If you are starting an e-commerce business, one of the major challenges relates to inventory. When you think through the process, you realize that you cannot afford to keep the kind of inventory you need in order to do the business you want. In the initial stages, it might be better to set up an e-commerce website with the products you sell and have someone else manage inventory, shipping, and returns.
That is where the supply chain strategy becomes important.
Basic Supply Chain Management Terms
Before we explore a viable supply chain strategy, let us understand some basic concepts related to supply chain management.
Product sourcing is locating a source of products to sell that you do not manufacture yourself.
Drop shipping involves transferring customer orders to another company, who fulfills the orders by shipping the items directly to the customer on your behalf.
Wholesale suppliers are simply providing you items at wholesale prices from the manufacturers.
Ask Yourself These Questions First
There is no one-size-fits-all strategy in any aspect of business, certainly not in supply chain management. To come up with something that works for you, begin by asking yourself the following questions:
Will you manufacture or resell items?
Will you keep an inventory or not?
How much control do you want over the packaging and shipping?
How critical is price control to your business model at this stage?
What volumes will you be dealing in?
With these questions answered, you can determine what your supply chain management model will look like.
Contact Trade Magazines and Associations to Develop Suppliers
If you are setting up an e-commerce business, you probably have some thoughts on sourcing.
Even if that is not the case, you could start by reading trade magazines to find companies manufacturing products you are interested in. You could also attend the relevant trade shows.
You could also contact trade organizations that are associated with the products you want to deal in, making valuable contact with their members. In fact, these organizations aim to connect manufacturers and retailers, even if they are from different countries. It is not difficult to locate relevant associations. You could simply look up a directory of trade associations.
Evaluate Local Retailers As a Source
Do not rule out local retailers with limited resources as product sources. They are successful in their own town, but might have an interest in someone selling their products elsewhere.
Sourcing Directly From Manufacturers Is Desirable but Difficult for Small Players
A manufacturer usually does not want to fuss with small retailers. Wholesalers have a sales force, and resources, in place specifically for distributing the products to e-commerce businesses that will retail the products. Also, the manufacturer wants to sell very large quantities that are usually beyond the reach of smaller e-commerce players.
If a manufacturer is willing to work directly with you, it is most likely because they are too small of a fish to catch the attention of wholesale distributors. They cannot keep up with volume demands and need to live life in the slow lane. The risk is that they will not be able to provide you with the product every time you need it.
Drop Shipping for E-commerce
Drop shipping is the real revolution of e-commerce. There are many benefits and few risks in drop shipping.
Benefits of Drop Shipping
Keeping stock no longer necessary
Lower wholesale prices
No upfront investment in stock
Range of products extended without investment or risk
Less time devoted to inventory and delivery
Risks of Drop Shipping
Some drop shippers can raise their prices after getting an e-commerce player dependent on them.
There might be fixed overheads and other costs that are not directly related to the fulfillment of orders.
Some drop shippers may require a membership fee. I do not have a problem with the very idea of a membership fee, as it could be a tool to weed out frivolous players. But make sure that you find the fee to be reasonable.
The drop shipper might cut corners by using an unreliable shipping company.
Situations that require reverse logistics could turn out to be sticky.
The billing policies of the drop shipper might be unsuitable.
New drop shippers take birth every day and crowd the marketplace. As a result. some drop shippers might go out of business.
An e-commerce business needs to have something to sell. That is why sourcing is a primary activity in the business of e-commerce. Depending upon your marketing plan, budget, and the stage of the lifecycle you are in, you can decide the right approach for yourself.