The Impact of Supply Chain Challenges on E-Commerce
Updated: May 15
In its very essence, the supply chain is an ecosystem of many layers, all operating to get inventory from one location to another, starting with the supplier of raw materials to the product manufacturer, leading to the retailers and wholesalers, and ending with the final customer. Basically, all the ducks need to be in a row for the supply chain to be successful. So, what happens when new complexities of the rapidly evolving e-commerce industry, an area of retail whose growth is directly linked to the recent global pandemic, get added to this delicate balance?
Online retail trends have been showing steady growth, with a forecasted e-commerce share of total retail global sales set to be 24.5% by 2025. Not surprisingly, Amazon.com continues to lead the pack as the most popular online e-tailer with a market cap of $1,735Bn (source)
In this article, let’s see the significant impact of supply chain challenges for e-commerce. Keep in mind that online retail is still an early-stage industry that offers its customers much more control over the buying process due to the lack of in-person interaction.
Supply Chain Challenges for E-Commerce
For the purpose of this article, let’s look at the general challenges in supply chain management faced by small e-commerce businesses, which have been exacerbated by the following issues:
The supply chain starts with sourcing the raw materials required to create the products offered by online sellers. The current materials scarcity in this area of the supply chain has created an obstacle right at the first stage. For example, the semiconductor chip shortage affected every kind of industry, from automotive to video game makers.
Whether the supply chain disruption is at the production or logistics level, as the end-user, small e-commerce businesses are struggling to predict stock requirements and manage inventory since the weakest link defines the entire chain.
Consumer preferences are constantly changing, but the customer can’t be blamed since they are stuck in the reality of an unpredictable global pandemic. Forecasting demand under such circumstances has brought even larger businesses to their knees.
The increasing costs of every aspect of the supply chain, from materials to freight, put pressure on e-commerce businesses to pass on the rising costs to the final customer, leading to lower sales and price wars with the competition.
Global challenges with labor and logistics at ports worldwide affect every retailer, including e-commerce businesses.
The slow pace of adopting digitization of the supply chain by small businesses, due to its high upfront investment costs, remains a key challenge in supply chain management.
E-commerce operations depend on offering interesting incentives like free shipping and free returns that need to be processed. This puts a burden on e-tailers to offer the most flexible deals on their products while still maintaining profits.
Miscellaneous events like the pandemic have created lower production capacity and labor shortages. Changing weather patterns and global war disturbances continue to affect shipping ports and points of entry and exit for freight.
Three Key Solutions for E-Commerce Businesses
The issues in supply chain management and the challenges around evolving e-commerce trends continue, but some clear solutions for supply chain management in e-commerce have emerged. As an online retailer, your general focus needs to be on managing inventory and controlling the aspects of the supply chain where you do have oversight.
By adopting a mindset of consciously creating products that have a shorter runway to market and using local vendors and suppliers, your e-commerce business will avoid many of the supply chain issues, which occur at a global level and tend to be outside the control of your business.
Having multiple vendors for all the touchpoints in a supply chain helps in making sure that your operations are not held back by the only vendor you depend on! If one fails to deliver, the others can step in and take the load. Another side benefit of the diversification strategy is better inventory management since you can avoid the high cost of maintaining large inventories to avoid delays.
Reducing the number of products being offered helps with forecasting demand more accurately and therefore improving supply chain management in your e-commerce business. Understanding the seasonal trends of your specific industry will help you to plan much in advance, leaving enough of a gap to cover delays and out-of-stock issues.
In its nascent stage, e-commerce can seem chaotic and unpredictable to get right. But there is no doubt that as this industry evolves, things will improve and offer greater stability to business owners.