How to Manage a Lean Supply Chain

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Your website is live, your supply chain is up and running, and customers are receiving their orders — but if you’re looking to grow your ecommerce business, your work is not yet done.

In order to scale your operations and achieve profitability, you will need to keep asking yourself one question: “How can I do more with less?”

This question is at the heart of any lean supply chain strategy. Whether you’re just starting to build out your logistics or your business has been established for years, there are always places to simplify and streamline operations within your ecommerce supply chain.

By implementing the right process improvements, technology, and efficiency optimisations, merchants can create a lean supply chain that:

  • Significantly cuts their logistics costs.
  • Speeds up order processing and fulfilment.
  • Improves customer satisfaction with quicker delivery.
  • Ultimately positions themselves for growth, even in a turbulent market.

In this article, we’ll discuss why lean supply chains are gaining popularity, why ecommerce retailers should consider moving to lean supply chains, the best lean supply chain techniques, and how to use the right 3PL partner to help you transition to a leaner supply chain.

What is a lean supply chain?

A lean supply chain is a supply chain that is optimised to eliminate unnecessary or inefficient logistics processes, costs, or time consumption, with the goal of reducing lead times and making the overall order lifecycle as efficient and cost-effective as possible.

For DTC ecommerce brands, a lean supply chain gets orders to customers quickly, accurately, and on time, through an efficient system that minimises a merchant’s operational expenses.

To make their supply chains more lean, retailers can explore different supply chain optimisation techniques throughout procurement, production, and distribution, or outsource supply chain management to a 3PL.

Why retailers are creating lean supply chains

During the first wave of the COVID-19 pandemic, ecommerce businesses quickly discovered that their supply chains were not agile enough to keep up with sudden spikes in demand or major delays from manufacturers, couriers, or even at ports.

In response, merchants all over the ecommerce space began rethinking their retail supply chains to focus on efficiency and resilience — and as the pandemic continues into the holiday season of 2021, ecommerce operations will need all the advantages that a lean supply chain provides. Here are just some of the benefits of a lean supply chain that have prompted ecommerce merchants to optimise their logistics systems.

Reduce inventory waste

In bloated supply chains, excess inventory (or worse, deadstock) takes up valuable storage space that could be used for other products, and costs merchants more in rent or holding costs the longer it sits unsold. Inventory shrinkage as a result of accounting errors or theft is common in these supply chains, and also harms a business’s bottom line by leaving retailers with the sunk cost of the missing product.

Lean supply chains, on the other hand, employ inventory management strategies for tracking inventory levels and timing replenishment to combat this waste and reduce costs, so that an ecommerce business has just the right amount of inventory on hand just in time to meet customer demand, without accidentally over- or understocking.

Optimise order fulfilment

Establishing lean processes for order fulfilment activities such as order processing, picking, packing, kitting, and assembly does wonders for your business’s overall productivity and efficiency.

A streamlined order production system not only moves finished goods through the supply chain faster (reducing lead times), but also results in fewer errors that require precious time and money to fix. Quicker fulfilment with higher accuracy translates into cost savings for the merchant, and end customers who are likely to convert again.

Automation drives efficiency

Logistics automation is playing an increasingly large role in day-to-day operations for ecommerce businesses, with increasingly positive results. With automation handling lower value, repetitive, or tedious tasks, employees can be allocated to areas where they are truly needed — that is, complex tasks and functions that require finesse or human strategy.

This simultaneously increases speed of fulfilment and order accuracy while decreasing costs. Together, different types of automations across the supply chain collectively make that supply chain’s operations leaner.

Data-driven decision-making

Data — and the decisions it drives — underpins every lean supply chain strategy. As long as you are tracking the right metrics, data reveals where you can eliminate waste within your supply chain. This allows you to target your optimisation efforts, greatly reducing the time, energy, and other resources spent on trial-and-error improvements.

Insights from inventory and historical sales data also facilitate lean supply chain planning, as information regarding past trends can help create an agile supply chain that prepares wisely for changes in customer demand.

6 tips for lean supply chain management

A lean supply chain requires continuous improvement and attention in order to keep fulfilment costs down, efficiency and velocity high, and customers happy; but when your business has relied on the same SOPs for years, switching to lean thinking can be difficult.

Fortunately, lean principles can be employed throughout the entire supply chain — so even if your supply chain is functioning well-enough, there are almost always areas where lean supply chain management techniques can trim non-value costs, time, or stresses to produce a more efficient logistical operation. Here are 6 lean supply chain techniques retailers can implement to boost supply chain efficiency and overall profitability.

Leverage state-of-the-art technologies

The right technology deployed strategically across the supply chain is a powerful catalyst for supply chain efficiency. With a holistic tech stack, merchants can synchronize the various functions within their supply chain so that an order’s journey is as simple and seamless as possible.

Consider leveraging technology from the very start of the supply chain by implementing an order management system to view, track, and edit orders through their life cycles, as well as an inventory management system to organise your SKUs and track stock levels.

Automations within these systems — including automated order processing, order confirmation emails to customers, and automatic notifications when a SKU hits its reorder point — push orders to fulfilment more quickly, and prevent mistakes that slow operations down.

Similarly, in fulfilment, repetitive or tiresome warehousing tasks such as locating inventory, picking similar items, or selecting the optimal packing box size for a shipment can now be automated using goods-to-person (GTP) solutions to save time and effort.

Alternatively, if building a tech stack doesn’t appeal to you, 3PLs like ShipBob often bundle multiple technology platforms together to offer merchants a more streamlined experience. ShipBob’s dashboard, for example, combines the features of an OMS and IMS in one automated platform to keep our customers’ logistics simple (with out-of-the-box integrations to other tools as well).

“ShipBob has grown since we started, and the capabilities have been tremendously useful for us. Having the analytics and seeing how everything is working together has been extremely helpful for me on the operations end. It definitely helps me with inventory management and seeing what’s going on. The enhancements ShipBob has made over time has truly helped us on a day-to-day basis. Even though we’ve grown, I haven’t spent more time on the business from an operations standpoint.”

Dana Varrone, Director of Operations at Organic Olivia

With enough scrutiny, you will almost always discover stages or activities where supply chain efficiency can be improved. More top-of-mind functions within the supply chain (such as order management, fulfilment operations, and shipping logistics) are natural go-to areas for optimisation — but in addition to those, merchants can usually find other, less obvious niches to optimise, including:

  • Mistake correction
  • Out-of-date or obsolete software (or lack of software altogether)
  • Lag time between supply chain stages
  • Returns management
  • Transit times

Use data to forecast demand

Data-driven demand forecasting is essential for a lean and agile supply chain. By carefully analising historical sales data to determine what products have sold most quickly and when, merchants can predict seasonal demand with greater accuracy and allocate inventory closer to where it is most likely to be sold.

This way, retailers keep the right products in stock, and meet customer needs without overstocking. Using this data to calculate safety stock levels, SKU reorder points, and reorder quantities also helps merchants avoid stockouts and backorders, which can decimate customer loyalty.

“ShipBob’s analytics tool is really cool. It helps us a lot with planning inventory reorders, seeing when SKUs are going to run out, and we can even set up email notifications so that we’re alerted when a SKU has less than a certain quantity left. There is a lot of value in their technology.”

Oded Harth, CEO & Co-Founder at MDacne

Evaluate your procurement process

How efficiently a business obtains new, sellable finished goods impacts its entire supply chain — so to set your supply chain up for success, you should always consider refining your procurement process.

First, take a step back and reevaluate your supplier or manufacturer. The ideal partner may or may not be physically close to you (as transporting finished goods from international manufacturers or suppliers can quickly balloon expenses and extend timelines), and will also be striving to cut costs and production lead times.

More brands are looking to diversify their manufacturing mix, and partner with suppliers both domestically and abroad for a leaner supply chain as the world experiences raw material shortages, COVID-driven factory shutdowns, port congestion, and even rising container shipping costs.

Second, examine the manufacturing process itself for optimisation opportunities. For lean manufacturing, consider how your supplier or manufacturer sources their raw materials, how the production timeline aligns with replenishment timing, or whether the manufacturer could handle more of the product assembly up front to save time and energy (and even costs) later on in the supply chain.

Through discussing potential improvements with your manufacturer or supplier, you’ll get a sense of how committed they are to optimisation, and whether or not you’ll need to find a new one to continue scaling.

Optimise your warehousing

Basic warehousing best practices can go a long way in making your supply chain more lean. Conduct regular warehouse audits to track inventory levels and reduce waste before product is even stowed away — and when it comes time to pick, try implementing more efficient picking strategies (such as wave picking, batch picking, and zone picking) reduce the effort and time (through walking from one side of the warehouse to another) required to fulfil similar orders.

Install a digitized warehouse management system, or WMS, to get full visibility into both inventory and operations, and to identify and resolve inefficiencies in real-time. Or, to bypass the trouble of owning, renting, or operating a warehouse altogether, explore partnering with a 3PL like ShipBob that has its own warehousing space and fulfilment services.

Outsource to the experts

Incorporating experts as part of your supply chain management strategy is an excellent means of keeping your supply chain lean while maintaining top-quality fulfilment and logistics (and allowing you to focus on fewer parts of logistics and master them, doing more with less on your plate).

3PLs and other supply chain partners develop the infrastructure, tech stacks, best practices, and resources to handle large volumes of orders smoothly — so rather than attempting to build a similar infrastructure yourself, outsourcing supply chain operations to a professional allows you to take advantage of what they’ve already built at a low cost to you.

This way, with the help of SCaaS experts like ShipBob, retailers can avoid owning high-cost and depreciating investments such as leases and equipment and maintain an agile, lean supply chain and healthy bottom line.

How ShipBob helps you manage a lean supply chain

At ShipBob, we are passionate about helping small businesses and midsize ecommerce businesses do more with less. Using lean supply chain best practices and technology, ShipBob transforms logistics systems from cost centres to revenue drivers by optimising for cost and efficiency at every stage of the supply chain.

Retain real-time visibility

From the moment an order is placed, ShipBob’s order and inventory management software is specifically designed to help users identify, eliminate, and avoid waste by providing full supply chain visibility and control of their orders and inventory — even when it’s happening outside of their four walls.

Retailers can track orders in real-time, and check updated inventory levels at a glance to make sure that product moves along as quickly, smoothly, and cost-effectively as possible. These systems are also fully integratable with major ecommerce platforms, so that our customers can manage their various logistics from one simplified, intuitive dashboard and avoid the headaches and confusion of juggling systems.

“We have access to live inventory management, knowing exactly how many units we have in Texas vs. Chicago vs. New York. 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. ShipBob simplified the entire process for our accountants and for us.”

Matt Dryfhout, Founder & CEO at BAKblade

Explore new insights

Because it integrates directly with most ecommerce store platforms, ShipBob’s software can also access and pull valuable data on your ecommerce store’s entire supply chain. Our built-in analytics and reporting track the metrics needed to drive meaningful optimisation in your supply chain, such as the most common destinations of your orders, inventory turnover rates, safety stock levels, reorder points, and average fulfilment cost per order.

ShipBob’s software will also track your historical sales data to improve demand forecasting, so that you can store only what you need just in time for when you’ll need it, and allocate inventory strategically to further optimise for cost, risk, and efficiency.

Go global, faster

Merchants can store their inventory in any one (or more) of ShipBob’s international fulfilment centres — all of which utilise ShipBob’s bespoke WMS, which standardizes, streamlines, and optimises supply chain processes.

This way, ShipBob’s customers can maintain an asset-light, leaner approach to operations while still having the highest-quality receiving, stocking, fulfilment, and packing services. In addition, ShipBob’s distributed inventory approach to stocking enables merchants to store their inventory in distributed warehouses and fulfilment centres to increase supply chain resilience, reduce shipping costs, and offer faster or even 2-day shipping.

Altogether, ShipBob’s expertise, technology platform, and analytics tools equip ecommerce businesses to go lean, so that our partners’ businesses thrive and grow in the future.

“I always wanted a truly global fulfilment partner — I had been trying to find this solution for years. ShipBob has multiple fulfilment centres in the US, one in Canada, one in the EU, and one in the UK, and all locations filter back into one centralised warehouse management system. By distributing our inventory across these countries and regions, all of our customers are able to get their orders much faster while paying reasonable domestic shipping rates.”

Wes Brown, Head of Operations at Black Claw LLC

Can a supply chain become too lean?

For ecommerce merchants, meeting your customers’ expectations is top priority — so there is no harm in paring down your supply chain for efficiency, as long as customers still receive the correct order at the correct time in the correct way. However, if your operations become so sparse that you cannot satisfy your customers, you will need to reinvest in your supply chain to stay afloat.

Is there software that can help create lean supply chains?

Merchants can use a variety of different technologies and software systems to make their supply chains more lean. Order management, inventory management, and warehouse management software platforms all help to keep a merchant’s backend operations organised and highly efficient. Some 3PLs, like ShipBob, will bundle these softwares into one intuitive platform or operating system, as well as offer integrations with other value-adding softwares to further streamline your supply chain. Other common tools include ERP systems, transportation management systems, and even artificial intelligence (AI).

How do I know if my supply chain is lean?

To know if your supply chain is lean, you will need to measure your operations over time and assess whether efficiency improves as you implement new changes. Begin tracking logistical data such as the number of orders processed, average fulfilment and shipping cost per order, and lead times, as well as customer-focused metrics such as perfect order rate and customer churn. Over time, as you continue to make adjustments to increase efficiency in your supply chain, you should see material and opportunity costs decrease, while throughput and order accuracy remain consistent or increase.

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Written By:

Rachel is a Content Marketing Specialist at ShipBob, where she writes blog articles, eGuides, and other resources to help small business owners master their logistics.

Read all posts written by Rachel Hand