Why read this? : We explore the opportunity and issue areas around the e-Commerce supply chain. Learn where the challenges come from and how to reframe these more positively. Read this to make your e-Commerce supply chain an opportunity not an issue.
Over time, some words end up getting used so much together that it’s like they’ve been joined at the hip. Political scandal. Heated debate. Right-wing nut job.
In recent years, another downbeat word combo has joined this sorry bunch.
“Supply chain issue”.
Remember the toilet roll saga at the start of the pandemic? The $30+/kg price of certain veggies when floods hit and crops were ruined?
Even those saddoes who queue up outside Apple stores overnight to make sure they get hold of the latest model just in case they sell out and can’t get any more in until the weekend. Why? Because there might be a supply chain issue.
Supply chain is a particularly relevant area for e-Commerce. If you sell physical products online, you need a supply chain plan to source it, make it, store it and ship it. But supply chain is a little like IT in e-Commerce. If everything’s going well, you don’t give it much thought.
But if you need to set it up from scratch, or something goes wrong with it, then at that point, you need to work on your e-Commerce supply chain plan. Which is what we’re looking at this week.
What is supply chain?
The term “Supply chain” in business started to come into prominence in the late 1970s and early 1980s.
It took a more holistic view of what most businesses would previously have called “purchasing” and “logistics”. Buying all the materials you need to make products, and getting them out to customers.
Supply chain thinking looks to optimise all steps in the “flow” of a product’s life. From raw material sourcing to considering what happens after the product has been sold and used.
Some e-Commerce business models can get by with very little supply chain input. For example, if you sell digital products like software or apps or offer certain services. Plus, if you’re only the “front end” of a selling offer such as Print on Demand or drop shipping, you outsource most supply chain tasks.
However, let’s assume you sell tangible products that you make yourself.
If you’re a sizeable business, you’ve likely already got a supply chain team on board. They’ll spend most of their time handling “goods in” from your operational team and “goods out” to your retail customers. They’re probably banished to some distant corner of the office (as they seem to specialise in noisy phone calls) and the rest of the business tends only to interact with them when, yes, you guessed it, there’s an “issue”.
Smaller businesses may not have a dedicated team for this, but someone will be looking after those “goods in” and “goods out” tasks.
Creative and operations “modes”
As per our creative thinking guide, most businesses have two working “modes”.
“Operations” mode is about managing the current business by optimising processes and systems. Its goal is to improve the business’s efficiency by optimising how it works.
Supply chain’s natural home is on the operations side. However, as e-Commerce is still a relatively new area for many businesses, this forces those who have to manage the e-Commerce supply chain to tap into “creative” mode. They have to deal with more variety and don’t always have the safety of existing routines to fall back on.
Variety and routine
The idea of variety versus routine has important implications for how you run your e-Commerce supply chain.
Variety has connotations of excitement (good) but also unpredictability (less good). Routine has connotations of predictability (good) but also of dullness (less good).
The reality is that both have a role to play in our lives. It all depends on context. Variety is good in certain situations. But routine makes large parts of our lives easier and better. Let’s look at some examples.
Example 1 - At the supermarket
Let’s say you go to the supermarket to buy milk. You know where to find it from the last time you were in, right? (Usually at the back of the store so you have to walk past tempting offers on other products).
If they suddenly moved it to Aisle 7, you’d be annoyed, right? It would take you longer to find it. In that case, “routine” (the milk is located where you expect it to be) is better than “variety” (they’ve moved it somewhere else).
But let’s say you get to the milk section, and there’s a new milk on the shelf.
It claims to give you stronger bones or shinier hair or whatever the latest spurious health claim the dairy industry has come up with. In that case, “variety” from the product’s innovation might interest you enough to change from the “routine” of buying your normal milk.
Example 2 - Brushing your teeth
Let’s take an even more everyday example.
When you brushed your teeth this morning, how much thought did you put into it? Very little, right?
Turn the tap, wet the toothbrush head, squeeze the toothpaste on, brush your teeth, spit and rinse. That’s a “routine” that’s so ingrained that your brain doesn’t have to waste much thought power on how to do it. It just does it, right?
You don’t want variety here, that would be annoying.
For example, imagine you turn the tap and it’s lemonade, not water. And your toothbrush head is on a bendy spring so it moves when the liquid hits it. Plus, you get a random toothpaste flavour in the style of Bernie Bott’s Every Flavour Beans from Harry Potter. All this would add lots of “variety” to your teeth-cleaning experience. But is that what you want? No, let’s face it, you want an easy “routine”.
The e-Commerce supply chain challenge
This brings us to where most challenges come with the e-Commerce supply chain. E-Commerce is naturally full of variety. It takes a long time to establish e-Commerce routines. This most notably shows up in :-
- Unpredictable sales forecasts.
- Manual intervention – reducing touches.
- Customer complaints.
Unpredictable sales forecasts
If you’re a new online seller, you have to forecast your sales without any historical sales data on which to base your prediction. Chances are your initial forecast accuracy will be terrible.
You’ll forecast too high and have stock gathering dust in the warehouse. Or you lowball it and go out of stock. (See our e-Commerce post-launch issues article for more on this).
Supply chain teams hate inaccurate forecasts.
It affects their planning and they usually cop the flack for it as a “supply chain issue”. They then get pressured into getting rid of stock to reduce storage costs or cutting corners to get more products out the door faster. Neither of these is helpful unless you’ve actively planned to make your products deliberately scarce. (See our advanced e-Commerce techniques article for more on scarcity).
Manual intervention - reducing touches
It’s a common supply chain objective to try to reduce the amount of “touches” that happen to a product as it flows through the system.
A “touch” is every time a person or part of the process interacts with the product.
Move the finished product to the warehouse – touch. Get the finished product off the warehouse shelf onto a palette – touch. Get the palette onto a truck and on the way to the customer – touch. And so on.
Every “touch” adds cost from a supply chain point of view. That’s why supply chain teams regularly focus on eliminating or reducing these touches. For example, shipping from one big central warehouse to all customers is usually more efficient than moving products from a central warehouse to regional warehouses and then shipping to customers. Less touches. Less cost.
Every touch also increases the chances of something going wrong. It’s why supply chain teams love automation as machines are more reliable at doing repeated tasks than humans are. For example, a warehouse worker is more likely to pick and pack the wrong product for an order than an automated optical reader machine is.
In traditional supply chain models, trucks that deliver to centralised warehouses rarely have to worry about finding the delivery address or what to do if someone’s not there to receive the goods. In the e-Commerce supply chain, when you deliver to individual customer households, you have to worry about those things all the time. It’s much less efficient than what supply chain teams are used to.
When anything goes wrong in the e-Commerce supply chain, someone has to deal with that issue. That someone is usually in supply chain.
If it’s an issue shipping products to an online retailer, the supply chain manager responsible for that retailer is usually the first point of contact.
You can mitigate some issues by adding FAQs to your website to help answer common questions and by setting up processes for the team to handle common complaints.
But there are always exceptions. It’s having to deal with these (which distracts them from their goal of driving efficiency) which makes many supply chain managers wary when you rock up with your “let’s launch e-Commerce” plan.
The e-Commerce supply chain opportunity
It’s unlikely you’ll ever get supply chain teams to be jumping for joy about e-Commerce.
It’s always going to be more complex for them to handle and bring more challenges.
However, there are a few things you can do to get them more on board with your e-Commerce plan.
These are based on framing it as more of an opportunity than an issue.
Innovation drives future growth
A “seed” you should plant in your supply chain team’s heads early is how important it is for the business to look for future growth.
E-Commerce won’t ever completely replace traditional retail channels. But with the big boost it got during the pandemic, it’s solidified its place as a significant commercial battlefield for customers.
The capability to stock larger product ranges to sell online. The capability to deliver products directly to the customer’s doorstep. And the capability to promptly and efficiently handle any issues.
So massage the supply chain team’s egos a little. Stress the importance of supply chain’s role in delivering the business’s e-Commerce competitive advantage. For example, Brad Stone’s biography of Jeff Bezos, The Everything Store, talks about how it was Amazon’s supply chain capability in delivering products reliably that put them ahead of competitors. (Rather than their expertise in web design or marketing).
Focus on the people opportunity
As we said earlier, supply chain teams are often forgotten until there’s an “issue”.
So, another bountiful seed worth planting is that e-Commerce can help them raise their profile within the business.
It allows them to be part of an initiative where they can show their more creative side, solving future problems and bringing new solutions (and new growth) into the business.
It also gives supply chain team members opportunities to interact with functions they might not otherwise regularly interact with. To stretch themselves with new challenges and learn new approaches to areas like creative thinking and creative problem-solving. Rather than constantly dealing with day-to-day pressures, it’s a chance to shape what the future supply chain should look like.
You should highlight that the e-Commerce supply chain way of doing things isn’t to replace traditional supply chain routines. It should run in parallel to these core routines, like a turbo booster that kicks in over and above the business’s main engine.
E-Commerce and Supply Chain shared goal - delighted customers
Your e-Commerce and supply chain goals should come together to drive growth by winning more customers and making those customers happier. This common goal of delighting customers is key.
When you’re in the initial stages of e-Commerce planning, get together with your supply chain team and share this customer-driven ambition.
Land the message early that you’re not doing e-Commerce to disrupt their efficiency plans, but because there’s a genuine customer need for it.
Recognise that it will cause them issues, but those can be planned and prepared for. Show them the bigger opportunities in terms of business, functional and personal growth to go after. Get them excited about what e-Commerce can do for them.
Position e-Commerce as an opportunity for supply chain, and people may, in time, stop worrying so much about supply chain issues.
Conclusion - e-Commerce supply chain
Our how to start selling online guide outlines 3 core requirements to do e-Commerce. Something to sell. Somewhere to sell it. And a means of handling payment and delivery.
If you sell tangible products online, you need supply chain support with each of these requirements.
Supply chain covers all elements from sourcing a product’s raw materials to that product landing with customers. If customers want to order online, it’s the supply chain team’s job to support that.
The main business benefits of e-Commerce are that it drives a stronger customer connection, opens up new commercial opportunities and gives the business more control over the customer’s journey. As we’ve shown, the e-Commerce supply chain plays a vital role in helping you realise all of these benefits.