Shopify Ecosystem

4 Supply Chain Risks Shopify Ecommerce Sellers Must Mitigate

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Ecommerce sellers face a multitude of risks. The supply chain is perhaps the biggest source of risk for an online business. Failure to anticipate potential problems and consumer demand could lead to losing brand image, reputation. and revenue.

As supply chains worldwide turn more stressed than ever before, E-commerce business owners must move to secure their processes. Here are 4 of the most common supply chain risks online business owners face, and how they can mitigate them.

Stockouts

A stockout is one of the worst issues an E-commerce company can face. A lack of demand prediction and modeling leads to stockouts and frustrated customers who might never return.

Some business owners might think stockouts are a good problem to have since they represent excess demand. However, this isn’t the case. Karlyn McKell from E-commerce funding company 8fig notes that not only are the gross margin losses from stockouts detrimental to an E-commerce business, the issue also runs deeper.

“You’ll also incur expenses adjusting your supply chain. For example, there’s the loss of marketing dollars that didn’t produce a sale, fees for expediting replenishment orders, as well as costs associated with backorders, refunds, and canceled orders,” she says.

Stockouts also deal a blow to your reputation on seller platforms. For instance, Amazon places a lot of weight on a seller’s reliability. Fail to deliver goods to your customers due to a stockout, and your position in product rankings will fall quickly.

The solution is to model demand accurately by leveraging sophisticated demand planning software. Create larger tolerance limits for inventory levels and create a stockout communication plan. For instance, you can offer customers alternative goods or give them a discount for future purchases to mitigate negative brand perception.

Make sure you stress test your demand projections and create supply plans accordingly. For example, you could increase demand levels to one standard deviation from the norm and evaluate your stock levels. While preparing for such a high degree of disruption might seem like overkill, you’ll create more robust inventory and ordering processes.

Lack of fulfillment and inventory visibility

To predict inventory levels and avoid stockouts, you must have visibility into your stock levels. Visibility into fulfillment and inventory levels is another challenge for E-commerce sellers. Most companies do not have a real-time view of their stock and cannot plan properly. Better visibility will help E-commerce owners connect production timelines to consumer delivery needs.

One way to go about it is to adopt an end-to-end solution that integrates product manufacturing status with delivery timelines. This integration will help business owners predict manufacturing needs and delivery lead times. However, the majority of E-commerce sellers outsource manufacturing and fulfillment to third-party service providers.

In such cases, the integration will prove challenging. However, you must try to capture data as close to live as possible. For instance, you can task an employee with maintaining inventory levels based on a feed from your manufacturer. You can offer widgets on your website that helps customers track shipments from your fulfillment agent.

Going the extra mile like this will help you answer customer questions better and proactively manage any shortfall in your supply chain.

Failure to connect seasonal demand to funding

Every E-commerce company faces seasonal variations in demand. Customers buy goods in different volumes throughout the year, and this situation can lead to massive problems if left unaddressed. For starters, a lack of funds during low sales periods can jeopardize future planning.

The summer months typically yield low sales, leaving E-commerce businesses strapped for cash. However, the end of summer and Autumn are critical periods for online businesses since they must stock up to meet the holiday season rush.

Failing to anticipate cash needs during this time will leave E-commerce sellers facing stockouts during high season, something that will ensure customers never return to the store again. In turn, this situation perpetuates a lack of cash and pushes the business into a slow death spiral of low sales and cash.

Typically, owners seek funding to overcome low cash levels during such times. However, E-commerce business owners must choose the right type of funding. Selling equity in the business for quick cash might seem tempting, but is a poor choice in the long run. Instead, seeking alternative financing options makes more sense.

There are several financing options E-commerce business owners can access. However, it’s best to plan ahead of time and determine the amount of cash needed. Failure to do so might result in business owners searching for cash when they’re in a vulnerable position.

Poor procurement

Procurement is all-important in E-commerce. Thanks to business occurring entirely online, E-commerce sellers must go the extra mile in building trust. Deliver a defective or dangerous product, and a customer will not give the company a second chance.

Online sellers must vet their suppliers as much as possible. Ecommerce businesses that sell small goods might neglect the vetting process. However, vetting is equally important in these cases. Visiting the manufacturer’s facilities, ordering samples, vetting them for quality, inspecting certifications, and so on are important tasks every E-commerce business owner must execute.

Examining the quality of communication is also important. For instance, how well does the manufacturer communicate with a fulfillment agent? How quickly do they notify sellers of issues in manufacturing? How well do they communicate cash flow needs when planning demand and manufacturing models?

Good manufacturers understand a seller’s needs and proactively suggest points that boost efficiency.

Pay attention to the supply chain

E-commerce business owners must secure their supply chain before paying attention to marketing and sales. Without a strong supply chain, ensuring customer loyalty is impossible. A strong supply chain forms the base for everything else in an ecommerce business.

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