How Ecommerce Startups Can Navigate the Supply Chain Logjam Consumer expectations of speedy delivery and an unprecedented supply chain backlog have come into conflict. Which will give first?
By John Monarch
Opinions expressed by Entrepreneur contributors are their own.
The rise of global trade and ease of access to global vendors, manufacturers and producers has led to an unprecedented lowering of the barrier to entry for ecommerce. It's easier than ever to source product, make deals and have product shipped not only in bulk, but dropshipped right to consumers without ever leaving your home.
But that ease of access to the marketplace, new delivery startups and of course a behemoth named Amazon have led to a growth of consumer expectations. Sixteen years ago, when Amazon Prime was first introduced, free two-day shipping was novel and exciting. Now, it has become expected — with same-day delivery even beginning to fully penetrate the market, driving consumer-service demand even higher.
With the worst of the pandemic (hopefully) behind us, we are beginning to see cracks in the system that this level of demand and competition for speed have created. Known as the Bullwhip Effect, the idea is that when a small but energetic ripple is created at the leading edge of something, that ripple quickly grows into a giant wave that now has control of the entire object and has spread, creating large consequences.
With containers in all the wrong places, labor shortages in the logistics industry and demand higher than ever, we may be witnessing the end of just-in-time inventory — a system that has created efficiencies for businesses large and small. Through low-cost shipping, companies have been enabled to minimize the amount of inventory they need to keep in stock at any given time. For huge companies, managing inventory and capital is less challenging than it is for startups that have limited access to funds and are lower down the priority list for major shipping lines. So what can startups do?
Related: A Beginner's Guide to Building a Profitable Ecommerce Business
Ensure accurate inventory counts
Whether you are partnering with a fulfillment service or fulfilling your own inventory, accurate information is the most critical foundation to all other steps. How often are you running full cycle counts? Are you restocking returns, and are those being added to your inventory? Are they separate SKUs or back in the one? Did you know that inventory shrinkage accounts for 1.83% of all sales globally, exceeding $100 billion annually? Knowing more granular detail about what you have on-hand, and what you need, helps build the base layer of information for your business.
Have a safety stock
If your inventory is non-perishable, set aside a safety stock that you don't touch except in the event of a delay from a manufacturer or shipper. This is challenging and can be tempting to dip into for cost reasons, but consider it to be your emergency-savings account. Common wisdom is that individuals should have a three-to-six-month emergency fund. How much of an emergency fund of inventory can you afford to set aside?
Get smarter about data
Data analytics has become more critical than ever for businesses of all sizes. Gone are the days when blind selling was possible, where one could just order when things looked low — or even just keeping basic reorder thresholds. Information is valuable, and having easy to understand information that helps you make strong decisions is gold. When is your busiest time of year? Is it the traditional holidays? Where do your customers live? Can you route large inventory orders through ports that are less busy as a result? The ports of Los Angeles and Long Beach are the busiest in the country, and as a result, the most backlogged. But approximately 63% of the U.S. population lives east of the Mississippi River.
Consider working with data analysts, be it hired or outsourced via a freelancing site, to make sense of your data. Set up alerts, dashboards and more so that you can be better informed every day.
Related: 5 Game-Changing Ecommerce Trends in 2022
Explore inventory financing
Better-quality data and smarter analytics enable more intelligence financing. Just-in-time inventory created savings and reduced the need of credit for many ecommerce startups. With inventory levels needing to be stocked up for longer terms, this is likely to put strain on the cash of startups. Financing and credit are sometimes seen as dirty words, but they are tools that can help prevent out of stock problems that many will face this holiday season.
Streamline more processes
More time saved is more money saved, everybody knows that. But the correct way to automate processes is often a bit of a mystery to many people. For ecommerce startups with physical products, that may mean making it easier for fulfillment employees to pack products. Easier to assemble packaging, fewer components and less time spent per order can help offset labor shortages by making your shipments more efficient and require fewer people to build the same amount.
All in all, this combination of supply chain backlogs, a rise in ecommerce and the looming holiday season are a daunting storm for startups to handle. But all in all, if you can build your business to weather this, then you've built it to be sustainable in the long term.
