How Supply Chain Management Impacts Profitability in eCommerce?
Though it’s always been important for businesses to have the funds necessary to respond wisely to changes in their supply chain, the need to do so has sharpened in recent times. As a result, both physical and digital storefront owners are finding out that having working capital on hand to pivot according to supply-chain shifts is no longer just a luxury.
Doing so is challenging for those operating within margins – but the advantage is going to eCommerce SMBs due to the fact that their overhead is so much lower than that of their brick-and-mortar counterparts. Online retailers can thus more effectively leverage capital to take advantage of new supplier opportunities.
This makes supply-chain management adjustments easier for eCommerce retailers to do – if the unique financing needs of both new and established online entrepreneurs can be met. Read on to learn how supply-chain management in eCommerce requires expansion just when the pressure to contract arises.
Greater Supply-Chain Management in eCommerce Requires Investment
The way an online SMB needs to pivot in response to alterations in the eCommerce supply chain will look very different depending on where those shifts are taking place.
For supplier-based changes, e-business owners will naturally want to seek new vendor relationships to lay the groundwork for as yet unknown opportunities – as well as costs. If instead the SMB experiences downstream fluctuations, their focus will be drawn to acquiring great new products according to the changes in their clientele’s demands.
Regardless of the direction that change is coming from, though, the budding eCommerce SMB will experience the same need: faster and more flexible financing that enables them to acquire new investments.
Whether those investments need to be made upstream or downstream, or whether their nature is material or relational, it doesn’t make a difference to their financing needs – consistent working capital must be obtained to stay adaptive to any and all changes to their supply chain.
Once working capital needs become streamlined, inventory and other investments can be more quickly obtained according to shifts in supplier and customer activity. Having more efficient financing options means the most important capital of all becomes more abundant as well – your time. With financing needs secured, you and your employees can focus more fully on the horizon and invest in opportunities as they arise.
Since the major advantages of online retail are its speed and availability, it stands to reason that faster and more adaptive financing methods are more appropriate for eCommerce SMB owners.
Financing options for traditional retailers were not created with quick fluctuations in consumer demand in mind, nor for the unique considerations of the eCommerce supply chain generally.
Related: Financing eCommerce Tips for Small Businesses
New Supply-Chain Dynamics for All Retailers
Before the recent spike in eCommerce, traditional retailers were able to function with fixed financing methods because their needs were usually also fixed. Regardless of how their supply chain shifted, they still knew which products were most important to stock due to fewer, slower shifts in demand and simpler conditions for their suppliers, and warehousing facilities.
Once a retailer’s supply chain became vertically integrated enough, they did not need to do much more than lower their prices to drive more of the market base their way, and supply chain changes would do little to alter their ability to maintain market dominance.
All that has changed with the mad rush to eCommerce, which changed the economic playing field such that online retail is taking record-breaking shares of total retail sales from traditional storefront operations. As a result, the general supply chain serves a higher proportion of online merchants than it used to, and the emerging eCommerce supply chain’s links are weighted much differently than the general supply chain.
For instance, the near-severing (or at least, radical change) of the link between storefront and customer in traditional retail models has been replaced with a much more complex link between warehouse and customer address. This crucial “last mile” in the eCommerce supply chain demands a lot of attention and resources to get right.
What the online retailer gains in simplicity by eliminating the need for a (physical) storefront they must make up for in much more involved and dispersed transportation processes and inventory distribution.
They also have to manage regional distribution centers to ensure that their product inventory is staged correctly in order to maximize the allocation of resources. While it’s not uncommon for regular storefront chains to send excess inventory to their other stores (instead of waiting for new shipments from suppliers), it amounts to sending a single shipment to place hundreds if not thousands of products within arm’s reach of consumers. The product journey to the customer is essentially over as the products sit on the shelf and await purchase.
An online retailer, however, must plan numerous smaller shipments to move the same amount of inventory – and if they can’t manage their supply chain’s last-mile transportation needs effectively, they’re left wishing they had a storefront after all.
The online store manager gets to essentially distill the entire storefront into a web link, on the one hand – but on the other, they have radically increased logistics challenges. This is just one example where the advantages of online retail are connected with an increased burden of proper eCommerce supply-chain management.
More (Automated) Moving Parts in the eCommerce Supply Chain
Luckily, the very qualities that have made eCommerce SMBs more viable than ever also make solving those unique supply-chain challenges possible. With a less centralized nature, the eCommerce supply chain has replaced certain physical links with digital links instead, and although information-as-an-asset can be more complex, it is also easier to manage in an equally non-physical way.
The increased need to coordinate not a small amount of logistics (and for practically every single order!) can seem overwhelming – until one realizes that the solutions are also merely logistical in nature.
Data-management solutions for what used to be extremely time-consuming tasks are more than keeping up with this increased demand. New software tools built specifically for eCommerce are drastically simplifying eCommerce supply-chain management more by the day, as a sub-niche of supply-chain management companies is emerging to ensure that the advantages of online retail are not outmatched by its own informational complexities.
The result is that better eCommerce supply-chain decisions can be made more quickly and with greater information to rely on (with increasing effect as the company grows and acquires more market data).
Investing Your Way to Faster Supply-Chain Management
What does all of this mean from a financing perspective? Quite simply, any online SMB can exert greater control over their supply chain as soon as they want to. Because new eCommerce supply-chain management tools and solutions are non-physical, they are extremely affordable and scalable, meaning they can be invested in as soon as there is the will to do so.
Online retailers of any size can keep their attention on their supply-chain happenings with more affordable tools than ever that streamline what used to be extremely labor-intensive data crunching.
Almost any quantifiable measurement can be tracked and analyzed with up-to-the-minute contextual relevancy, which gives you an enormous advantage over your competitors who are still locked into old, time-consuming methods simply because they are too bootstrapped to invest in modern solutions.
If you compare even just the labor costs of conducting comprehensive market and supply-chain analyses, the pressure to automate as many of those processes as possible becomes clear.
That’s why many supply-chain management tools pay for themselves immediately, as eCommerce business owners can allocate some of their brightest employees in more efficient ways – like putting that automated market data to use and capitalizing on it.
If a lack of sufficient IT equipment, logistics and analysis software, or any other supply-chain management tool is holding you back, it will be hard to break the cycle of time-consuming manual processes.
These are simple investments that pay for themselves almost immediately, and investment strategies for eCommerce SMBs are now possible so that funds can be repaid in proportion to your actual (not projected) sales. Securing financing for even expensive eCommerce investments is now easier than ever – and software-based solutions for supply-chain management are even more obtainable.
Logistics, shipping, customer service, supplier comparisons, and in fact any quantifiable measure can better guide the online retailer as they make decisions about their supply chain. They can only make those decisions, though, if they have the time and the bandwidth to use that data the majority of the time, not simply manually compile it.
Automated supply-chain management tools have far-reaching impacts on productivity that have collateral benefits on the accuracy of order management processes (both up- and down-stream), which results in stronger relationships with both vendors and customers. These are the two links that most immediately affect your business, and it’s all just a small investment away.
Related: 3 ECommerce Financing Options to Grow Your Business
Where to Place Investment Funds and When?
It can be hard to know which investments are the most important at any given moment. Many online retailers struggle just to maintain inventory in the most advantageous way while keeping prices competitive with big-box retailers like Amazon and Walmart crowding the online marketplace.
The most common instinct is to put more pressure on profit margins, sacrifice work-life balance, and perform more tasks in-house to save costs – but that couldn’t be further from the most effective solutions, which all require obtaining working capital sooner rather than later.
With the right funds and the most advantageous repayment arrangement possible, supply-chain changes don’t have to stall eCommerce businesses any more than they allow. Since the eCommerce supply chain is so heavily reliant on efficient IT systems, greater control is only obtainable through automated tools that do most of the heavy lifting, at least from an analysis perspective.
With more mental bandwidth to spare, supply-chain decisions can be made with greater informational resources and clarity – and once you’ve invested in superior supply-chain management tools, future investments can go straight to greater inventory controls and value-added services for your customers (even just reduced prices to drive sales).
Managing eCommerce Supply Chains with Sales-Backed, Incremental Financing
As consumers everywhere have ever-increasing access to competing online sales platforms, online retailers are in a race to promise more for their customers. Because they can do more with less overhead, they are not locked into disadvantageous supply-chain dynamics as physical storefront owners usually are. Private investors know this and are much more willing to offer eCommerce businesses the liquidity they need to continue advancing their goals.
Since those funds can go directly to the factors that make the greatest impact, the risk of financing eCommerce SMBs is low and the terms are highly favorable (as compared to traditional sources of funds, such as banking institutions).
The financing conditions are extremely favorable to digital entrepreneurs regardless of general supply-chain worries – startup costs are low and inventory funding can be accomplished on an incremental basis. Further, eCommerce supply-chain management tools can also be financed more easily than ever, leading to more profitable inventory-investment opportunities (for those who can most easily access working capital).
Schedule a call with Onramp and learn how you can be ready for the supply-chain management shifts in your business.