How to Find Money in Your Ecommerce Supply Chain Management

Most seasoned ecommerce business owners had no clue about supply chain management when they first began.

Sourcing and manufacturing are intimidating, especially if you don’t have any experience. Many owners get stuck reinventing the wheel, figuring out the details as they go.

In the earlier stages of business, this isn’t the end of the world. For many, simply keeping products in stock and selling them qualifies as success.

As you grow, however, trial-by-fire supply chain management can lead to major inefficiencies and high costs. You can end up with tens of thousands of one product that isn’t selling and a bestseller that’s sold out and six weeks backordered. Talk about a stressful situation.

Supply Chain Management in Ecommerce: A Better Way

Supply chain management in ecommerce isn’t easy, especially because needs change as your business grows.

Consequently, you likely have money hiding in your supply chain.

Even the largest global brands almost always have room for greater efficiencies in the supply chain puzzle. But the businesses that stand to benefit most from finding these opportunities are high-growth brands.

If your business recently crossed a key growth stage, you have a lot of money hiding in your supply chain — enough that it could hinder your future growth.

How do you find that money? Let’s talk about where to look and how to plug the holes.

4 Key Areas for Optimizing Ecommerce Supply Chain Management

1. Look for Great Relationships

The first area to examine is your supplier and factory relationships. Without great relationships, your costs are high, you have no flexibility in terms, and you’re susceptible to poor quality that can damage your brand.

You need to find people you can trust, which isn’t always an easy task. Hiring a sourcing consultant to help can be a great strategy.

2. Learn Your Data

The next area to improve is data. It may seem complex or just plain boring, but it’s incredibly valuable.

After you’ve gathered a large enough sample size, your data will help you predict your order velocity and the rate at which specific products sell. This will become more and more accurate over time as you accumulate data from more orders.

Order velocity tells you how much inventory you need and how much you’ll sell during each season of the year. With this information and manufacturing and shipping times in mind, you can backtrack to determine when to place orders from your manufacturer.

Once you have this down, you’ll no longer need to waste money on rush shipping to get products when you need them. Seasonality is key in ecommerce, and it quite literally pays to be prepared in advance.

Remember to consider your promotional calendar and other variables for the year. If you’re running new or different promotions than in the past, increase your orders from suppliers to avoid out-of-stock issues.

3. Dial In Your Forecasting

If you do any sort of volume, then forecasting is likely your highest ROI area to optimize.

Nailing your forecasting means you keep the right number of the right items in stock, with very little money tied up in sitting inventory. Sloppy forecasting, on the other hand, can send stores out of business — sometimes with a large tax bill on the doorstep.

When you first started an ecommerce business, ordering was an educated guess at best. That makes sense; you had no sales history to forecast from. Now, however, it’s important to bring in strategy.

If you’re currently cash flowing from sales, you may want to seek investment. (If you’re generating over $1M in annual sales, we may be able to help.)

To build your ordering strategy, use the data you’ve been collecting to create a model that forecasts sales, taking seasonality, growth, and any current product development into consideration. Then, work backward to determine when you need to place your orders. If you manufacture in another country, this may mean planning to place an order six to eight weeks in advance.

How do you create your forecast model? Honestly, it’s no walk in the park, but specialists can help. You need to optimize this ASAP, especially if your business is crossing into the Health Stage of growth. It takes a lot of planning, thinking, math, and some spreadsheet know-how, but accurate forecasting makes a massive difference in your business.

4. Source Specialized Team Members

The final area to optimize involves the specialized team members who make all the other areas we discussed run smoothly.

High-growth brands often forget to look at this area as a place to staff up and provide ROI. Finding and hiring dedicated experts for sourcing, logistics, manufacturing, and analyst roles is an investment into the engine that runs your entire company.

You can start small and minimize risk by using outsourced consultants. In particular, we highly recommend hiring a supply chain consultant; these experts work spreadsheet magic to help you determine your forecasting and inventory needs. You can even find apps for Shopify Plus to help monitor order velocity.

Ecommerce Supply Chain Metrics to Watch

As you assess which areas of supply chain management your ecommerce business can improve upon, keep a close eye on these important metrics:

1. Order Velocity

Order velocity is the rate at which your products sell. As mentioned, this key metric determines how much inventory you need at any given time, which products (and which product variants!) are in highest demand, and how quickly orders go out.

2. Lead Time

Lead time refers to how far in advance you need to order products based on manufacturing and shipping times. How long does your product take to make? How long does it take to ship via boat or train (as opposed to expensive airfreighting)?

3. MOQs

MOQs, or minimum order quantities, can be an excellent opportunity to find money in ecommerce supply chain management. Often, you can take advantage of discounts for certain quantity tiers when you order in bulk at the right time of year. Of course, you’ll need to have your data and forecasting dialed in to leverage the full benefit of MOQs.

Our rule of thumb is to have at least 3 months of inventory on hand. And, though this varies by industry, we don’t recommend housing more than that for several reasons, including tax purposes.

4. Shipping Time

This is an obvious one, but we’ll define it anyway. Shipping time is how long your inventory takes to ship from your manufacturer (whether up the road or across the world) to your facility, get unboxed, and be ready to sell.

Shipping times vary by the method of transport you choose (or are forced to choose). Remember, if your manufacturer is out of the country, it’s always more cost-effective to ship by boat than rush by air, so planning ahead is key.

Optimize Your Ecommerce Supply Chain Management

Whether you’re just starting to gain some serious traction or you’ve already hit viral success, take a closer look at your supply chain. It isn’t a sexy place to look for optimization opportunities, but it’s critical to helping your business grow.

Supply chain management in ecommerce holds massive potential to streamline your operations, boost your business, and uncover hidden dollars along the way.