If you own an ecommerce business, then you know that sometimes dealing with inventory, suppliers, warehouses, and other third-party vendors can get messy. Getting all the parts of supply chain mangement working together seamlessly is a goal that most ecommerce retailers have in common.
The good news is you can make this dream come true when you optimize your supply chain management. We’ve put together some crucial tips to help you do that. But first, let’s look at what your objectives should be when you are working to improve the management of your supply chain.
Objectives of Supply Chain Management
Your end objective for all aspects of your ecommerce business, including supply chain management, is to have satisfied customers and be profitable. To achieve that, strive to meet the following points:
- Never run out of product
- Do not promise what you cannot deliver
- Deliver with a 100% on-time rate
- Continually work to shorten the time from order to delivery
- Maintain the lowest possible inventory (without jeopardizing the first point on this list)
- Develop healthy working relationships with supply chain partners
To meet your main objective of having happy customers and a healthy bottom line, consider the following five tips for your supply chain management.
Tips for Optimizing Supply Chain Management
#1 – Understand the Importance of Safety Stock
If you were able to forecast sales with 100% accuracy, you would never need to worry about safety stock. Since no one can predict exactly what customers are going to do and when they are going to do it, safety stock is something you need to think about.
Safety stock is the minimum level of inventory that you keep at each location. It has to be sufficient to cover surges in sales, but not so much that you are overstocked. Getting the levels just right is challenging. Ideally, you would receive deliveries of new stock at the moment your inventory reaches your safety stock level. In reality, most companies either stay far above this level or they drop below it frequently.
Consider these three factors when you calculate your safety stock levels at each stage of your supply chain:
- Variability of demand – How far are your forecasts from your actual target?
- Lead-time – How long does it take for you to get replacement products?
- Variability of lead-time – How dependable is your lead-time? Is it 3-4 days, or 3-10 days?
#2 – Understand the Importance of Real-Time Communications
In the past, real-time communication from various links of the supply chain was difficult. The companies at each step had to predict the demand from the next link without much advance notice.
Today, technology allows demand and sales information to be communicated through the supply chain instantly to allow for better forecasting and anticipation. Using inventory management software that integrates with all parts of your supply chain is the key to maintaining up-to-date, real-time communication. All parts of the supply chain being on the same page, all the time, will help you get closer to meeting your supply chain objectives.
#3 – Understand the Importance of Having Partners You Trust
Utilizing real-time communications with your supply chain partners requires that you share information, and that you do it instantaneously. That means that it’s extremely important that you work with trustworthy companies in order to ensure the privacy and confidentiality of each link in the chain, as well as that of your business and your customers.
Even though each supply chain link will only receive the information that is pertinent to their part of your inventory process, it is essential that you partner with those you trust and who will go the extra mile to grow along with your business.
#4 – Understand the Importance of Being Proactive
The increasing popularity and fast pace of ecommerce sales in today’s market means you have to plan ahead. What you are doing today regarding your supply chain management may not be what you need in six months or a year. Anticipating the growth of your business is a key part of ensuring that your supply chain is prepared for future development.
#5 – Understand the Importance of Measuring Supply Chain Improvements
The only way to truly know if you are optimizing your supply chain management is by measuring and monitoring key metrics. Always make sure that you take baseline measurements before you make any changes or adjustments to your supply chain. That way, you are able to continue to measure as time goes on, noting what is working and what isn’t.
Related: Our guide on assessing and progressing will help you evaluate your business for new areas of profit growth.
Some of the key measurements to look at are:
- Average time from order to delivery
- Cost per case/delivery
- Current inventory at each warehouse
- Average inventory at warehouse/SKU
- Average inventory turnover rate/month/SKU
- Lead-time for each SKU: Supplier to warehouse
- Lead-time variability/SKU : Supplier to warehouse
There are many other areas of your supply chain that you can measure. Improvement in any of these areas can help you reduce costs and improve your bottom line.