What is Supply Chain Management? Key Principles + Best Practices
April 1, 2020
Products go through quite a journey before they reach your customers. They are manufactured, reviewed for quality, stored temporarily, and shipped (often several times) before they actually reach the end consumer.
Even one broken link in the ecommerce supply chain can lead to a ripple effect that ultimately leads to harmed margins, lost revenue, and a drop in customer satisfaction.
Examples of this include ordering too few products that result in stockouts and using a single manufacturer that shuts down for a period of time and causes production delays.
In today’s world of 2-day shipping and wanting everything now, customers don’t want to hear that their order will be delayed.
Here, we’ll cover how supply chain management works for ecommerce businesses, what the global supply chain looks like, and best practices for SCM.
What is a supply chain?
A supply chain is a system focused on moving a product or service from supplier to customer. This system is made up of sellers, manufacturers, people, information, resources, transportation modes, and more.
What is supply chain management?
Supply chain management is the oversight of the movement of raw materials and finished goods inventory, from the point of production to getting in the hands of the end consumer.
How good supply chain management makes your ecommerce business more efficient
Supply chain planning and management is what keeps a business moving. Therefore, if it’s slow or not optimized, you can’t grow efficiently. Ecommerce businesses of all sizes have a lot of unseen opportunity to improve their supply chain.
Whether it’s diversifying manufacturers and working with local suppliers, changing how inventory is stored in warehouses, or even outsourcing fulfillment to the right third-party logistics (3PL) provider, there are plenty of ways to improve your supply chain to save money and keep customer satisfaction high.
Having the right amount of product at the right time
Proper supply chain management ensures you can anticipate and forecast demand for products and always have enough on hand. If you don’t have enough safety stock, you run the risk of stockouts and backorders, causing your customers to wait longer for their orders. With too much inventory, you’ll have to pay high warehousing fees, which eats up your capital.
Minimizing lag time between parts of the supply chain
By analyzing and optimizing your supply chain, you can minimize lag time and make the chain more efficient.
- Are your products taking too long to be manufactured? Negotiate better terms or find another supplier.
- Are your transit times slow and average shipping zones high? Analyze your warehouse locations and determine fulfillment center location(s) that are closer to your end customers.
- Are you constantly out of stock for popular products? Up production, invest in inventory forecasting, set more frequent reorder points, and increase your reorder quantity.
By examining every aspect of your supply chain, you can find improvement opportunities and implement changes as needed.
Reducing fulfillment costs
Order fulfillment can be costly for your business if it’s not implemented strategically. Inefficient inventory storage, poor geographic locations, high shipping costs, and unoptimized labor and operations can add up over time and kill your margins. Ecommerce businesses benefit from effective fulfillment that is not just a cost center but a revenue driver if optimized correctly.
The 5 steps of managing an effective ecommerce supply chain
Ecommerce businesses have a different supply chain compared to brick and mortar retailers. Instead of having products shipped to a retail location, products are stored in an ecommerce warehouse and shipped directly to consumers. Here’s an overview of what the ecommerce supply chain looks like:
1. Find a supplier
The first link in the chain is the manufacturer. Though it will depend on the types of products you sell, you’ll need to find a supplier that can manufacture your product in a safe, cost-efficient, and timely manner. Here are some questions to ask when evaluating potential suppliers:
- Where are the raw materials coming from?
- If your manufacturer is overseas, have you ever evaluated the shipping savings of a closer-to-home supplier?
- Can your goods be made closer to home?
- Have you looked at diversifying your suppliers to have other sites as backups for risk management in the event that a factory shuts down?
- Can you cut costs and production lead times?
- Does your supplier know when products need to be reordered?
- Can your manufacturer further package or build your products to reduce the need for kitting and assembly in the fulfillment center?
Having risk management built into your supply chain at times like the COVID-19 pandemic are more important than ever.
2. Place orders based on demand
Demand planning allows you to anticipate changes in volume and ensure orders are placed at the right time so that you never run out of inventory and also don’t have money tied up in excess inventory. An inventory management system can help manage this.
3. Plan shipping needs
You must coordinate with your manufacturer on how your product(s) or raw materials will be transported. If you have multiple warehouses, you need to ensure that the right amount of inventory reaches each specific warehouse and the proper documentation is included with the freight shipments.
4. Receive inventory at the fulfillment center
Once inventory is received at a fulfillment center, it must be properly stored. Each SKU needs its own unique storage spot for accurate and fast retrieval (e.g., a red shirt that is available in S, M, L, XL, and XXL will require five separate storage locations).
5. Ship orders to your customers
The final link in the supply chain is the ecommerce fulfillment process. This requires picking the items in the order, packing them into a box or poly mailer, and shipping the package to the customer. Fast fulfillment and shipping can be a competitive advantage for your business over competitors.
What links all of the parts of a supply chain?
A supply chain is made up of a lot of moving parts. There are physical goods continuously being transported, with lots of critical information that must be shared across several stakeholders. With the combination of physical and digital counterparts, a supply chain in today’s world is a complex beast that require a lot of attention to detail.
Transfer of physical inventory
From the manufacturer to the end consumer, there are many inventory movements across different modes of transportation including:
- Vessels moving inventory overseas
- Trucks that pick it up at the port and bring it to a fulfillment center
- Warehouse associates who receive it at the dock, count, and stow it in the fulfillment center
- Pickers and packers who retrieve inventory and pack it in the fulfillment center
- Shipping carriers who pick up daily orders at the fulfillment center, bring them to their sorting facilities, and carry out last-mile delivery
- International orders that travel via air or sea, stop at customs, and are sometimes handed off to a different carrier
For each of these movements, there needs to be a digital trail to ensure order accuracy and visibility in inventory reporting.
Transfer of information
There’s a lot of data being exchanged in a supply chain — between suppliers and buyers, sellers and customers, shipping carriers and sellers — and it must be recorded, analyzed, and shared with the proper parties in a timely manner. From order tracking to inventory tracking, the right technology must be in place to keep information organized, clean, and accessible.
How ShipBob can optimize your supply chain
Ecommerce companies that don’t want to oversee warehouse management themselves can simplify supply chain management by working with 3PLs like ShipBob. Doing it yourself is time-consuming and costly, with lots of labor, training, certifications, resources, safety measures, and other costs that make in-house fulfillment unappealing to many.
On the flip side, 3PLs are experts in supply chain management, know how to optimize operations, and keep up-to-date on the latest supply chain trends and technology. ShipBob fulfills orders for thousands of ecommerce brands across their large network of fulfillment centers and gives brands time back to focus on marketing, product development, and more.
Here’s how a 3PL like ShipBob improves your supply chain management:
Better inventory management
The best 3PLs give you the information you need to manage inventory without having to store products yourself. Inventory levels for all products are tracked in one place and you can set automatic reorder notifications to make sure you never run out of inventory.
“With ShipBob, we have access to live inventory management, knowing exactly how many units we have in Texas vs. Chicago vs. Pennsylvania. It not only helps with our overall process in managing and making sure our inventory levels are balanced but also for tax purposes at the end of the year.”
Matt Dryfhout, Founder & CEO of BAKblade
ShipBob has a large network of fulfillment centers to help get your products to customers quickly and affordably. Your fulfillment costs can improve by shipping orders from warehouses closest to the customer. With lower shipping costs and faster fulfillment, you can expect both higher customer satisfaction and repeat purchase rates.
“As we started to hit that first inflection point of growth, it became apparent we needed to look for a 3PL that could help us expand geographically in the US and also drive down shipping costs and expenses. With ShipBob, we’ve saved 25% on shipping.”
Michael Peters, VP of E-Commerce Operations of TB12
Amazon’s 2-day Prime shipping is a great conversion tool and drives a lot of revenue. With ShipBob, our efficient supply chain enables you to replicate this on your own ecommerce site. This helps you compete with Amazon without having to spend an exorbitant amount of money.
“Expanding into a second ShipBob fulfillment center brought a 13% cost savings to our bottom line. We were also able to increase our 2-day shipping ground coverage by 103%.”
Pablo Gabatto, Business Operations Manager at Ample Foods
With real-time visibility into your orders from the ShipBob dashboard and automated order processing, you can keep customers up-to-date and also easily access order management metrics and fulfillment performance.
“ShipBob’s technology provides immediate visibility into inventory and the flexibility to quickly correct and edit customer errors post-order. We also don’t have to worry about fulfilling large volumes of orders on time, all at once, or by ourselves.”
Carl Protsch, Co-Founder of FLEO Shorts
Your ecommerce supply chain can affect how your business grows. With a properly managed supply chain, you can scale your business without having to constantly worry about manufacturing, inventory levels, warehouse issues, shipping, and more. There are unseen profits to be gained from fixing even a few minor inefficiencies in your supply chain. You may be surprised at the amount of waste that’s in your own supply chain.
If you want to learn more about how your ecommerce business can optimize your supply chain through ShipBob, request a retail fulfillment quote below and our supply chain professionals will be in touch shorty.