Supply Chain Forecasting:
The Key to Weathering the Storm

The supply chain. It’s become a bit of a buzzword these days as economies worldwide feel the squeeze of global shortages. The supply chain was once a topic raised amongst procurement heads and inventory managers and has become a dinner party discussion for the average consumer. And it’s no wonder - both brick and mortar and eCommerce businesses in virtually every sector are being hit with supply chain woes.

Empty shelves, long lead times, and a bombardment of news headlines ominously declaring there is No End in Sight have certainly piqued the interest of many. It’s safe to say that previously, most consumers hadn’t given much thought to what it takes for the products they buy or use to arrive on store shelves or to the warehouses of eCommerce sites.

Retailers and eCommerce merchants have also had to shift their approaches related to stock and availability. We previously had the luxury of relative availability and dependability of product stock. Timelines were more predictable and easier to plan around, allowing retailers to take the supply chain for granted to some degree.

Supply Chain Vulnerabilities

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The supply chain crisis has shown us all that retail is exceptionally vulnerable in a global economy. Even domestic products often have foreign-built components. This reliance on offshore parts and materials adds layers of complexity to the equation as a rebounding local economy can be hindered by supply issues.

The blame cannot rest squarely on global dependency, however. There are also local challenges with which to contend. A frantic search is underway for at least 80,000 truck drivers to help resolve supply chain slowdowns in the US alone.

This historic low of trucks and drivers leads to severe backups at shipping ports as there is no one to take and distribute cargo when it arrives on the shores. With trucks moving 71% of goods in the US but accounting for a mere 4% of on-road vehicles, it’s clear that there are bottlenecks at many stages in the supply chain.

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The Importance of the Supply Chain in eCommerce

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Along with all of the headlines highlighting the impact of supply chain issues on businesses and consumers alike, others step in to show the impact that eCommerce has had. Pre-pandemic, there were already headlines touting eCommerce Transforming the Supply Chain. These articles showed how this modern way of buying and selling goods has increased demand and changed the entire supply chain landscape.

Their shelving and warehouse space have always limited brick and mortar stores. Responsible for their goods, these retailers brought in stock carefully and deliberately and relied on customers to come in to make a purchase.

The existing momentum of eCommerce adoption was catapulted into a class all its own with global pandemic restrictions. Stores unable to operate, consumers unable to move freely outside their homes, and general fear or discomfort with accessing goods caused a considerable increase in eCommerce shopping. It also initiated a lot of pandemic projects, including selling goods and services online.

eCommerce retailers often rely on outsourced warehousing or drop shipping products directly from manufacturers for fulfillment. While retailers who have remained in business can now capture customers who would like to walk in and leave with their item of choice, eCommerce businesses don’t have that option.

How to Navigate Supply Chain Issues

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The current status of supply chain issues brings to light some obvious and urgent needs. Retailers must be agile, accessible, and digital in their operations to thrive in this fragile ecosystem.As a retailer, you can do a few things to build your resilience as a business.

Conduct a Supply Chain Audit

Crisis or not, auditing the supply chain is a valuable business practice. It’s likely to be one you’ve never done before, also.

An internal audit of your supply chain will give you better clarity of your business operations and identify bottlenecks. You’ll be able to evaluate and improve your supply chain while reducing operating costs and finding opportunities to increase your competitive advantage.

Approach the audit to find weak spots and pain points and identify a strategy to correct these issues. With a comprehensive overview, you’ll be able to increase your supply chain’s agility, flexibility, and efficiency.

Some key points to include in your review are:

  • Customer relationship management
  • Supplier relationship management
  • Order fulfillment
  • Demand management
  • Returns processes

Supplier Diversity

It may sound like an easy task to diversify your suppliers, but this could take a bit of effort depending on your product or industry. Many supplies, components, and products originate from China, making it challenging to find alternatives.

The magnitude of China’s presence as a global manufacturing superpower is staggering. In 2009, China eclipsed Germany to take the top spot as the world’s largest exporter. Since 2014, the country has also been the leading trader in terms of exports and imports. In 2020, China’s export value reached a record high of nearly $2.6 trillion.

China’s market command has also driven down component and manufacturing costs, making it difficult for competitors to arrive on the scene. That means that your efforts in supplier diversification can end up driving up your cost of goods (COGS).

There are upsides, however. Other suppliers may offer shorter shipping times, more flexible terms such as lower minimum orders, and the possibility of lower replacement and return costs. Alternative supplier options include (but of course are not limited to) Amazon Business and Alibaba.

For US retailers, the cost of doing business has risen, owing to ongoing trade negotiations and tariffs in various sectors. While the driver for tariffs was, by some accounts, a means of diverting manufacturing business back to US soil, research finds the impact is negligible at best.

Unfortunately, business owners are the ones to feel the effects the most, navigating between absorbing rising costs while holding a competitive edge. Diversification allows retailers a broad scope and the sense of security that comes from not relying on a single provider. Geographic diversity will help retailers weather the storm.

Product Diversity

While it won’t be an option in every case, launching new products can offer resiliency in a time of supply chain uncertainty. These could be comparable products to provide in lieu of those with high lead times, our alternatives to expand your product catalog.

For example, a merchant in the niche of eco-friendly toiletries may expand to include cleaning products, kitchen supplies, and other low-waste alternative items. By analyzing your customers’ purchase history and understanding buying habits, you can choose complementary or similar items to offer. Diversifying your offering is a great reason to get in touch if you’ve built a robust mailing list.

Strategic Stocking

Many businesses err on the side of caution regarding stock, wanting to avoid holding aging inventory on warehouse shelves. While avoiding buying in excess is a good strategy from a risk perspective, lean stocking is not always a reliable approach.

The need to be mindful of cash flow is a part of doing business in the best of times. When a pandemic arises, it’s crucial. Economic uncertainty and many otherwise loyal or dependable customers becoming ill or unemployed have put many businesses into survival mode.

Keeping stock and inventory levels low comes from both necessity to save cash flow and concern about an uncertain future, both of which are, of course, reasonable drivers. It’s a delicate balance to hold stock to meet customer demand, keep your business running, and protect cash reserves from being able to afford operating costs.

The best approach is to be strategic with your stocking approaches. Historic sales data can guide decisions on what to stock, even if it’s not in the exact quantities as you would in more “normal” times. You can be agile in your stocking practices by checking where the stock has and is moving the best and redistributing funds to the most popular and profitable places.

It’s crucial to have comprehensive and well-informed forecasting practices so that you can get orders in ahead of time at your manufacturers and distributors. Keeping customers means understanding shortages and effectively communicating so that you can manage customer expectations.

Therefore, the best thing you can do for your customers and your business is take a proactive rather than reactive approach. That means stocking early ahead of customer demand and communicating about any changes or delays before your customers contact you for an update.

Forecasting: Your Crystal Ball

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Forecasting is your greatest ally in the eCommerce world. It allows you to have a clear and comprehensive overview of your business’s flows and plan accordingly. Forecasting enables you to both cut costs and keeps customers happy. It allows you to avoid unnecessary expenses and plan for price fluctuations.

Accurate forecasting derives from the alchemy between an art and a science. It requires a discerning look at the hard data and generating meaningful and actionable projections. The data necessary for an accurate and complete forecast comes from a few different places: past sales patterns, supplier data, and investigations into your competition.

Forecasting is your crystal ball into the landscape of the future of your business.

Strategic Planning

Supply chain management can make or break your business. It is the foundation upon which solid business strategies are built, including expanding into new markets, planning your budget, and managing risk. It offers you the insights you need to make decisions wisely so that your suppliers can meet your demand, and in turn, you can meet the demands of your customers.

Maintaining Accurate Inventory

With a better understanding of your sales cycles and the demand for your products in various markets, you will have more accuracy in inventory planning. Maintaining accurate inventory relies on working closely with suppliers to plan for restocking and orders throughout the year. This approach ultimately means less risk of shortages which will satisfy customers while keeping your warehouse costs under control and not holding unnecessary or aging stock.

Better Customer Experience

Customer experience ultimately defines evolutions within the supply chain. By predicting customer demand, businesses can manage supply and ensure orders are placed with suppliers and fulfilled on time. Being dependable builds a sense of trust in your business and cultivates loyal customers.

Take a 90 Day Approach

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If you were selling apples, you would forecast based on what you know of the seasons and cycles of your apple trees. If it were apple season and you had a fruit stand, you could pick more fruits to fill the baskets as they empty.

What a perfect world it would be if you could replicate that process into the world of eCommerce, wouldn’t it?

The same principles apply but need to translate into the language of your business. Rather than depending on stock being at your disposal, hanging on the branches of trees, you need to fill the trees yourself. This works to your benefit as you can take a 90-day approach and ensure you have on hand what you need when you need it.

Stocking according to quarterly forecasting enables you to be resilient. Stocking intelligently with an eye 90 days ahead will help you to meet customer demand. It will help ensure you can prepare for any potential delays in the receipt of goods. It will also give you an advantage over your competition without the same foresight.

Funding Inventory

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Not everyone has the abundant cash flow available to stock ninety or more days of inventory, particularly when supply chain issues delay shipments and stretch lead times. Finding the funding to weather the storm can feel like a risk when you’re in the thick of it, particularly when mandatory payments are involved.

There’s no need to choose between emptying your warehouse or sending yourself to bankruptcy in times like these. There are ways to diversify your capital stack and fund your business needs without taking huge risks.

Different types of funding will suit different business needs. That means there isn’t a one-size-fits-all approach to keeping your business afloat (or even thriving) when things slow down. That’s good news for eCommerce businesses, particularly when it comes to financing options.

If you’ve started to explore funding and loans to help you with more inventory, you’ve likely found that the traditional options come with a lot of pressure. Business loans have lengthy application processes and can be challenging to gain approval, often requiring collateral. Credit cards have fewer barriers, but interest rates can compound quickly, and minimum monthly payments can be tricky when your sales slow down.

Non-Traditional Financing

Non-traditional financing options offer a new way to approach funding for your inventory. With funding options created with eCommerce businesses in mind, you can be sure the funding you receive takes the ebbs and flows of your business into account.

Start with our tips above to get a clear and comprehensive look at your business, particularly when it comes to financing. Then apply for eCommerce funding through a non-traditional lender. This cash will support you in bringing in inventory to match your 90-day forecast without the strict minimum payments and high interest rates.

eCommerce funding is tied to your inventory and repaid as a percentage of its value. When you sell your product, a percentage of your sales is devoted to repaying your advance. That means you pay as you sell, maintaining a balance between your inflows and outflows.

Devoting inventory-specific funding to bringing in products means you can leverage the rest of your capital stack for other operating expenses, like digital marketing and payroll. For merchants selling products, this can solve the chicken/egg question between inventory and sales.

If you thought that front-loading inventory (that is, buying inventory based on forecasts to have on hand when the orders come in) is only possible for wealthy retailers and big-box chains, think again. Onramp offers interest-free cash for eCommerce businesses. We understand that inventory levels can make or break businesses in the best of times, and we designed a lending option that meets your needs. 

Schedule a call to find out how we can help you optimize your business and get the kind of financing that’s synced to your actual sales.

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