Strong supply chain management entails far more than most people realize.
When most people hear the words “supply chain,” they’re likely to think of the wide variety of product shortages that became especially problematic during the height of the COVID-19 pandemic. Production shutdowns, shipping issues and other challenges often meant that in-demand products were hard — or impossible — to find. E-commerce companies — especially smaller startups — were especially vulnerable to supply chain issues because they often failed to understand the broader scope of what supply chain management really means.
The Council of Supply Chain Management Professionals (CSCMP) likely has the best definition of what supply chain management truly means. According to their Glossary of Terms, “Supply chain management encompasses the planning and management of all activities involved in sourcing and procurement, conversion, and all logistics management activities. Importantly, it also includes coordination and collaboration with channel partners, which can be suppliers, intermediaries, third party service providers, and customers. In essence, supply chain management integrates supply and demand management within and across companies.”
There are several key words worth paying attention to in CSCMP’s definition that reveal how successful supply chain management is much more than keeping track of shipping records. I want to highlight three key terms that are essential for any company, but are often overlooked by e-commerce sellers.
All Activities
First, it’s important to consider what is meant by “all activities” in supply chain management. The ultimate goal of supply chain management is to cut extra costs while simultaneously delivering your products to your customers in a quick and efficient manner.
This requires much more than choosing a shipping partner. It starts with planning: predicting product demand, the amount of materials needed and the costs and capacity of manufacturing and shipping partners. Paying close attention to how to fund product orders is something that e-commerce companies often overlook.
As Yaron Shapira, co-founder and CEO of 8fig explained, “Cash flow can make or break an e-commerce business and its supply chain operations. Without cash flow that is optimized according to the needs of the business, it is all too easy to fall short of what you need. Working with a partner that uses sales history, future projections, lifecycle costs for each batch of products and other factors is essential for getting the appropriate level of funding. Understanding and accessing the exact capital needed to scale your supply chain is a crucial starting point.”
Obtaining funding is a necessary early step, but this will only be successful if you have a strong plan and outline for what your e-commerce business needs. By developing a detailed plan for what you need to accomplish with your supply chain, as well as which partners you will need to work with, you can position yourself for achieving the right results before any items go into production.
With a plan that accounts for all supply chain-related activities, from production to delivery, you can match with the right partners and deliver products that meet or exceed customer expectations.
Coordination and Collaboration
Another essential aspect of supply chain management is its emphasis on coordination and collaboration. There must be strong collaboration between all channel partners for your e-commerce business to accomplish its goals.
Strong supply chain management will ultimately boost customer service, reduce operating costs and improve a business’s financial positioning. But this only occurs when e-commerce businesses and their partners are able to develop a truly collaborative relationship. Transparent communication, autonomy and accountability are essential for everyone involved to give their best possible effort.
Yes, as an e-commerce business, you would dictate many of the aspects of your partners’ work (such as the design specifications for a new product). But this doesn’t mean you will be micromanaging how your manufacturing partner runs its facility.
For supply chain relationships to be successful, there must be a level of mutual trust and transparency that enables everyone to do their best work. Sharing the information that needs to be shared keeps everyone on track with the overarching goals of the partnership.
These types of relationships aren’t necessarily going to eliminate every possible issue that could come up — after all, who could have predicted the COVID-19 shutdowns? But they will go a long way in helping you and your partners take steps to avoid preventable issues and mitigate any challenges that do occur.
When partners work together in a collaborative, coordinated effort, the results for businesses can be truly transformative. Just consider this example from CSCMP: “Firms value supply chain managers because they help control and reduce supply chain costs. This can result in dramatic increases in firm profits. For instance, U.S. consumers eat 2.7 billion packages of cereal annually, so decreasing U.S. cereal supply chain costs just one cent per cereal box would result in $13 million dollars saved industry-wide as 13 billion boxes of cereal flowed through the improved supply chain over a five year period.”
Integration of Supply and Demand
For e-commerce entrepreneurs, few things can be more important than your supply chain relationships. A well-managed supply chain ensures that you’ll be able to keep popular items in-stock and deliver them to your customers in a timely manner. It also ensures that you’ll be able to build strong, collaborative relationships with all necessary partners to keep everything operating smoothly.
Going back to CSCMP’s definition, the key word to consider here is “integrate.” Supply and demand considerations should be integrated across all aspects within your e-commerce company, and should also be a key consideration when working with your business partners. Supply and demand cannot be an afterthought. They must be accounted for in all business activities so that you can consistently deliver the products your customers want.
The Bottom Line
The bottom line on supply chain management? It is your bottom line. If you struggle with supply chain management issues, try “going back to school,” so to speak, so you can understand what supply chain management truly means. By making supply chain management the point of emphasis it deserves to be, you can set yourself on the path toward lasting e-commerce success. No matter what you sell or who your target audience is, this will serve as the foundation for successful scaling.
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