Supply Chain Strategy and e-Commerce Success
Companies with an e-commerce strategy often sell a wider variety of products than brick-and-mortar companies. To reap the benefits of that product mix, however, they may need to adapt their supply chain strategy to accommodate the needs of every product they sell.
According to the U.S. Census Bureau, e-commerce sales for the second quarter of 2017 reached $111.5 billion, an increase of 4.8 percent from the first quarter, and more than 16 percent from the same quarter in 2016. With growth like that, it makes sense to make an extra effort to ensure that every product is available to meet demand. Here are the six most important elements to consider when creating an item-specific supply chain strategy.
1. Product Life Cycle
Determine where the product is in its life cycle, and how long the life cycle is likely to extend. If the item is on the ascending side of the demand curve, you may want to invest in inventory to enable quick deliveries. As the item peaks, rein in inventory to avoid being stuck with unsellable stock.
2. Demand Volatility
Consider the product’s ultimate market. Consumers are notoriously fickle, so you will want to minimize the amount of inventory on hand for consumer-focused items. Depending on the lead time, you may want to consider frequent deliveries in small quantities, and stay in close touch with suppliers so you can replenish stocks quickly when needed — without forcing either company to take an inventory hit.
Business machinery and equipment may have longer shelf life because new product introductions are slower and product life cycles are longer. Technology products have extremely short life cycles and sharp demand curves, so plan accordingly.
3. Forecast Accuracy
The success of any supply chain strategy is only as good as the forecast it’s based on, so do whatever you can to improve forecast accuracy. Forecast accuracy is one of the most important metrics you can follow if you are interested in improving your supply chain efficiency.
Invest in a flexible forecasting tool that uses best-fit algorithms to calculate demand. Then, add unique insights from marketing, sales and key customers.
4. Inventory Visibility and Accuracy
It’s hard to plan for the future if you don’t know where you are. Integrate your inventory management, order management and supply chain applications so all systems operate from a common inventory record. Ensure that the integration updates your on-hand balances in real time to avoid double allocations of scarce goods.
Take steps to improve the accuracy of your inventory records. Leading organizations such as APICS recommend that you strive for an accuracy level in the mid- to high-90s.
If you’re not there yet, consider incorporating barcoding or RFID to tag inventory, and mobile devices or scanners to read those tags. Automated storage and retrieval (ASRS) systems can help by ensuring picking accuracy while expediting the process. It’s hard to overspend on tools and technology to improve inventory accuracy and visibility since they are so fundamental to customer satisfaction and supply chain effectivity.
5. Customer Expectations
Customers are willing to wait for some products, but they are few and far between. If you have the equivalent of the newest iPhone model, customers may wait. Otherwise, they turn to a competitor that has the item they want in stock. You can test customer expectations through A/B testing, surveys or watching sales trends. Though monitoring competitor sites to see what they are offering for lead times on the same or similar items can be just as helpful.
6. Competition: Lead Times and Pricing
There’s an old joke in supply chain: You want fast, cheap and high quality. Pick any two. It may be a joke, but it’s also true.
- If you want frequent deliveries of small quantities, you will pay more per item than if you waited for a single large delivery. This strategy may make sense for items with steady demand or items on the downside of their life cycle.
- If you are buying a “throwaway” item, quality may not matter. In that case, choose fast deliveries of small quantities and low prices.
- To charge a premium price, you must offer either high quality or fast delivery, or sometimes both. In that event, you will want to ensure that you have adequate stock to meet customer demand.
These are all good approaches, but you also should consider what your competition is doing for the same or similar items. If they are offering quick delivery and low prices, you won’t be able to charge more or expect a customer to wait. If the competitors have a long lead time, you may be able to take some business with a quick delivery promise, but only if you can deliver on the promise.
Coming up with the right supply chain strategy for an item is complex. Even though there are only a few factors that matter, all the others affect each factor. You can experiment, perfecting the right strategy over time. Or, you may want to work with an experienced 3PL that can guide you through the process with simulation and optimization technology.
Regardless of the approach you choose, effective e-commerce demands a unique strategy for each item.
Let’s keep the conversation going!
Senior Director of Operations