Importance of Supply Chain Management in E-commerce Industry

Importance of Supply Chain Management in E-commerce Industry

Business efficiency at all operational levels is critical for the success of e-commerce. Supply chain management is an essential component of e-commerce. Supply chain management in e-commerce focusses on procurement of raw material, manufacturing, and distribution of the right product at the right time. It includes managing supply and demand, warehousing, inventory tracking, order entry, order management, distribution and delivery to the customer.

Supply Chain and Logistics Process in E-commerce Industry

The e-commerce industry is not just limited to setting up a website and selling products online. It includes product configuration, suitable infrastructure, logistics, secured payment gateway, and supply chain management. An efficient supply chain accelerates e-commerce processes to meet customers’ expectations.

Supply Chain Management in E-commerce

Vital Components forming the Supply Chain and Logistics Processes of E-commerce Industry:

Inventory Management: Inventory is a critical component of supply chain management. According to the traditional inventory model, businesses used their own warehouses to sell the products directly to customers. But, now as per the risk-pooling strategy, e-commerce businesses do not hold their own inventory and rather outsource their inventory to a larger wholesaler. It enables e-commerce businesses to reduce the risk of keeping their own inventory.

Several businesses are adopting the drop-shipping model for inventory. According to this model, a store does not hold the product it sells on the website, rather it purchases the product from a third-party and ships it to the customer.

Reverse Logistics: E-commerce businesses also have an SCM structure which entails reverse logistics. Reverse logistics is defined as the planning and execution of the movement of goods from the point of consumption to the point of origin. Almost, all e-commerce businesses provide the facility of exchange and returns. This increases the need for logistics.

Optimized Inventory Management, a Must-have for Supply Chain Management in E-commerce

Product Availability and Service Level:

The success of an e-commerce website depends on customer satisfaction. If customers cannot buy the right product at the right time, they will immediately switch to other e-commerce stores. A service level of 95% of products is ideal for e-commerce success. The slow delivery process increases the risk of losing potential customers and can even cause a negative impact on the reputation of the business.

From inventory to logistics and purchase to supplier management, processes should be well-coordinated and optimized. Even if one link of the supply chain doesn’t function well the entire supply chain management will fail, resulting in loss of revenue.

Customer Reviews:

The reputation of an e-commerce business is measured by customer reviews and experiences. It is a critical factor that impacts the growth of an online store. Price comparison search engines are the first point of contact for online shoppers. The search engine ranking is also done based on customer reviews. To receive good reviews, the delivery of the right product at the right time is necessary.

Platforms like Amazon and eBay use internal key figures to assess the credibility of distributors. These platforms have supply chain key performance indicator (KPI) targets. If the KPI is below certain minimum values, then penalties in the form of account suspension can be imposed.

Excess Inventory Increases Costs:

E-commerce businesses are expanding rapidly due to which they reach their limit on inventory management. With the growth in business, product portfolio, supplier base and surge in returns also grow at a rapid pace.

Increasing inventory drastically is common mistake e-commerce businesses make to meet the demands of customers. Inventory represents a significant portion of the total investment of e-commerce businesses. Excess inventory can mutate into obsolete stock (dead capital) which can lead to increased costs.

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