What are the two benefits that efficient supply chain management provides to retailers and their customers?

11/21/19

(This article was last published on November 22, 2017. It’s been updated for completeness and accuracy.)

Online shoppers continue to push retailers to meet their delivery expectations. They want free, fast, and multiple delivery options at check out and retailers deliver as promised. If something does go wrong, shoppers aren’t forgiving either.

In fact, 84% of consumers say that they won’t return to a brand after just one poor delivery experience.

The stakes are high for retailers. Delivery speed, price, and pick up options can dictate whether a customer buys from you or another competitor. It’s an important part of the purchasing decision that can’t be ignored.

Unfortunately, managing your backoffice operations to optimize for fulfillment is one of the hardest aspects of selling online. If you’re a growing business, it’s overwhelming to understand and take action to improve your processes for customers. To help you, this article covers the basics of supply chain management and why you must make it a priority for your online business.

What is Retail Supply Chain Management?

If you’re new to the game, logistics can seem overwhelming. You might think that you’re not big enough to be throwing around terms like supply chain management. However, if you’re experiencing growing pains like delayed fulfillment times, high fulfillment costs, and the inability to offer competitive shipping options and prices, then you’re ready to optimize your supply chain.

Your retail supply chain is the processes you use to get your products to your consumers. It encompasses everything from obtaining the raw materials to make your product to delivering that product into your shoppers’ hands.

Retail supply chain management therefore is how you optimize those processes to maximize both speed and efficiency. You should deliver your products into a consumer’s hands as fast as you can. However, you don’t want to pay outrageous amounts to do that. You must optimize your processes to be as efficient and affordable as you can manage.

Many retailers use shipping software, 3PLs, and integration companies to automate their processes and increase efficiencies.

Why is Retail Supply Chain Management Important?

It’s easy to overlook the importance of supply chain management and undervalue its effect on your business operations. However, retailers can no longer afford to do so.

Online shoppers thoroughly research and compare products and processes before purchasing.

According to the NRF, 65% of consumers say they look up free-shipping thresholds before adding items to their online shopping carts. Further, 39% expect two-day shipping to be free. And, if you don’t offer it, consumers will shop somewhere else. 29% of consumers have backed out of a purchase because two-day shipping wasn’t free.

Retailers of all sizes are falling short on meeting customer’s expectations. Those who provide the best shipping experience will see a big impact on their costs and will gain a competitive advantage. If you’re looking for a way to stand out in your competitive retail space, your fulfillment process and ability to deliver can set you apart from others.

Lower Retail Supply Chain Costs

As briefly mentioned above, retail supply chain management focuses on delivering your products as quickly and affordably as you can. Diving into your supply chain processes can help you determine areas where you can cut costs. You’ll be able to increase your bottom line without even selling more products.

Some ways to save costs is improving your storage strategy, improving supplier relationships, analyzing customer demand patterns, and moving supplies faster. Check out this article for other cost reduction strategies for supply chain management.

When you streamline your supply chain management process, you break down silos and operate more efficiently. You’ll speed up order processing and save yourself money. All it takes is evaluating your current processes and determining where you can make improvements.

Gain a Competitive Advantage

By making your supply chain more efficient, your business won’t be the only one saving money. Your customers can too! Businesses with low supply chain costs can lower their prices (without going into the red), which can increase sales with customers.

For the U.S., the second leading reason for choosing to shop on marketplaces is free and discounted shipping, according to the UPS Pulse of the Online Shopper 2018.

You could start to win back more of their customers by offering attractive shipping prices.

Supply chain management also helps you deliver a better customer experience. You’ll be able to offer better delivery options and shipping prices. Then, you’ll build trust with your customers when you deliver accurately and on-time.

Today’s shoppers expect fast shipping times from same-day to two-day delivery. However, experts like Oracle and Convey say that merchants, over anything else, should first focus on delivery days that they can guarantee. If a consumer is confident that their order will arrive when the retailer says it will, they might be more willing to wait a few days.

How to Improve Your Supply Chain Processes

Proper order fulfillment takes the organization of all the people, process, and technology needed to deliver an order to a customer. This includes everything from your online checkout process, payment provider, and order management system, to how you pick, pack, and ship items.

When looking at your current processes, start at the beginning. Make your online checkout pages shorter and easier to fill out. Use a trustworthy and secure payment provider. Your customers should be confident when they check out.

Now comes the part where you actually pick, pack, and ship the orders to customers. A lot can go wrong from the time an order is placed and then shipped. Many merchants struggle with this part of the process. It’s this area where merchants face the biggest inefficiencies and the most opportunity to improve.

To overcome different challenges during this phase, retailers can turn to a few different options:

Invest in shipping software

Shipping software helps retailers import, organize, and process their online orders for fast and reliable shipping. They help you create and print shipping labels and ensure you’re getting the best rates with carriers.

A few popular options include ShipStation, Shippo, Ordoro, and ShippingEasy.

Partner with a 3PL provider

Realizing that most retailers aren’t going to specialize in logistics, 3PLs, or third-party logistic providers offer a way to outsource either part or all your fulfillment processes.

Integrate Your Systems

Integrating your retail systems gives retailers all sizes the power to compete. You can offer free, 2-day shipping and trust your products will get there in time, even if you’re not Amazon. If you can perform advance logistics operations, then you’ll have more power with your suppliers.

Retail system integration platforms like nChannel connects your eCommerce platform with your ERP, 3PL, or shipping software so you can optimize your fulfillment processes. You’ll be able to perform processes like these and more:

• Split orders for optimized fulfillment
• Manage multiple suppliers or fulfillment locations
• Manage drop shipping
• Reconcile payment terms, purchase orders, and shipping notifications

Don’t Forget about Returns

Don’t forget that supply chain management also includes reverse logistics, or how you deal with returns!  Mismanaged returns processes can have a serious negative effect on your bottom line, especially for online retailers. It’s no secret that customers want free returns. In fact, 60% of shoppers say free returns shipping is a top element for a best returns experience.

When evaluating your supply chain, don’t overlook your current return policy and how you logistically handle returns.

Read our guide on how to improve your returns process.

More Retail Supply Chain Best Practices

There’s a lot of variability from one business’s supply chain to another, but call can find ways to optimize their processes through best practices, strategy, and integration. It takes time and investment, but it’s worth it!

To keep reading about more retail supply chain best practices, check out these other articles:

Supply chain management is the management of the flow of goods and services and includes all processes that transform raw materials into final products. It involves the active streamlining of a business's supply-side activities to maximize customer value and gain a competitive advantage in the marketplace.

• Supply chain management (SCM) is the centralized management of the flow of goods and services and includes all processes that transform raw materials into final products.
• By managing the supply chain, companies can cut excess costs and deliver products to the consumer faster and more efficiently.
• Good supply chain management keeps companies out of the headlines and away from expensive recalls and lawsuits. 
• The five most critical elements of SCM are developing a strategy, sourcing raw materials, production, distribution, and returns.
• A supply chain manager is tasked with controlling and reducing costs and avoiding supply shortages.

Supply chain management (SCM) represents an effort by suppliers to develop and implement supply chains that are as efficient and economical as possible. Supply chains cover everything from production to product development to the information systems needed to direct these undertakings.

Typically, SCM attempts to centrally control or link the production, shipment, and distribution of a product. By managing the supply chain, companies can cut excess costs and deliver products to the consumer faster. This is done by keeping tighter control of internal inventories, internal production, distribution, sales, and the inventories of company vendors.

SCM is based on the idea that nearly every product that comes to market results from the efforts of various organizations that make up a supply chain. Although supply chains have existed for ages, most companies have only recently paid attention to them as a value-add to their operations.

The supply chain manager tries to minimize shortages and keep costs down. The job is not only about logistics and purchasing inventory. According to Salary.com, supply chain managers “oversee and manage overall supply chain and logistic operations to maximize efficiency and minimize the cost of organization's supply chain."

Productivity and efficiency improvements can go straight to the bottom line of a company. Good supply chain management keeps companies out of the headlines and away from expensive recalls and lawsuits. In SCM, the supply chain manager coordinates the logistics of all aspects of the supply chain which consists of the following five parts.

To get the best results from SCM, the process usually begins with planning to match supply with customer and manufacturing demands. Firms must predict what their future needs will be and act accordingly. This relates to raw materials needed during each stage of manufacturing, equipment capacity and limitations, and staffing needs along the SCM process. Large entities often rely on ERP system modules to aggregate information and compile plans.

Efficient SCM processes rely very heavily on strong relationships with suppliers. Sourcing entails working with vendors to supply the raw materials needed throughout the manufacturing process. A company may be able to plan and work with a supplier to source goods in advance. However, different industries will have different sourcing requirements. In general, SCM sourcing includes ensuring:

• the raw materials meet the manufacturing specification needed for the production of goods.
• the prices paid for the goods are in line with market expectations.
• the vendor has the flexibility to deliver emergency materials due to unforeseen events.
• the vendor has a proven record of delivering goods on time and in good quality.

Supply chain management is especially critical when manufacturers are working with perishable goods. When sourcing goods, firms should be mindful of lead time and how well a supplier can comply with those needs.

At the heart of the supply chain management process, the company transforms raw materials by using machinery, labor, or other external forces to make something new. This final product is the ultimate goal of the manufacturing process, though it is not the final stage of supply chain management.

The manufacturing process may be further divided into sub-tasks such as assembly, testing, inspection, or packaging. During the manufacturing process, a firm must be mindful of waste or other controllable factors that may cause deviations from original plans. For example, if a company is using more raw materials than planned and sourced for due to a lack of employee training, the firm must rectify the issue or revisit the earlier stages in SCM.

Once products are made and sales are finalized, a company must get the products into the hands of its customers. The distribution process is often seen as a brand image contributor, as up until this point, the customer has not yet interacted with the product. In strong SCM processes, a company has robust logistic capabilities and delivery channels to ensure timely, safe, and inexpensive delivery of products.

This includes having a backup or diversified distribution methods should one method of transportation temporarily be unusable. For example, how might a company's delivery process be impacted by record snowfall in distribution center areas?

The supply chain management process concludes with support for the product and customer returns. Its bad enough that a customer needs to return a product, and its even worse if its due to an error on the company's part. This return process is often called reverse logistics, and the company must ensure it has the capabilities to receive returned products and correctly assign refunds for returns received. Whether a company is performing a product recall or a customer is simply not satisfied with the product, the transaction with the customer must be remedied.

Many consider customer returns as an interaction between the customer and the company. However, a very important part of customer returns is the intercompany communication to identify defective products, expired products, or non-conforming goods. Without addressing the underlying cause of a customer return, the supply chain management process will have failed, and future returns will likely persist.

A supply chain is the network of individuals, companies, resources, activities, and technologies used to make and sell a product or service. A supply chain starts with the delivery of raw materials from a supplier to a manufacturer and ends with the delivery of the finished product or service to the end consumer.

SCM oversees each touchpoint of a company's product or service, from initial creation to the final sale. With so many places along the supply chain that can add value through efficiencies or lose value through increased expenses, proper SCM can increase revenues, decrease costs, and impact a company's bottom line.

Supply chain management does not look the same for all companies. Each business has its own goals, constraints, and strengths that shape what its SCM process looks like. In general, there are often six different primary models a company can adopt to guide its supply chain management processes.

• Continuous Flow Model: One of the more traditional supply chain methods, this model is often best for mature industries. The continuous flow model relies on a manufacturer producing the same good over and over and expecting customer demand will little variation.
• Agile Model: This model is best for companies with unpredictable demand or customer-order products. This model prioritizes flexibility, as a company may have a specific need at any given moment and must be prepared to pivot accordingly.
• Fast Model: This model emphasizes the quick turnover of a product with a short life cycle. Using a fast chain model, a company strives to capitalize on a trend, quickly produce goods, and ensure the product is fully sold before the trend ends.
• Flexible Model: The flexible model works best for companies impacted by seasonality. Some companies may have much higher demand requirements during peak season and low volume requirements in others. A flexible model of supply chain management makes sure production can easily be ramped up or wound down.
• Efficient Model: For companies competing in industries with very tight profit margins, a company may strive to get an advantage by making their supply chain management process the most efficient. This includes utilizing equipment and machinery in the most ideal ways in addition to managing inventory and processing orders most efficiently.
• Custom Model: If any model above doesn't suit a company's needs, it can always turn towards a custom model. This is often the case for highly specialized industries with high technical requirements such as an automobile manufacturer.

Understanding the importance of SCM to its business, Walgreens Boots Alliance Inc. decided to transform its supply chain by investing in technology to streamline the entire process. For several years the company has been investing and revamping its supply chain management process. Walgreens was able to use big data to help improve its forecasting capabilities and better manage the sales and inventory management processes.

This includes the 2019 addition of its first-ever Chief Supply Chain Officer, Colin Nelson. His role is to boost customer satisfaction as the company increases its digital presence. Beyond that, in 2021, it announced it would be offering free two-hour, same-day delivery for 24,000 products in its stores.

Supply chain management is the practice of coordinating the various activities necessary to produce and deliver goods and services to a business’s customers. Examples of supply chain activities can include designing, farming, manufacturing, packaging, or transporting.

Supply chain management is important because it can help achieve several business objectives. For instance, controlling manufacturing processes can improve product quality, reducing the risk of recalls and lawsuits while helping to build a strong consumer brand. At the same time, controls over shipping procedures can improve customer service by avoiding costly shortages or periods of inventory oversupply. Overall, supply chain management provides several opportunities for companies to improve their profit margins and is especially important for companies with large and international operations.

Ethics has become an increasingly important aspect of supply chain management, so much so that a set of principles called supply chain ethics was born. Consumers and investors are invested in how companies produce their products, treat their workforce, and protect the environment. As a result, companies respond by instituting measures to reduce waste, improve working conditions, and lessen the impact on the environment.

Supply chain management has five key elements—planning, sourcing raw materials, manufacturing, delivery, and returns. The planning phase refers to developing an overall strategy for the supply chain, while the other four elements specialize in the key requirements for executing that plan. Companies must develop expertise in all five elements to have an efficient supply chain and avoid expensive bottlenecks.

Place is the marketing mix element that deals with supply chain management as it involves the processes that take goods and services from their raw beginnings to the ultimate destination—the customer.