There are a lot of moving parts to managing an ecommerce supply chain. An ecommerce store owner is expected to master everything from sourcing materials to manufacturing and procurement, to fulfillment and shipping orders to customers. There are a staggering number of details to manage, and an equal number of opportunities for things to go wrong. It’s called a supply chain for a reason; there are many links, and if any one of them breaks, the chain no longer functions. When that happens, store owners face delays, backorders, or worse — stockouts, loss of revenue, and loss of customers.
Today we’re going to take a look at a typical ecommerce supply chain from beginning to end. We’ll examine all the links in the chain, where things might go wrong, what you can control and what you can’t, and what you can do to strengthen your supply chain to keep your merchandise flowing.
Ecommerce Supply Chain Overview
A supply chain is the series of steps that goods take as they are transformed from raw materials to finished goods delivered to customers. There are two major sections to any supply chain: inbound and outbound. In manufacturing, these are referred to as upstream (raw materials that flow into the factory), and downstream (finished goods that are shipped to wholesalers or retailers). The ecommerce supply chain is different. For starters, not all ecommerce businesses manufacture their own goods. Secondly, the ecommerce business (not the manufacturer) is at the fulcrum of an ecommerce supply chain, managing the flow of goods into and out of their fulfillment centers.
There are several chain links within each section of the supply chain. The inbound supply chain encompasses all the steps that go into manufacturing and/or procuring the goods and readying them for sale. The outbound supply chain encompasses all the steps that happen between the time an order is placed and when it is delivered to the customer who ordered it. As both the buyer (or manufacturer) and the seller of these goods, the ecommerce seller is at the fulcrum, initiating all movement and shepherding the flow of products through the supply chain.
Inbound Supply Chain
The inbound supply chain starts with sourcing raw materials and ends with finished goods, neatly stored at your fulfillment center. The specific steps in the process will depend on whether your ecommerce business manufactures its own goods, or is an ecommerce retailer that purchases finished goods and resells them.
Sourcing Raw Materials — An ecommerce brand that manufactures its own goods spends a considerable amount of time sourcing the raw materials that make those goods unique. They may develop close relationships with their suppliers to ensure a steady supply of materials. Over time, they may be able to establish a cadence to the ordering frequency and more accurately estimate quantities. Communicating any anticipated changes in lead times is critical. Once found, a reliable supplier that meets your specifications can be hard to replace.
Transport — Raw materials are transported in bulk by a freight shipping company to the manufacturing facility. Since various components might be coming from all over the globe, it is a complex logistical task to make sure the manufacturer always has enough of each component to keep making your product. Understanding lead times, tracking freight, and facilitating smooth border crossings are all part of the job.
Manufacturing — The manufacturing process is usually the most time-consuming and labor-intensive part of the inbound supply chain. Much of it may also be out of the ecommerce business’ control. Labor shortages, disruptions in the materials supply chain, and mechanical breakdowns can all cause unexpected delays. Not only do you have to make sure the manufacturer doesn’t run out of materials, you have to order the right quantities at the right times to make sure your storefront doesn’t run out of finished goods. It’s important to build sufficient time into the reordering schedule to prevent stockouts.
Transporting Finished Goods — Just like raw materials, finished goods are shipped in bulk by freight shipping companies. They may be shipped by the container load on a ship or train, by cargo plane, or by the truckload. Freight shipments have different requirements than, say, your average UPS package. It’s the ecommerce seller’s responsibility to make sure the freight is labeled correctly, and the freight company has the proper paperwork to pick up the shipment, cross borders and pay duties, fees and VAT (value-added tax) if applicable, and deliver the shipment without problems.
For an ecommerce manufacturer, the destination may be a self-managed warehouse, or a third-party logistics (3PL) fulfillment center that handles fulfillment for multiple brands. Sellers may distribute inventory to multiple fulfillment centers to get their products closer to their customers. Brands importing goods from overseas may even choose to take advantage of Section 321 services and have their inventory stored just across the border, such as ShipMonk’s facility in Tecate, Mexico. Qualifying orders fulfilled from this facility are tax and duty-free. No matter where the freight is headed, the amount of lead time required depends upon the mode of transport and how far it has to travel.
Procurement — An ecommerce retailer that buys finished goods (rather than manufacturing their own), does not have any say in the manufacturing process up to this point. They simply purchase finished goods directly from the manufacturer or indirectly from a wholesaler and have them shipped to their warehouse or 3PL. They, too, need to build in lead time for processing the order and shipping it to their fulfillment center. Delays in manufacturing or shipping will disrupt their supply chain. If they’re purchasing from a wholesaler, that adds another link in the chain and another layer of complexity.
Receiving — Whether an ecommerce brand manages their own fulfillment operations or partners with a fulfillment company (3PL), the final stop in the inbound supply chain is the fulfillment center. It should be noted that even if you partner with a 3PL, you have a great deal of say in how your goods are handled. At the fulfillment center, finished goods are received, counted, and inspected to ensure the accuracy of the shipment, that goods are properly labeled, and that nothing was damaged in transit. Individual units may also be weighed and measured to help determine storage space, and future packaging and shipping requirements. The receiving process is very labor intensive but, at leading 3PLs, much of it is automated.
Slotting — During inspection, the bulk shipments are unboxed and broken down into individual units or SKUs, placed in separate bins or boxes, and moved or “slotted” to an allocated location within the warehouse reserved for that SKU. That’s where the inbound supply chain ends and the outbound supply chain begins.
Before we move on to outbound links in the chain, let’s look at some of the ways an ecommerce brand can optimize their inbound supply chain.
Optimizing the Inbound Supply Chain
The COVID-19 pandemic magnified some of the key challenges with managing the inbound supply chain. You might have the most reliable suppliers in the world, but some things are out of your control: factory lockdowns in foreign countries, labor shortages in shipping ports, political uprisings, fuel prices, and unexpectedly huge surges (or drop-offs) in demand for your products. The ecommerce companies that survived the last few years have learned many valuable lessons. Here are some of the key takeaways:
1. Redundancy is not necessarily a bad thing. Work with more than one supplier so that you have a backup should something happen to one or the other. Utilize more than one freight shipping company for the same reason.
2. Don’t wait until you’re out of merchandise to order more. Stay up to date on current lead times for manufacturing and shipping. Reorder when inventory falls to a designated level and you still have enough time to replenish.
3. Source local when you can. The farther a shipment has to travel, and the more times it changes hands, the more can go wrong. In addition, you’ll reduce shipping costs and your company’s carbon footprint.
4. Keep safety stock. For years retailers and manufacturers have been coached to run lean, and to carry only enough inventory to arrive just in time to fill immediate needs. But safety stock has proven its worth. Even though supply chain issues have largely disappeared, we are still seeing empty shelves here and there.
5. Try different shipping methods. Learn what method works best for your products and your company. The cheapest method may end up costing you more due to extensive lead times, or you may realize you don’t need the fastest method.
6. Outsource freight management to your 3PL or fulfillment provider. ShipMonk offers freight management services for its ecommerce clients because, well, we can. We already have relationships (and leverage) with most of the major shipping companies. This takes the burden off our clients’ shoulders, while keeping us in the loop. That way, we know when to expect incoming goods and can better prepare for them.
7. Streamline the receiving process. Work with your fulfillment partner to automate portions of the receiving process and get your goods on the shelves faster. Modernized fulfillment centers take advantage of warehouse automation wherever they can to speed up the process. They know that the faster your goods get on the shelves, the sooner they can be sold.
8. Invest in an ERP system. ERP (Enterprise Resource Planning) systems can help small manufacturing businesses manage their supply chain. These systems integrate operations and financials to improve communications and share data. While ERP systems are generally used by large manufacturing businesses, some can be tailored to help smaller businesses optimize inventory management, streamline logistics, and reduce costs wherever possible.
Outbound Supply Chain
The outbound supply chain encompasses everything that happens from point of sale to the last-mile delivery, in addition to the returns process. Fortunately, with the exception of shipping mishaps and delays, much of this process takes place within your fulfillment center or 3PL, and is therefore under your control.
Order Processing — As orders flow in, often from multiple sales channels (your ecommerce storefront, a marketplace such as Amazon, a social media app, or possibly a B2B wholesale order from a retailer who carries your product) the orders need to be processed and prioritized. First, the customer’s address and method of payment are verified. Inventory levels must be adjusted in real time and reflected at the point of sale so customers don’t inadvertently order something that’s out of stock. If inventory is available at multiple warehouses, the order is sent to the facility closest to the customer’s address. Fulfillment centers prioritize orders as they come in, according to the customer’s selected shipping speed and destination.
Order Fulfillment — There are several steps to the ecommerce order fulfillment process, with many opportunities for optimization as orders are picked, packed, and dispatched for shipping. A pick list tells warehouse team members what goes in each order and where each item is located in the warehouse. A bin is assigned to each order and moves through the fulfillment center as pickers place items in the bins. The bin then moves to a packing station where items are carefully packed in a shipping box or bag, chosen for its optimum dimensions for shipping and its ability to protect the contents in transit. A shipping label is created and affixed to the outside of the package, and it is sent to a loading dock.
Shipping — When the shipping label is printed, the shipping carrier is automatically notified that a package is ready for pickup. They send a truck to the fulfillment center. Because these are small parcels (not freight), they are consolidated into shipments all headed for the same region or city. Small-parcel carriers such as DHL, UPS and FedEx utilize regional shipping hubs to move packages across the country efficiently. Packages will be unloaded, resorted, and reloaded onto smaller trucks as they get closer to their destination.
Some fulfillment centers may leave it up to the shipping carrier to decide how to get each package to its destination on time. Others, like ShipMonk, work with dozens of top carriers and can choose from any of the shipping methods they offer. ShipMonk’s Virtual Carrier Network (VCN) automatically selects the best carrier and route for each order, based on the package details as well as the carrier’s rates, potential surcharges, and availability.
Tracking — Orders must be tracked (and sometimes insured) to prevent loss, and their status should be updated each time the package changes hands. It is the ecommerce seller’s responsibility to communicate with the customer, or provide a tracking/order status page that keeps them updated. The ecommerce business may send the customer to the shipping carrier’s tracking page, or in some cases, provide their own branded tracking page. Should there be a delay, lost, or undeliverable package, the seller is responsible for notifying the customer and following up to reship the order or resolve the problem.
Returns — Ecommerce returns are referred to in the industry as reverse logistics, and for good reason. They are every bit as complicated as the fulfillment process, but in reverse. Without proper handling they cause confusion and take time and people away from fulfilling new orders. Returns must first be authorized by the seller. Then the merchandise must be shipped by the customer. When received, it must be inspected, reworked and restocked for resale (if possible), or donated, recycled, or disposed of. A 3PL like ShipMonk can handle the physical process for their ecommerce clients, but it helps greatly to have a detailed plan in place. Payment refunds, credits and exchanges must be handled by the seller.
Optimizing the Outbound Supply Chain
The key metrics in any outbound supply chain are accuracy and speed. Optimizing the supply chain starts with avoiding tiny mistakes that can blossom into much larger problems. Technology and automation can create tremendous efficiencies that allow ecommerce businesses to scale. If your fulfillment center isn’t holding up its end of the supply chain, here are some areas for improvement.
1. Prevent inaccurate orders and damage claims. Make sure your fulfillment center performs multiple quality checks to ensure that the correct products are being picked. Improve packaging where necessary, or consider different types of dunnage to fill voids and prevent damage during transit.
2. Inventory management. A robust inventory management system can help sellers avoid stockouts and backorders. It can help with demand forecasting, automate reorder points, and give sellers real-time visibility into order statuses and inventory levels. Ensure that products are labeled with barcodes to enable tracking within the fulfillment center.
3. Integration. For ecommerce fulfillment to work smoothly, technologies from multiple entities must all work together. It isn’t easy to integrate multiple shopping platforms, payment systems, order and inventory management systems, warehouse management systems, shipping platforms and third-party apps. A tech-enabled 3PL has invested in the technology and formed strategic partnerships to handle all of this for you. They can help you build a tech stack that meets your needs.
4. Warehouse Automation. The faster your fulfillment center can fill orders, the more orders they’ll be able to handle and the faster your business can grow. If your low-tech fulfillment center is keeping up with orders just fine, you probably don’t need to invest in robotics. But as you grow, consider looking for a tech-enabled 3PL that can quickly ramp up fulfillment to meet your needs.
5. Track Warehouse KPIs. If your fulfillment center isn’t keeping up, how do you know what to fix? Setting key performance indicators, such as receiving cycle times, order accuracy rates, and order lead times will help you zero in on the problem areas in your outbound supply chain.
6. Distribute inventory across multiple fulfillment centers to reduce shipping times and shipping costs.
7. Utilize multiple shipping companies to maintain flexibility in case packages need to be rerouted. A 3PL that ships thousands of orders per day has a lot more clout and a lot more flexibility than a single ecommerce seller that depends on one shipping carrier.
8. Offer Package Protection. You may not be able to prevent theft or lost packages, but you can reduce friction for your customers. For example, ShipMonk’s MonkProtect program offers a branded tracking page, an automated claims portal and status updates. Customers can simply opt-in at checkout for a small extra charge. ShipMonk reimburses the seller for the cost of any reshipments. The program not only resolves issues faster, it creates a new revenue stream.
9. Automate Returns. Self-service returns portals and apps that automate the authorization process can save time and costs associated with returns. Also, the faster returns are processed, the faster returned merchandise can be restocked and resold.
10. Communicate with your fulfillment provider. Fulfillment centers are expected to accurately fill orders and ship them on time. If that’s not happening, they should work with you to identify pain points and take steps toward improving them. If they don’t, you know who to call.
See How ShipMonk Can Help Optimize Your Supply Chain
As a leading fulfillment and logistics provider, ShipMonk specializes in optimizing the outbound portion of the ecommerce supply chain. We might be a smidge biased, but nobody does it better.
ShipMonk’s state-of-the-art fulfillment centers utilize automation whenever and wherever it’s proven to improve operations and help your ecommerce business scale. Our experienced team of fulfillment experts called Happiness Engineers can help you build and integrate a tech stack that supercharges your business. In addition, our industry-leading 3PL software platform integrates order and inventory management, data analytics, and custom reporting tools in one easy-to-use package. Multiple fulfillment centers and global capabilities make it easy to distribute inventory or fulfill orders across the world. Lastly, we can help you manage inbound domestic and international freight, and when you need it, we can help with B2B or retail fulfillment, too.
We’d love to hear about the supply chain challenges you’re facing and see if we can help. Even small changes can reap big rewards! Contact ShipMonk today to learn more.