Your supply chain is the backbone of eCommerce operations. It ensures your products are high quality, available when needed, and ready to ship out seamlessly. It also affects costs, storage, and your customer experience.
Running out of stock means you lose sales, reputation, loyal customers, or even a sales channel. Amazon, for example, penalizes listings that sell out through listing placement penalties and restock limits.
At the same time, overstocking is risky. If demand drops, you’re stuck with excess or slow-moving inventory. High storage and warehouse expenses can hurt your bottom line.
Effective supply chain management ensures an optimized amount of inventory per sales channel at any given time. With it, you can keep each SKU stocked according to projected demand, and deliver it quickly and without hassle to happy customers.
Streamlining your supply chain will help you maintain sales, marketplace presence, and profitability — whether you’re manufacturing your own products or outsourcing overseas.
What Goes into a Good Supply Chain?
A seamless supply chain includes a few core components, ranging from production to delivery. Here are the different stages to analyze in your supply chain, along with a few questions to pinpoint any issues.
This ties into your inventory management systems, which should track how much inventory you have on hand and how quickly different SKUs move. Using that information, you can forecast how much of each SKU you need to order and when to avoid last-minute crunches.
Look at who your suppliers are, including their location, reliability, and on-time delivery rate. If you make your own items at a warehouse, consider where you get your raw materials. If you outsource your entire product, assess those supplies.
Do you have local sources nearby? Or do you import goods from overseas and have to work around customs, international holidays, and other logistics?
Next, we turn to the actual production of your items. What goes into the manufacturing process? Are you using the most cost-effective materials and procedures? Does your process result in an item that’s durable, high quality, and easy to ship? If not, you may face more returns than your margins can handle.
What happens to your items after creation? Usually, they aren’t ready as-is to go into a fulfillment network or storage center. They need to have barcodes, sometimes warning labels, and they have to be packaged so they don’t break in transit. Sometimes, you may also want to bundle certain goods together to create a unique offering, and to ensure your items aren’t commingled with other sellers’.
This can be time consuming to coordinate by yourself or even with a small team, especially if you plan to scale and grow your business. Start working with a prep center as soon as you hit volumes of a few thousand per month so you don’t spend all your time on prep work.
Is your inventory distributed in accordance with logistics and deliveries? For example, do you have a prep warehouse near your suppliers, or close to a dock where your items first land? Do you have your items distributed across the USA so you aren’t delivering to some zip codes in two days, and others in two weeks? You also want to ensure your storage facilities stay on top of your inventory needs, like cold storage or FIFO stocking.
Once your items are ready, we then shift to transportation. Your inventory earns nothing sitting on the shop floor. You need to be able to deliver those items to your buyers quickly and efficiently.
Strategic placement of your storage and inventory shortens the distance your items have to travel once someone places an order. Ideally, your product will already be sitting at a warehouse or prep center nearby.
Then, partnering with the right 3PL means you don’t have to worry about late deliveries or broken goods causing negative reviews and returns. Just be sure to triple check their pricing structure so you don’t get stuck with any hidden fees.
Unfortunately, customers change their minds, realize they can’t afford their purchase after all, or maybe find an alternative they like better. Whatever the reason for the return, when it comes to your supply chain management, it’s important to know how to handle them.
You should have a process in place to accept returns and issue refunds, or offer store credit. If you sell high-value items, you could invest in an inspection process to see if the item is fit for resale. If it would cost more to inspect and reprocess your items, you should establish procedures to donate or dispose of your returned goods.
Tip: Track the reason for returns so you can see if something’s wrong in your supply chain or production process, if your marketing materials promise more than you can offer, or something else. This provides great insight to help you optimize your sales funnel.
Last comes tracking, which ensures everything on paper mirrors reality. Does your actual inventory match your records? How often should you run counts, quarterly or monthly? Do your warehouses and fulfillment centers have accurate numbers for your inventory? How successful has your forecasting been?
6 Ways Your Logistics Power Your Sales Flywheel
Your supply chain management extends into other aspects of your business. It supercharges your logistics processes, and your logistics fuels your sales flywheel. Here’s how.
1) Avoid stockouts and old inventory
If you sell out of an item, your sales stumble and your rankings fall. However, if you overstock, your bottom line could suffer with steep long-term storage costs.
2) Provide excellent customer service
What happens when someone bought an item from you, loved it, but then forgot about it? They might check their order history to figure out what they purchased, or reach out to customer service to rediscover it.
You don’t want their customer service experience to be, “Sorry, we don’t have that in stock,” or, “We can’t sell you that just yet, but you can put it on backorder.”
Similarly, what happens when someone reaches out and says they need an item yesterday? The best you can offer shouldn’t be standard shipping, it should be priority — or, better yet, make two-day delivery a standard across your SKUs and customer base.
This all contributes to excellent customer service and a great buyer experience.
3) Protect product quality
A great brand experience is ordering something, getting your item quickly, and opening up your package to find a high-quality deliverable in perfect shape. That’s the bare minimum you need to provide to encourage repeat sales.
4) Foster healthy brand reputation
Breaking the first three steps down, the blockers to a good customer experience are going out of stock, slow delivery, and damaged goods.
Going out of stock does more than hurt your sales — it blocks them. If someone can’t buy a product, you risk getting a bad review or leaving them with a poor perception of your brand. That last impression will follow your reputation whenever they chat with their network about your company.
A slow delivery process could drive customers elsewhere to find what they’re looking for. It could also mean more work for your customer support team, as buyers reach out after two to three days asking, “Where’s my order?”
Also, it’s frustrating having to wait for an item to come back into stock, waiting five to seven business days to get it, and then receiving it only to find it’s damaged. If a buyer experiences this, you can expect plenty of angry reviews and badmouthing.
5) Maintain business resilience
You know what a healthy logistics process gets you? Access to more sales channels. Those, in turn, expand your streams of revenue, which give you business resiliency.
If you lose your income on one channel, you still have other streams of income, so you don’t have to halt your production suddenly or cancel your ads because you can’t afford them.
Here is a key scenario that unlocks sales, despite a sales channel closing down on you: Imagine you have a long-time customer on a marketplace who buys your deodorant whenever they run out. Suddenly, they can’t find your store in their order history list, but they know your brand by now, so they do a quick Google search. They locate your D2C store and buy directly from you.
This triggers a few results:
- You’ve bypassed marketplace fees, putting more money directly into your business for further marketing, product research, and more.
- You now have their information and can promote to them directly by offering subscription refills, asking if they’d like to get a reminder with a coupon when it’s time to reorder, or sharing additional items they’d like to try.
- Based on your marketing success, you can increase their average order value, frequency, and reward them for their loyalty.
All because you invested in your logistics, and ensured business resilience.
6) Keep selling, even when the global supply chain is disrupted
Strong supply chain management ensures you avoid taking on too much inventory risk. That entails opening a diverse stream of sales and supply channels.
This helps you to maintain inventory even if the global supply chain gets disrupted. In turn, your brand earns a reputation for being truly reliable in the face of anything.
Plus, distributing your inventory across multiple sales points and warehouses improves your ability to navigate marketplace changes that pop up during “unprecedented times.”
How to Achieve a Healthy, Reliable Supply Chain
We’ve covered the what and why, now let’s get into the how.
Keep organized and transparent records
Record-keeping is a tedious but necessary part of running any business. A robust supply chain starts with an organized record-keeping process, whether it’s for digital files or hard copies. Without a clear data process in place, your flywheel won’t turn. You could lose track of entire shipments, or get into arguments with your suppliers about unpaid invoices or agreed-upon prices.
You should have clear visibility into when your items will be ready for sale, weak links in your supply chain, and alerts for reorders and sales volume. These all help you stay ahead of deadlines and prevent stockouts.
Most of this can be done with software that integrates across your sales channels and warehouses, but be sure to keep track of things like receipts, contracts, and SLAs in folders that are easy to filter through and find.
Be strategic about your inventory placement
Strategic inventory placement impacts your delivery speeds, inbound and outbound costs, and prep efficiency. By distributing your items close to demand, you save on warehousing and avoid unsold inventory having to be transported to other locations. You also help speed up delivery, whether it’s going from your warehouse network into FBA, or directly to your buyers.
Developing your inventory placement plan requires an understanding of how quickly items leave your different warehouses. It also means analyzing sales per channel, SKU, zip code, and time period. This allows you to calculate how much stock you need for each platform, for that quarter, and in which regions, which reduces overordering and prevents stockouts.
Maintain efficient warehouse processes
If you manage your own warehouse, you’re responsible for moving products in and out the door in a timely, repeatable, and traceable fashion. This means establishing standard practices in your warehouses. For most eCommerce stores, that includes a few key things.
- Integrate barcode scanners. Scanning products in and out helps you keep track of items in an organized and traceable manner.
- Set up a clear process for adding inventory. Inventory should go through the same procedure every time it comes into the warehouse. That might mean: Inspection, labeling, scanning, and storing your items in the right area. You might also need a more complex FBA prep process if you don’t use a prep service.
- Use clear pick and pack processes. Pick and pack processes have to be clear, strict, and expandable to every item type. In most cases, it can be built into a simple checklist like:
- Select the product based on order SKU
- Inspect the product
- Scan the barcode
- Pack the product
- Inspect the packaging
- Print shipping labels
- Seal the package
- Label the package
- Place the package in a postage pickup area
It could also mean choosing a pick and pack type that works for your throughput. For example, if most orders contain the same products, you might want to set up a batch picking process. If batch picking isn’t sufficient to meet volume, another strategy like wave picking might be ideal. The important thing is to have a clearly defined process for every order.
Nail your delivery and distribution logistics
Logistics can take the form of dropshipping, delivering yourself, automated delivery, partnering with a carrier, or outsourcing to a 3PL. They all have their pros and cons, and which one fits you will depend on your business model.
For most eCommerce stores, self-fulfillment isn’t sustainable or scalable. Marketplaces like Amazon, Walmart, and eBay all demand fast shipping. Shipping products across the U.S. in a day can be challenging, but 3PL and automated solutions like FBA can take the entire process out of your hands.
Although it costs slightly more upfront, in the long run, it could be more cost effective than investing in a distribution network at your volume of sales. It’s always important to look at your options, do the math, and switch to a solution that balances cost versus investment.
Have clear inventory tracking
Most eCommerce stores sell across multiple platforms. Unless you’re delivering everything through a third-party logistics (3PL), that means splitting inventory.
For example, many stores use FBA, a warehouse, and a fulfillment center. In this case, you have three inventory locations to track — that’s without calculating any geographic spread. A seller with this setup needs to track sales velocity across geographic areas and determine how much inventory they need in different locations versus how much is available today.
Tip: Look for logistics partners who provide their own dashboard with inventory reports, so you can see exactly how much inventory you have with any one provider.
Invest upfront in customer service
When operating distribution, you’ll also have to handle reverse logistics and customer service. If you move your entire inventory to FBA, Amazon will handle this for you. With merchant fulfillment, you’ll have to accept returns, record customer complaints, and issue refunds and returns.
You need a platform in place to track, manage, and enable this data processing. In many cases, solutions like partnering with a 3PL can be advantageous.
For example, they can distribute products with return shipping labels. You aren’t billed for return shipping unless they’re used, and customers have an easy and convenient way to return products if they so choose. This eventually improves your customer service, boosting sales in the long term.
Wrapping up — How Good Supply Chain Management Fuels Your Sales Flywheel
Supply chain management involves a lot of moving pieces. You have to stay on top of every aspect of your inventory at all times, from where and how it’s made, to where it’s stored and how it’s delivered.
But, as complicated as good supply chain management is, it enables every other aspect of eCommerce. It’ll boost your brand reputation, give your customers a great buying experience that keeps them coming back, and help you optimize your spend to boost your profits.
If marketing drives the sales flywheel, supply chain management is the oil that keeps all the components moving smoothly.
- The Flywheel Effect of Good Supply Chain Management - July 19, 2021