Supply Chain Management in E-commerce: Components, Process, Advantages, Best Practices

E-commerce can be compared to an iceberg, which shows off only a fraction of its total size above water. The rest remain submerged. A significant portion of the similar submerged portion in e-commerce comprises the supply chain. It affects every aspect of e-commerce without being visible to the outside world. That’s the reason supply chain management or SCM in e-commerce companies is the most critical part of their business operations. 

What is a supply chain in e-commerce?

The e-commerce supply chain is a network of processes that involves distinct verticals of an e-commerce business. Major such verticals are sourcing, handling, production, distribution, last mile delivery and return. Another way of describing a supply chain is through tracking the journey of materials beginning from their sources to reaching the end-users in the form of goods. 

Example: the supply chain of an online furniture retailer can involve:

• Sourcing raw materials like wood, metal nails, paints, etc. 
• Designing furniture based on market feedback.  
• Manufacturing furniture using the different raw materials procured. 
• Maintaining an inventory of assembled and semi-assembled furniture.  
• Receiving and processing orders. 
• Ensuring delivery and customer-end fitting of ordered furniture. 
• Processing and receiving returned furniture.

What is supply chain management in e-commerce?

Supply chain management is the activity of flawless coordination between each stage of a supply chain to ensure maximum customer satisfaction with the minimum cost to the e-commerce company. 

In practice, supply chain management can be defined as tracking, monitoring, coordinating, and managing the journey of materials from sourcing to production to delivery. 

Importance of supply chain management in e-commerce

Managing the supply chain is critically important in an e-commerce business for different reasons. 

• It enables the timely delivery of goods: SCM plays a critical role in ensuring the on-time delivery of goods and services to customers.
• It helps minimise costs: e-Commerce is a highly complex and competitive business landscape that cannot tolerate excess costs. SCM helps to exercise control over costs across the stages of e-commerce business operations. 
• It improves customer satisfaction: One of the key reasons behind the success of the e-commerce industry is the customer satisfaction it can create. SCM streamlines distribution, last-mile delivery and the return process. It improves customer satisfaction. 
• It simplifies inventory management: SCM helps minimise chances of overstocking and under-stocking and achieves near-on-demand stock availability. 
• It allows effective monitoring across the supply chain touchpoints: In e-commerce businesses, SCM helps to establish a uniform quality control mechanism. 

How does an e-commerce supply chain work?

Supply chain in any e-commerce business works through several logistical stages. These stages range from sourcing and handling of raw materials, manufacturing to the last-mile delivery of goods to end users, and processing returned goods. 

Components of supply chain management in e-commerce

To efficiently and effectively manage a complex e-commerce supply chain, experts divide SCM in e-commerce into nine individual components. 

These components include: 

• Sourcing and supplier management - This involves sourcing and procurement of raw materials. 
• Production and manufacturer management - This involves the transformation of raw materials into processed goods and products. 
• Logistics and transportation management - The aim of this component is to manage shipping, route optimisation and similar activities. 
• Inventory management - Through this component, SCM experts exercise stock control, forecast demand, and ensure optimum utilisation of storage facilities.  
• Order handling and fulfilment management - This involves accepting customer orders, processing orders, picking ordered goods from inventory and packaging.  
• Last-mile delivery and return management - It takes care of doorstep delivery of ordered goods and flawless delivery experience to customers.  
• Customer relationship management - Finally, SCM also ensures customer servicing and reverse logistics related to returned goods. 

SCM is a highly technology-intensive activity, experts consider tech integration, data analytics and performance management as integral parts of supply chain management in e-commerce.

Stages of an ecommerce supply chain

Different stages of supply chain management in e-commerce are: 

• Planning - It involves collecting data, analysing and extracting business intelligence related to customer demand, satisfaction and market dynamics.  
• Sourcing - At this stage, e-commerce companies look out for suppliers for raw materials, semi-finished and finished goods, evaluate quality and other parameters, and finalise their sourcing partners. 
• Production - This stage comprises processing of raw materials and semi-finished goods to final products. e-Commerce companies can manufacture themselves or outsource from contract manufacturers. 
• Storing - This involves storage of finished goods in warehouses and tracking of inventory.  
• Fulfilment or order management - Order management or fulfilment is a critical stage in the e-commerce business. It involves processing customer orders, readying products for delivery and ensuring package handover to the right delivery partners. Fulfilment is also a process that involves handling product returns.  
• Delivery - This is the stage where products are transported from warehouses to customers’ addresses. The aims are to deliver within the pre-scheduled time and date, without causing any product damage.  

Impact of e-commerce on supply chain management

E-commerce business models have impacted and vastly changed the way companies manage their supply chains today. 

• First, it has increased the speed of innovation in SCM practices. 
• Second, technology integration across SCM touchpoints has skyrocketed. More data-driven decisions are being made. 
• e-Commerce businesses have increased the need for speed and efficiency in SCM. Customers are expecting rapid fulfilment and deliveries.  
• Better demand forecasting in e-commerce businesses has transformed inventory management into a near-on-demand stocking mechanism. 
• Last but not least, e-commerce businesses have enabled the globalisation of supply chains. Companies across the world can now easily source and sell across borders today. 

Advantages of supply chain management in e-commerce

• Minimisation of costs
• Faster fulfilment of orders
• Improved customer satisfaction
• Effective risk management 
• Accurate forecasting capability 
• Stronger customer relations 
• Better business efficiency 

Challenges in the e-commerce supply chain

The e-commerce supply chain can be susceptible to unique challenges, such as:

• Disruptions in logistics 
• Lack of cybersecurity  
• Poor technology integration 
• Human errors in data logging 
• Unfavourable policy interventions 
• Disturbances in network connectivity 

Best practices for effective supply chain management in e-commerce

• Audit your present supply chain and supply chain management efforts
• Make customer-centric supply chain decisions. 
• Minimise logistics costs. 
• Use warehousing capacity efficiently. 
• De-risk sourcing through diversification of suppliers. 
• Implement cutting-edge tech integration and automation in order processing. 
• Ensure data-backed decision-making.