Why Understanding eCommerce Supply Chain Models Matters

Why Understanding eCommerce Supply Chain Models Matters

It's important to understand different eCommerce supply chain models in order to optimize your own. Online retailers that make efforts to learn their own supply chain model achieve faster delivery times, more competitive pricing, and wider margins. Clarity on the supply chain model your SMB employs will also improve your ability to know what eCommerce financing method will best align with your sales and inventory-restocking patterns. 

Knowing this is more than a matter of convenience – it's a tried and true method to create a healthy and diverse supply chain for greater long-term profits.

The Benefits of Learning eCommerce Supply Chain Models

Disruptions caused to the supply chain have resulted in highly innovative solutions for improved eCommerce supply chain management – and just when needed most. For example, new 3rd-party product-fulfillment services with an emphasis on domestic supplies are sprouting up, and loyalty programs to attract customers with higher lifetime value have popularized the concept of "return on relationship" (ROR). 

This is an interesting trend that shows signs of balancing out the exclusively ROI-minded habits that characterized the supply chain models of 20th-century big-box retailers, which largely differ from the needs of modern SMB owners. For the latter, it's necessary to continually learn in order to thrive, and playing a more active role in supply chain management is extremely important for online retailers of any size.

Quality supply chain management requires being directly involved or overseeing every possible factor affecting production, inventory movement, and delivery of your products. And it means you have the right processes and working capital to enable it all. It can be a steep learning curve at first, but the advantages are tremendous:

  • Greater awareness and control of supply and demand
  • Multiple secured sources of materials and parts
  • Lasting relationships with manufacturing and assembly partners
  • Efficient warehousing and inventory management
  • Enhanced clarity of distribution channels
  • Fast and easy order management and tracking systems
  • Prompt and error-free shipping protocols

These benefits cannot be achieved by a single formula, so there are unique supply chain models emerging to better fit the needs of eCommerce entrepreneurs. The requirements of the market segments you serve and the characteristics of the products you provide will vary widely from your competition, and the advantage will go to the business that most skillfully leverages knowledge of their own supply chain model.

Businesses, even those in the same market niche, are all logistically distinct. Thus, yours will have different requirements for inventory, transportation, and IT management systems than even your closest competitor. Tailoring these logistics to align most closely to your eCommerce supply chain model will bring your company lasting efficiency and market dominance that will not be easy to beat.

Related: Supply Chain Forecasting: The Key to Weathering the Storm

Defining eCommerce Supply Chain Models

To determine the eCommerce supply chain model that most accurately reflects your business's needs, let's take a broad overview of the most popular methods of modeling supply chains as they relate to eCommerce. 

Consider your own company's biggest supply chain dependencies as you read the following summaries so you know which one to invest more time into learning. Some will apply and be useful to any online retailer, while others are more or less important depending on the unique complexities of one's own business.

Forecasting Models. All companies benefit from using past data sets to better predict future supply and demand and improve their lead-time response. Past data can be proprietary (both yours and your business partners') or public (such as from industry trade groups and councils) – a mix of both is often necessary. One crucial benefit of a forecasting model is an improved ability to plan eCommerce inventory financing in the most strategic and holistic way possible for your supply chain.

Location Models. Determining the optimal location for your company's facilities (and those of your close partners) becomes more important the longer your supply chain becomes, and this is true especially if you are fulfilling multiple roles in-house. 

A good location model accounts for the fixed and variable costs of facilities under your consideration – for online retailers, this will often be oriented more around the location of IT, warehousing, and distribution facilities. Location models are most often expressed in succinct mathematical terms through an algorithmic description of your system that accounts for resource availabilities, inbound and outbound transportation, processing times, and penalties (e.g., backlogs, double taxation, and other unnecessary costs).

Studying these issues will clarify overhead expenditure and allow you to more confidently pursue necessary funding to maintain exactly the right amount of inventory at any given time and place. For those with several local warehouses and distribution centers, as is extremely common for online retailers, adhering to an accurate location model will prove invaluable.

Distribution Network-Design Models. These are useful when deciding between multiple stages of distribution, warehousing, and sometimes transportation – especially for the crucial last-mile delivery bottlenecks that much of an online retailer's logistics depend on. 

A distribution network-design model also helps manage important matters further up the supply chain, such as at break-point locations. Break-point locations are points in a supply chain where transportation methods change, such as seaports or airports, and are ubiquitous in modern global-over-local supply chain models and manufacturing practices.

As mentioned before, many 3rd-party distribution and fulfillment centers are emerging to fill these niches left behind by global corporate-governance trade policies. These unique links in the supply chain often serve many localized supply chains and are examples of where distribution network models are essential. 

For distribution-center needs of any kind, it's vital to maintain great supplier relationships and secure inventory financing that is fully adaptable to changing inventory and eCommerce supply chain realities.

Allocation Models. For e-businesses with particularly high numbers of inventory sources and destinations, it's essential to determine the optimal allocation of commodities and informational assets. An allocation model will help maintain stock where it belongs while predicting and overcoming temporary supply chain constraints. 

These constraints could include changes in demand, capacity, transportation routes, and other factors that exert enormous pressures on businesses that remain dependent on one source and/or destination. To ensure greater flexibility, it is also important to be capable of allocating resources through alternate lines of flow in your supply chain even if the source or destination remains the same. 

An allocation model can help you line up quick turnover capital that aligns with changing supply/demand ratios and create alliances for greater redundancy.

Inventory Models. For all but the most service- and communications-based products, an inventory supply chain model has universal applicability. Whenever your demand changes, you'll need to know what kind of upstream backlogs you'll experience, and a quality inventory model will help you more quickly adapt to it. 

At the most basic level, it will involve comparing types of inventory beforehand, which is crucial for adapting to changes in customer preferences. With enough long-term data, you'll know when to expect seasonal fluctuations, enabling you to line up funding right when you need it most so that your on-hand and future inventory matches downstream predictions. Don’t rely on traditional bank products, either. There are more innovative eCommerce financing solutions that sync with your sales and are much less expensive.

An inventory model also helps you exert greater control over your inventory pipeline by revealing when and how to store unused inventory so that it can be easily accessed at the right time with minimal downtime. It will also enable you to know how to stock each distribution center in the most advantageous way for present and projected supply and demand. This can also help you determine if your company's goals will be better achieved through new or alternate sources of inventory. 

The recent eCommerce trend of buffering stocks is an example of inventory models being judiciously applied, where financing one's inventory in lockstep with real-time demand can immediately widen online retailer margins. If you keep your inventory purchases in lockstep with sales and cash receipts, your own eCommerce supply chain model will be more profitable, efficient, and fluid.

Related: A Key to eCommerce Success: What is Inventory Funding?

Which eCommerce Supply Chain Model Will Support Your Business?

With too much information, it can be hard to begin. It's most useful to analyze your daily operations and supply chain as it is, then reread the above summaries. This will help you see more clearly which eCommerce supply chain model can be best applied to your business and give you a broader view of your entire supply chain. 

In the end, the model should inform your real-world decisions more than become solely prescriptive, and the exact nature of your supply chain model will be better if you include what works from any of the others.

When choosing which model your business would benefit from the most, consider how weighted any given supply chain link is to your day-to-day operations. Sometimes it's obvious – if you run a distribution center, for example, a distribution network-design model will be the most rewarding use of your attention. If it's less obvious, begin with broader models that you know will add something of value to your operations right away. For online retailers, forecasting and inventory models are extremely important to ensure that you don't get left behind by changing trends.

With every eCommerce model, information should be treated as an asset that is more than helpful – it is essential – and securing funding for I.T. systems can also boost long-term ROI. Failure to share information effectively can result in a "silo effect" where departments' own priorities take precedence over the company's goals. 

Put a premium on coordinated information sharing and consider how data flow impacts your particular supply chain model. Logistics is universal to eCommerce, and greater control over your entire supply chain quickly translates to faster and more cost-effective inventory management, acquisition, and investment.

New Financing Opportunities for Each eCommerce Supply Chain Model

Businesses who exert more active control over their supply chain, rather than passively wait for better conditions, consistently outmatch their competition. They secure better relationships and maintain inventory at the most strategic pace with their growth. 

Because global commerce is the historical result of those who forge ahead instead of wait, supply chain stressors are unlikely to do more than impel newer, better methods of trade – so long as ambitious entrepreneurs continually revitalize their own local supply chain.

The key to this is maintaining inventory because inventory is essentially cash on the shelf. If your business is needlessly stalling due to bootstrapped supplies, it's easier than ever to secure the eCommerce financing you need to purchase inventory on demand without all of the cost and hassle associated with traditional bank products. Schedule a call with Onramp to learn how you can obtain liquidity that synchronizes with your real-time performance – and pay only what your sales can afford.