The following article is a guest post from our partner, Linnworks.
Consumers expect convenience.
They expect the companies they purchase from to have the products they order in stock and provide fast and accurate shipping times.
In a perfect world, you would be able to meet consumer demand every single time. However, the nature of manufacturing and supply chains today means that this isn’t always a reality. Meeting consumer expectations can be a challenge, but it’s possible to manage through supply chain diversification and proper planning.
In this post, we’ll discuss how to meet consumer expectations by diversifying your supply chain, how to tackle unexpected challenges (brought on by the pandemic), and planning ahead to reduce the risk of logistical issues and product shortages.
Diversifying your supply chain
Supply chain diversification strategy plays a key role in meeting customer expectations. In manufacturing, this strategy refers to expanding the number of suppliers a business works with to give access to more products in the supply chain.
This is particularly important now with rising shipping costs, lengthy delays, and raw material shortages. In fact, according to a Q3 statement by Salesforce, retail supply chain costs are expected to increase by $223 billion in the second half of 2021 because of these challenges.
Having a range of suppliers benefits you as the manufacturer in many ways. It helps improve flexibility, decreases the risk of backorders, and can help lower costs. However, you’ll need to be careful when selecting a supplier. Suppliers are ultimately business partners, and you’ll need several that you can trust. Finding a supplier to begin with can be a challenge, so here are a few places to start your search both locally and globally:
Trade shows and exhibitions
Trade magazines and publications
Once you’ve identified and narrowed down your potential suppliers, here are some of the key attributes to look for in the candidates:
Quality, consistent supplies, or raw material.
Good value for the money and not just the lowest price.
Solid customer service that shows you’re a valued partner.
The importance of finding and maintaining a network of reliable suppliers cannot be understated. Supplier relationship management can help you mitigate the risks of operating an ecommerce business in uncertain circumstances.
The stability of your supply chain can be threatened by natural disasters, politics, a global pandemic, and the economy. Without having a good relationship with your supplier, these risks are magnified because you can’t rely on the supply chain to come through for you in a pinch.
For example, suppliers are raising rates right now due to rising shipping costs and other delays caused by the pandemic. While your rates might still go up, most suppliers will give the inventory they have to repeat customers and not increase your rates as much as they would for new ones. Not to mention, you are saving time by not having to vet new suppliers.
Some events are out of your control when it comes to the supply chain.
No matter how well you diversify your supply or seek to manage customer expectations, you can still run into one of these common setbacks:
Shipping container prices
Ecommerce businesses around the globe are feeling the pressure of rising shipping costs.
Let’s take the humble shipping container that transports pallets upon pallets of products and raw materials all across the world. These containers used to go for $1,500. Now, many brands are paying $10,000 per container due to shortages and repositioning.
There is no end in sight when it comes to these price hikes. It’ll be up to your business model whether you can afford to cover these prices or if you’ll need to pass them on to the consumer.
Shortages in raw materials, supply, and labor have all led to significant product delays. Some industries, like the home construction and furniture niches, have been impacted more than others.
While some may experience short delays, others are dealing with backorders that go back several months. This is a big deal for ecommerce retailers and dropshippers in particular that have relied on a fast-shipping model to grow their businesses. This is why it’s crucial that you order product well in advance to account for production and shipping delays. You’ll want to accurately predict the amount of inventory you’ll need when ordering ahead to reduce the risk of ordering too much or too little product.
Raw material costs
The pandemic caused severe disruptions to production and supply. This, in turn, resulted in sharp increases in raw material costs as manufacturers scrambled to keep up with growing consumer demand. Demand essentially outpaced supply.
Ecommerce businesses with physical products have options to help lower the costs, like reevaluating which materials go into production or sourcing materials from other suppliers. Ultimately, raw material costs are going up across the board, and ecommerce brands will need to evaluate how they’ll absorb or pass along the costs.
While you may not be able to control the factors above, diversifying your supply chain and planning can help reduce the negative consequences of these scenarios. It can make all the difference in bouncing back from the challenge. In the next section, we’ll cover some of the ways you can prepare your business and overcome specific supply challenges.
It’s no secret that Q4 and the holiday season make up the bulk of ecommerce sales. However, this year businesses must balance consumer expectations of Black Friday promotions with the reality of logistical issues and product shortages.
Even with anticipated supply shortages and logistical challenges, holiday sales are predicted to grow at least 7% over last year’s sales. Meeting this demand boils down to having enough inventory in stock to fulfill orders. So how much inventory should you have on hand? Well, that all depends on your business’s inventory turnover.
Calculating your inventory turnover is a critical part of determining how much to stock at any given time, but especially during the busy holiday season. Too much inventory and you risk excess storage charges and overhead expenses, but not enough and you may not be able to meet consumer demand.
In addition to inventory turnover, you can also use demand forecasting to predict product demand.
Demand forecasting can be broken into two distinct methods: qualitative and quantitative. With qualitative, you apply your knowledge of your business, market, and customer to make a judgement call on your estimated sales. With quantitative, you use statistical data and historical demand to generate an accurate forecast.
Quantitative demand forecasting gets complicated fast when you factor in seasonal trends, discounts and promotions, sales velocity, and more. That’s why inventory management software, like Linnworks, is certainly something to consider once your business is operating at scale.
No matter what planning or forecasting method you use, being proactive now can help you get the right amount of stock on hand before holiday sales are in full swing. And diversifying your supply chain can help mitigate the risk of unpredictable inventory problems. While you still may run into challenges as a result of industry-wide shortages and logistical issues, planning ahead can make all the difference in having stock to fulfil orders or not.