Role of E-Commerce in Supply Chain Management
Much has been said about the role of supply chain management (SCM) in e-commerce, yet the effect of e-commerce on SCM has been just as important. According to the U.S. Census, e-commerce sales, as a component of all retails sales, rose by 13% between 2018 and 2019. Because supply chain management and e-commerce are interconnected, the effect of e-commerce has put many small businesses in a do-or-die situation: either update your existing SCM system or become lost in a sea of increasingly efficient competitors.
Because e-commerce allows customers to buy items 24/7 and often have them arrive within days, an increasing number of businesses have had to rethink their SCM practices in order to stay profitable and competitive.
The role of e-commerce in SCM is two-fold. First, retailers use e-commerce to sell directly to clients, either on their own website or through a service like Amazon or e-Bay. Secondly, retailers can buy products and raw materials using e-commerce systems from manufacturers, wholesalers and distributors. Just like retailers, suppliers can choose to sell directly through their own websites or through a service like Alibaba or AliExpress. While only 25 to 35% of distributors in the U.S. have an e-commerce component, this is expected to be one of the fastest areas in growth for e-commerce business in the next few years.
In many cases, retailers who use e-commerce both to purchase and to sell products can eliminate their own supply chain management entirely through the use of drop-shipping. When a client goes to the retail website and orders an item, the retailer automatically orders that item from the manufacturer or distributor, who ships it directly to the customer. The only role the retailer has in this transaction is accepting money from the customer and, in turn, paying the supplier.
For businesses that use e-commerce services for ordering stock, the benefit of e-commerce is that products can be ordered at any time. Using an Enterprise Resource Planning (ERP) software system, they can even be ordered automatically whenever the system detects that stock is about to run low.
Two factors that influence consumers contemplating an online purchase are price comparisons and reviews. These two, more often than not, are linked together in price comparison search engines, which are usually the first thing shoppers see when they begin their search. If you don't think online reviews can make or break a business, consider a 2017 survey by ReportLinker, which showed that 66% of consumers ranked online reviews as just as trustworthy or more trustworthy than personal recommendations.
Another reality in e-commerce is that Amazon ranks its vendors in search results based on the same factors consumers expect: quickly and efficiently delivering good products. Those who fail to live up to this expectation can expect to have their accounts suspended. Vendors who have a reliable and efficient SCM system thrive in e-commerce, while those who do not... do not.
While vendors understand the importance of offering e-commerce options to their customers, integrating e-commerce into SCM practices is just as important, especially when you understand that your competitors are already taking advantage of automated SCM systems.
Without an efficient and, ideally, automated SCM system like that offered by ERP software, vendors must often choose between having too much inventory on hand or not enough. Having insufficient stock on-hand to satisfy clients will lead to poor reviews and poorer search result rankings. On the other hand, having excess inventory that won't be sold in a timely manner increases supply costs and increases the costs of storing those items. If the items don't sell quickly, the vendor also runs the risk of having their value depreciate.
Secondly, an efficient SCM system increases worker productivity. Instead of taking time to manually determine what supplies are needed and then contacting the supplier to order them, an automated system does this with little oversight required. Reduced labor reduces costs and gives the vendor the opportunity to be competitive in pricing.