Supply chains in e-commerce: what they are and how they support business success

A complex network of activities and entities involved in the production, distribution, and delivery of goods and services to end consumers, this is, in brief, the concept of supply chains in e-commerce.

As the e-commerce industry continues its rapid growth, understanding and optimizing supply chains has become more critical than ever, as it requires effective coordination among many parties, including suppliers, manufacturers, warehouses, shipping companies, and consumers.

Given that supply chains rely on many different factors, optimizing them requires leveraging information and communication technology, including supply chain management software, shipment tracking systems, and data analysis programs.

Furthermore, improving supply chains in e-commerce requires identifying and effectively managing potential risks, such as delayed delivery, lost shipments, or damage. Contingency plans must be in place to address these issues and limit their impact on the growth of commercial activities.

Let's start by discussing supply chains in e-commerce in an attempt to cover this important topic.

First, what are E-Commerce Supply Chains?

In general, we can define the concept of supply chains as an interconnected network that brings together all the elements related to stakeholders in the selling process, starting from product manufacturing, through distribution and storage, up to shipping and delivery to the end consumer.

We would like to point out that e-commerce supply chains include multiple parties and entities that perform various roles that affect the course of the commercial process. They are a series of interconnected stages, each contributing to the smooth flow of products from manufacturers to consumers.

Key elements of the supply chain include:

• Suppliers and Sourcing

• Procurement and Inventory Management

• Manufacturing and Production

• Distribution and Warehousing

• Retailers and E-commerce Platforms

• Last-mile Delivery

The cycle of supply chains is determined by the size of the commercial activity in terms of the parties used to complete the process successfully and achieve the desired goals, which is why this complex process requires professional management.

Supply Chain Management (SCM)

It refers to the comprehensive logistics services through which the flow of resources and information is managed between stakeholders along the supply chain.

In other words, we can say that supply chain management is a discipline related to the logistics sector and aims to strategically lead various commercial activities and different organizations toward sustainability and growth to achieve the ultimate goal of gaining consumer satisfaction through providing customized services that contribute to enhancing loyalty and achieving more profits.

Supply chain management in e-commerce relies on many innovative, more efficient, and effective methods by implementing and utilizing many techniques and strategies to contribute to improving productivity and thus increasing profitability in a better way.

As for Supply Chain Planning (SCP)

It refers to the strategic planning process for coordinating the flow of goods and information within supply chains, strategically moving goods from one point to another, in addition to comprehensive planning to meet customer expectations regarding orders.

This planning includes many aspects, starting from the production process, through the marketing process, and ending with the distribution and sales process and delivering products to the end consumer.

It is worth noting that the main goal of supply chain planning is to achieve a balance between supply and demand, and to ensure that all possible opportunities are exploited to achieve the principle of sustainability and growth for commercial activities, thereby contributing to increased sales and thus increased revenues.

We point out that there are many differences between supply chains in e-commerce and traditional commerce, the most prominent of which we review below.

What is the difference between supply chains in e-commerce and traditional commerce?

Supply chains play a pivotal role in the success of any commercial activity, but the nature of the trade (electronic or traditional) casts its shadow on the design and structure of these chains. With the development of digital technologies and changing consumer behavior, fundamental differences have emerged between supply chains in e-commerce and their counterparts in traditional commerce, which are:

Starting Point:

• The supply chain in traditional commerce often starts from the factory to the warehouses, and then to the physical stores, where the customer goes to purchase in person.

• While the supply chain in e-commerce starts directly from the factory or supplier to the order fulfillment centers, and from there to the end consumer without the need for a physical store.

Storage and Distribution Model:

• In traditional commerce, products are stored in stores or warehouses near points of sale, and distributed to branches based on pre-expectations of demand volume, meaning that inventory is sent before the customer orders it, and is displayed in the store awaiting purchase.

• As for e-commerce, products are stored in centralized distribution centers or with third parties (such as storage and shipping companies), and are only shipped after the customer places their order online. Some stores do not even have inventory at all but rely on the (dropshipping) model, where the product is shipped directly from the supplier to the customer.

Reliance on Technology:

• Technology is used in traditional supply chains to a limited extent, often confined to point-of-sale or manual inventory systems, and internal product tracking is simple or inaccurate.

• While the supply chain in e-commerce is entirely managed through smart systems, including software for managing orders and inventory, tools for tracking shipments moment by moment, and data analytics to understand customer behavior and predict their needs.

Handling Returns:

• In traditional commerce, the customer returns the product to the store themselves, and the process is handled manually within the branch, and the return policy is often limited in terms of time or conditions.

• As for e-commerce, the customer can request a return electronically, and arrangements are made to pick it up from home or send it via a shipping company, and this process is managed by a dedicated logistics system that handles returns with high efficiency.

Why are supply chains important for the success of e-commerce businesses?

Supply chains have great importance and an effective impact on the success of e-commerce businesses, and we can understand this well through the following points:

First: Improving Efficiency Rates:

An e-commerce dedicated supply chain management system can help you reduce losses, and improve efficiency rates, which contributes to improving the brand's reputation and achieving more revenues.

By relying on the supply chain system, you can anticipate and understand the requirements of the target market, which will affect the strategic plan built for the commercial activity's supply chain.

Likewise, the professional application of the supply chain management system contributes to increasing productivity and effectiveness in general, and thus achieving a higher return on investment.

In addition, a properly executed supply chain management system avoids the risk of losing customers due to logistical errors that play a crucial role in delaying shipping and delivery operations resulting from incorrectly processed orders, which contributes to enhancing the efficiency rates of commercial activities and thus their growth and success.

Second: Improving Cash Flow Performance and Profit Margins:

As an owner of an online store, your main goal, of course, is to increase profits while ensuring customer satisfaction, so you must be aware of all outgoing cash flows, which supply chain management enables you to do. A supply chain management system gives you the ability to see the distant future to predict the losses that can be incurred in certain aspects of the business to avoid them.

Having an innovatively designed supply chain management system also allows you to understand the aspects that can be improved in terms of cost by simplifying certain operations to improve profit margins and reduce losses through:

• Evaluating the performance of every aspect of the commercial activity by analyzing huge amounts of data and extracting valuable insights from it.

• Avoiding storing unnecessary or stagnant goods.

• Shortening the product life cycle.

• Exploring new ways to achieve profits.

Third: Managing Risks Related to E-commerce Business:

Building a good supply chain management system helps grant commercial activities the necessary flexibility to manage risks by forming a comprehensive vision about all parties within the interconnected network of supply chains, which contributes to accurately assessing the situation, and helping in searching for potential threats to deal with them and reduce them proactively.

Fourth: Building and Improving Customer Relationships:

Likewise, the importance of supply chain management in e-commerce lies in helping online store owners build and improve stronger relationships with customers. As commercial activities grow, dealing with all customer data manually becomes risky due to human errors that can occur, which in turn affect understanding consumer behavior and dealing with them.

Therefore, it is necessary to invest in Customer Relationship Management (CRM) systems as part of the supply chain system as it allows: automating marketing operations, sales management, storing and managing customer data, tracking purchase records to analyze them and know their preferences and understand their needs, etc.

We would like to point out that a good CRM system can support the e-commerce supply chain management by: facilitating on-time delivery, dealing with problems and responding to inquiries in real-time, adapting to changing market conditions and needs, and so on, which contributes to enhancing customer loyalty to the commercial activity.

E-commerce supply chains go through many stages, and we will mention the most prominent of them in the following paragraph.

The most prominent stages of the e-commerce supply chain

There are 6 basic stages that the e-commerce supply chain goes through:

Stage One: Supply and Demand:

Supply and demand is a familiar concept in the world of e-commerce, due to its significant impact on how retailers price products and how quickly customer orders are fulfilled.

In this stage, a balance must be achieved between supply and demand so that they are identical, so that the prices and quantities of goods held by store owners match the consumer's demand for products, which is difficult to achieve by traditional methods due to the constant changes in the market nature.

This is where the role of the e-commerce supply chain comes in, which deals with this stage and achieves the missing balance through the capabilities and tools that enable it to interact with these changes and respond to them in a way that benefits commercial activities.

Stage Two: Storage:

The storage process is one of the most important stages within the e-commerce supply chain strategy, where incoming goods are stored in warehouses during this stage, as well as goods leaving through packaging and wrapping to be shipped and delivered to customers. In other words, we can say that this stage is a hub for all aspects related to receipt, storage, and distribution.

You should know that all operations, starting from receiving products, classifying them, and dividing them into categories within the warehouse, up to sending them for shipping, all fall within the scope of this stage.

To manage these operations professionally, commercial activities have begun to rely on a Warehouse Management System (WMS) to maintain the management of all operations within the warehouses professionally and smoothly.

Stage Three: Inventory Tracking:

If you run an online store, one of your most important basic duties is to make sure you are stocking the correct inventory in the appropriate quantities. Given that your inventory is in a constant state of change due to customer orders and market needs, it is important to know the products available to you at any time, which is what this stage achieves within the e-commerce supply chain.

You should know that inventory tracking is an effective way to monitor your inventory levels throughout the supply chain, so you can easily meet consumer demand, reduce excess goods, and eliminate stagnant products.

Stage Four: Order Processing:

In this stage, orders sent by consumers are processed to take their natural course in the sales process so that retailers can perform the necessary activities to fulfill this request.

You should know that sales orders within the order processing system play a central role in ensuring that every sale process is well documented and executed correctly, which contributes to meeting expectations regarding the fulfillment and delivery process.

Stage Five: Order Management:

This stage is considered one of the most important stages within the e-commerce supply chain, as it is the link between the various stages related to the supply chains for online stores, starting from customers sending purchase orders, and ending with the shipping and delivery process.

It is worth noting that relying on an innovative and distinguished Order Management System (OMS) for online store owners contributes to supporting, coordinating, and organizing all operations, from inventory visibility and order collection, to delivery, in addition to simplifying the order life cycle by providing automation for inventory tracking and creating real-time insights into its data.

Stage Six: Distribution, Delivery, and Returns:

This stage is divided into two parts, the first relates to the distribution and delivery process, which focuses on the movement of the product from the supplier or manufacturer to the final point of sale. Distribution and delivery management includes all operations such as: storage, packing and packaging, shipping, etc.

The second part relates to returns or what is known as reverse logistics and means transporting goods from the customer to the seller or manufacturer for many reasons such as: manufacturing defects, non-conformity to required specifications, etc.

⭐ These operations may seem highly complex, especially for owners of small and medium e-commerce businesses, but there are logistics solutions that fully organize and manage these operations to provide logistics services to merchants in the simplest possible form.

At the top of these solutions is the shipping gateway OTO, which combined all these different operations in one technical solution that allows you to manage everything from one smooth, easy, simple, and integrated control panel. You can now create a free account in OTO and try different shipping and logistics solutions.

Who are the parties involved in e-commerce supply chains?

As we mentioned earlier, the e-commerce supply chain is an interconnected network that links multiple parties to ensure the accurate flow of goods and information. In quick points, we can review these parties as follows:

• Supply Chain Entities:

These are the parties whose function is to provide products by bearing all responsibilities related to securing needs, manufacturing, and distribution of the product.

• Storage Entities:

These are the parties responsible for storing goods for online stores, whether you are responsible for the storage process, or you work with the dropshipping system.

• Display Entities:

They are responsible for the product presentation process and the way goods will be presented to consumers.

• Marketing Entities:

These are the parties responsible for promoting online stores and the products they offer, and working to raise conversion rates and increase sales movement, and thus increase the return on investment.

• Payment Entities:

This refers to payment gateways or methods, which are responsible for sending and receiving electronic payments between shoppers and the owner of the online store.

• Preparation Entities:

They are responsible for preparing products before handing them over to the shipping company to deliver them to customers. The preparation process includes preparing, packing, and wrapping products to deliver them with the best possible quality.

• Delivery Entities:

These are the parties that undertake the responsibility of shipping and delivering goods to the end consumer after preparation. This process varies depending on the type of supply chain that the online store owner relies on, which in turn determines the shipping and delivery of products through any of the shipping companies as an external source to manage this process, or delivering them to shoppers themselves.

• Support Entities or what is known as After-Sales Service:

These are the parties responsible for providing technical support around the clock to customers after completing the purchase process.

The Importance of E-commerce Supply Chain Management

Relying on an e-commerce supply chain management system has many benefits, including:

1. Increasing Growth Rates and Revenue:

Some statistics mentioned that 79% of commercial activities with high-performance supply chains achieved remarkable growth and an increase in revenues greater than the average of similar commercial activities in the same industries.

The statistic also mentioned that commercial activities that worked to improve the management of their supply chains benefited from reducing the inherent costs by 15%, which demonstrates the importance and benefit of relying on a supply chain management system for the success of e-commerce businesses and achieving more profitability.

2. Reducing Shipment Delivery Time:

According to many studies, consumers expect to receive their shipments as quickly as possible, and to do this, many challenges must be overcome and various problems resolved to provide a unique and distinguished shipping experience for customers.

From here, the benefits of relying on an e-commerce supply chain management system emerge, which allows overcoming all challenges such as inventory depletion from warehouses and other risks and problems that prevent the delivery of shipments to consumers as quickly as possible, which leads to customers losing confidence in the brand and consequently not dealing with it.

You should know that applying the correct SCM strategies in place contributes to minimizing these risks, allowing shipping times to be sped up and products delivered to customers, which contributes to gaining their satisfaction and strengthening their loyalty to the commercial activity.

3. Improving Inventory Management:

Poor inventory management causes many losses in terms of cost and sales in various commercial activities, and in order to improve inventory management professionally in a way that contributes to increased revenues, it is necessary to rely on a supply chain management system that allows improving the handling of inventory within warehouses and managing it professionally by tracking it and forecasting it based on historical data and forecasts, which contributes to reducing losses.

Improving inventory management by relying on an e-commerce supply chain management system has many advantages, including:

• Enhancing sales movement.

• Forecasting the approaching depletion of inventory for a specific commodity or a group of commodities.

• Reducing the retention of stagnant goods.

• Improving cash flow.

4. Gaining Customer Satisfaction:

Applying e-commerce supply chain management strategies correctly contributes to gaining customer satisfaction by speeding up shipping operations, delivering at specified times, and the constant availability of products. All this contributes to providing a customized experience for customers that gives you a competitive value and increases their satisfaction with the brand, and consequently repeating the purchase process multiple times.

Conclusion

It has become clear through what has been reviewed the extent of the importance of supply chains in e-commerce, and how they effectively contribute to leading commercial activities toward success and achieving more profits.

Undoubtedly, the shipping and delivery process is one of the most important aspects of the supply chain, as it is one of the factors affecting the performance and movement of commercial activity and gaining customer satisfaction.

Therefore, it is necessary to rely on an experienced logistics partner who plays the strategic leadership role in managing the shipping operations and supply chain for your e-commerce business and enhancing competitive value.