers expect free shipping and your competition is cutting their costs here to try and differentiate. It’s worth taking the time to build a strategy to deal with shipping costs. For example, you can negotiate terms with your suppliers in order to reduce your shipping cost, in exchange for early payment or bulk orders. Alternatively, you could offer a 10% discount if you pay within 14 days. This saving can then absorb courier costs when a customer places an order with free shipping. Supply chain management is a critical part of your business process. There are many different links in this chain that require skill and expertise and post COVID supply chains have become more challenging. However, effective supply chain management can lower your costs, but you need to be careful as we’ve learned that “just in time” isn’t always in time.
AVOID UNHEALTHY INVENTORY
There are occasions (such as holidays like Christmas) when retailers have to buy early and buy in bulk. Retailers have to have their orders placed as early as the Spring to ensure they have the stock by September. That’s a significant outlay with no return for at, best, six months. This can put you in a challenging position. You need cash flow to buy the inventory to keep the business moving until that six-month investment can come good. Unless your business has cash reserves to help combat busy periods, your working capital could dry up. This can leave you unable to place orders or otherwise sustain the business.
GROWTH CAPITAL TO SUPPORT PROFITABILITY
A healthy cash flow is the other crucial element to a successful online retail business and supply chain. The problem with e-commerce is that there are ebbs and flows that can make cash flow difficult. This can especially be an issue if you rely on third-party marketplaces to sell your goods. Waiting 45-60 days for payment is less than ideal and can make planning difficult. Although managing your retail supply chain can be more complicated than just waiting for the payment to hit your bank account. Having positive cash flow and healthy working capital gives your business more flexibility and reduced risk. You can invest in more inventory more quickly as your sales grow. You can put money towards marketing and advertising campaigns. You can negotiate better prices with suppliers and vendors. In other words, if you’re able to pay them early or upfront, they might be willing to discount costs, or shipping fees. A working capital advance gives you access to a large lump sum of cash that is calculated based on your projected sales revenue.