Ecommerce customers expect quick and on-time deliveries, product availability, and competitive pricing. In order to meet new-age customer expectations, ecommerce businesses offer same-day delivery, provide personalized customer services, and broader product categories. However, to provide for these services, ecommerce businesses are highly dependent on their supply chains and therefore have stretched their supply chains beyond their geographical domains. Such supply chains are highly complicated entities and are more vulnerable to risks, especially when sudden disruptions strike. Supply chain issues can happen in many different places along the process, from manufacturing to shipping.
Therefore, e-commerce companies must continually monitor and manage those processes to minimize risks in the supply chain. This is where e-commerce companies can use technology and tools such as supply chain management software to identify, prioritize, and manage the supply chain risks.
This article will discuss the major supply chain risks for ecommerce companies and the most effective methods to mitigate them.
What are the Major Ecommerce Supply Chain Risks?
Supply chain risks are multi-faceted, and e-commerce businesses require different approaches for mitigating different types of risks. A layered defense and well-structured plan can help ecommerce businesses in dealing with all potential supply chain issues as mentioned below:
- Distribution Risks
- Supplier Risks
- Economic Risks
- Political Risks
- Sourcing Risks
- Environmental Risks
- Labor Shortage Risks
- Social Risks
- Technological Risks
- Financial Risks
- Security Risks
- Planning Risks
- Contingency Risks
Steps and Processes to Mitigate E-commerce Supply Chain Risks
Lean processes, technology, and implementation of a risk management module for the supply chain can help ecommerce companies to mitigate supply chain risks.
Here are some ways to mitigate supply chain risks for ecommerce businesses:
Identify the different types of supply chain risks and assess their impact
Online businesses can identify the type of supply chain risks their business is more vulnerable to and assess it with models such as SCOR (Supply Chain Operations Reference). For example, if a packaging product provider is situated in an area where there are 20% chances of civil unrest and the value of products bound to be affected is $50000, then the value at risk (VaR) will be 0.20*50000= $10000. VaR is an important measure in assessing the risk probabilities and their impact on businesses.
Prioritize your Supply Chain risks
There are many ways to mitigate supply chain risks; they must be prioritized based on the Value at Risk factor. This way, you will be able to mitigate the risks that may have more impact on your supply chain.
Implement a plan to manage your e-commerce supply chain risks
Planning proactively and implementing the framework across the length and breadth of your ecommerce supply chain is critical to creating a highly resilient supply chain. Whatever plan you create and implement should be backed up by relevant data analysis. Investments in tools for digitization, automation, and real-time analytics can help you locate information gaps, eliminate redundant activities, and streamline your planning process.
Vendor diversification or supply chain diversity is crucial to minimize the chance of supply risks. Nearly close to 89% of companies reportedly have experienced a supplier risk event in the past five years. This stat is enough to justify the need for vendor diversification to create resilient and risk-free supply chains. Diversification eliminates vulnerability and dependence from the supply chains. It also removes capacity constraints and tariff and price fluctuation issues.
Forecast Risks in the eCommerce Supply Chain
The number one strategy to predict supply chain risk is to see where your business currently stands in terms of supply chain factors such as– speed to market, process and system complexity, quality control, efficiency, staffing, etc. Such identification helps you in forecasting the need for processes, systems, people, and technologies in case of supply chain disruptions.
Foster Good Relationships with Suppliers and Vendors:
You also need to have good relationships with those suppliers and vendors in order to foster efficient and competitive processes that provide value to your customers. A poor relationship with vendors can lead to missed delivery dates, product malfunctions, delays in production, and even product returns.
Act Swiftly on Customer Feedbacks
Ecommerce provides an unprecedented opportunity to review customer feedback and improve supply chain processes through direct contact with customers. Customer reviews on ecommerce sites have eminent value and can be used as case studies to strengthen the supply chains further.
Create Resilient Supply Chains through Technologies
A resilient supply chain requires that stakeholders and end-users adopt the right technology, processes, and operational innovations for a successful logistics operation.
Utilize the power of IoT, AI, Blockchain, and Ecommerce software
AI: AI-led supply chain tools can optimize routes for shipping, expedite freight contracting, and predict where supply chain bottlenecks will occur. This will help you to prioritize resources, track inventory, and reduce lead-time. Implementing AI-enabled supply chain management has improved adopters’ service levels by 65%. (McKinsey).
Blockchain: Blockchain can be used to create smart logistics contracts. Ecommerce businesses can use these contracts to lower transaction costs, time, and errors in supply chains. Blockchains can also be used to enforce compliance with regulations.
Software Solutions: Software solutions such as logistics systems or integrated supply chain management systems collect, classify, and analyze information from across the supply chain network for better decision-making on how and where products will be procured and shipped, enabling online businesses to identify areas of improvement and make changes quickly. This is the reason why the demand for supply chain software solutions propelled after the pandemic.
IoT: Internet of Things(IoT) devices in trucks, containers, warehouses, and other distribution channels enable ecommerce businesses to monitor the circulation of their products and manage logistics efficiently.
Supply Chain risks can potentially harm your businesses if not managed efficiently. When running your ecommerce business, you need to be as efficient and cost-effective as possible. Invest in technologies and techniques that make supply chains resilient to disruptions. Implementing supply chain software solutions for aligning your ecommerce strategy with your supply chain strategy are critical steps towards making your supply chains risk-free.
About the author
James Mordy is a content writer with the IT research firm GoodFirms. A tech enthusiast, a solo traveler, and an avid reader, he loves to write about innovations that transform the online business world. His areas of interest include the latest technologies, software products, ecommerce, and supply chain management.