Supply chain and e-commerce

Supply chain as the key to profitable growth

E-commerce continues to grow strongly at around 15% per year and accounts for an increasing share of companies’ sales. After years of focusing on sales growth, many companies are now shifting their focus to the flow of goods as well – a development driven by a more mature market and increased demands for profitability from investors.

Authors: Jonathan Brynte & Viktor Gällström

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Introduction

E-commerce continues to grow strongly at around 15% per year and accounts for an increasing share of companies’ sales. After years of focusing on sales growth, many companies are now shifting their focus to the flow of goods as well – a development driven by a more mature market and increased demands for profitability from investors. The industry is characterised by fast deliveries, price transparency and high return rates, which place entirely new demands on a company’s supply chain. More and more people are discovering the importance of this function for profitable growth.

With increasing volumes of online sales, the complexity of supply chain is increasing and many companies describe a situation of boxes reaching the ceiling, poor customer service, long delivery times and escalating costs – this can be avoided. Instead, by building on the company’s overall strategy and growth objectives, the supply chain function can become the key to profitable growth. In this white paper, we want to share some concrete tips for creating an effective and scalable supply chain function for multi-channel sales.

Three tips for creating an efficient and scalable supply chain function

1. LOOK UP – ALIGN THE SUPPLY CHAIN WITH YOUR COMPANY’S STRATEGIC GOALS


Translate company strategy into requirements for the supply chain function: what should be the priority – growth, profitability or customer experience?

Figure 1. Strategic priorities

Is the supply chain function adapted to:

  • support the growth plan for new products and geographic markets?
  • maintain profitability with increasing volumes in multiple channels?
  • meet customers’ increasing demands for fast and reliable deliveries?

For example, plan early for future sales volumes and adjust the emphasis of the supply chain platform accordingly. Furthermore, geographical distances and differences in wage levels can have a major impact on both profitability and growth. For example, before sufficient volumes are achieved in a new geographical market, collaborations with an external partner to manage warehousing and distribution can reduce risk. However, the basic principle should be to centralise warehousing and distribution in order to benefit from economies of scale and lower distribution costs.

 

2. START SIMPLE – BUT CREATE THE RIGHT CONDITIONS FOR INCREASING VOLUMES


It’s easier to get it right the first time. Once volumes take off, complexity increases dramatically and deviation management can quickly become overwhelming. Remember:

  • Streamline flows by, for example, separating return handling and removing deviation handling from the regular flow
  • Define clear processes and create the conditions for efficient inventory management by, for example, registering weight, volume and complete article description right from the start
  • Choose simple solutions – e.g. barcode labels for item identification can be a cost-effective alternative to more complex RFID solutions
  • Strive for flexibility and therefore carefully consider the business case for investing in automated warehouse systems. What is the investment horizon? How long will the warehouse remain in its current location? Are the volumes sufficient and the assortment predictable and suitable for automation?

 

3. COLLABORATE ACROSS FUNCTIONS – CREATE A BUSINESS-ORIENTED SUPPLY CHAIN FUNCTION


A business-oriented supply chain function that collaborates with other functions in the company can contribute to profitable growth in a number of ways:

  • Increasing conversion rates through differentiated delivery methods and the right product in the right place at the right time – a challenge that is becoming increasingly complex with more channels and stock points
  • Satisfied customers through reliable information and properly handled and packaged products
  • Increased profitability: by allocating costs to actual cost drivers such as storage, handling, distribution and return rates, the right sorting decisions can be made and product profitability increased
  • Control of capital commitment: by optimising inventory levels, capital can be freed up for other purposes. For example, through a proactive process for outgoing items, promotions can lead to both a reduction in capital tied up and a lower need for write-downs – which also reduces the risk of boxes reaching the ceiling

Summary

An effective supply chain function is increasingly important in the battle for customers in online sales. Price transparency makes it necessary to deliver faster, better and cheaper than competitors. By anticipating future volume increases and investing in building a business-oriented supply chain function, you can win the long-term battle for customers and grow profitably.

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