Creating Supply Chain Resilience
2022 began with high hopes for supply chain recovery after nearly 2 years of disruption. Despite this hopeful start, the reality of ongoing challenges due to worldwide shortages, rising labor costs, and unexpected geopolitical disruptions have left even the most experienced logistics experts scrambling to keep up as e-commerce brands look to create supply chain resilience on their terms.
In this blog post, we’ll look at some of the ways companies can still strengthen their own supply chains while developing new strategies to anticipate change and minimize future disruptions.
What the Data Says
The most recent survey conducted by Mckinsey & Company using data collected from 113 supply chain leaders reveals a “significant gap between respondents’ ambition and their action,” meaning even organizations whose sole purpose is to create supply chain resilience are still not where they’d like to be. As the article explains in the introduction, most of these companies admit they “still have significant work to do,” and “still lack a comprehensive picture of the risks lurking deep inside complex multitier supply networks.”
While this news is far from reassuring, we can find hope in the progress that has been made in the last 12 months and the invaluable lessons this global disruption has taught us.
Why Recovery Is Taking Longer
As mentioned above, standing in the way of full supply chain recovery are global shortages and difficulty sourcing raw materials, increasing costs, unpredictable demand, and an over-reliance on fast and efficient global shipping network that alarmingly fragile.
Although significant progress has been made expanding and diversifying sourcing strategies and shifting from global to a more regional approach, the reality is there is still more work to be done. While optimizing global shipping infrastructure may not be in the direct control of most Amazon sellers, there are ways to build supply chain resilience regardless of company size or location.
5 Areas of Focus for Supply Chain Resilience
Not all is doom and gloom, however. Due to the significant changes made in the past two years, several successful strategies have emerged, as well as a few key areas to focus on to rebuild supply chain resilience:
- Optimize (and diversify) supplier networks
- Utilize Inventory forecasting
- Control costs
- Manage efficiency
- Study supply chains
Optimizing Supplier Networks
One of the most successful strategies to combat supply chain disruption has been diversifying supplier networks and expansion into regional networks. By increasing the quantity and proximity of their suppliers, companies can mitigate both unpredictable shortages and longer lead times for critical raw materials. For some sellers, actively managing and optimizing existing supply chains might be the best and only option.
Utilizing Inventory Forecasting
Gone are the days of keeping just enough stock on hand or relying on fast shipping to replenish inventory. Implementing longer lead times on orders and building up additional “safety” stock allows brands to create additional buffers to weather changing demand and ongoing supply chain challenges.
In fact, many of the companies surveyed say they will continue to revise their inventory strategies in 2022 and beyond, utilizing more inventory forecasting and digitization to more quickly respond to changes. We discuss some of the most popular tools for inventory management in our blog post on supply chain management and logistics. If you’re looking to update your inventory management strategy as an Amazon seller, we’ve written an entire blog post on the topic to help guide your efforts.
While higher stock levels do provide more stability and control, rising storage fees and transportation costs can quickly eat away at the bottom line, especially if inventory is not moving at the desired pace. This coupled with inflation concerns makes controlling costs more important than ever. As we discussed in the blog post, How to Minimize Amazon Seller Fees & Costs to Maximize Net Profit Margin, everything from storage to marketing through Amazon comes with a cost, and these fees have steadily climbed over the years. Taking an active role in managing costs helps ensure profitability and protect those margins.
To quote our post on the flywheel effect of good supply chain management, supply chain is the backbone of e-commerce operations. Running out of stock means loss of sales, brand reputation, and even customers, while overstocking leads to high storage fees and added expenses. Efficiency, therefore, is key.
The best way to assess is to ask questions and evaluate how those answers fit with the realities of the current supply chain: Do you have local sources for your raw materials and goods, or do you import from overseas? Are you using the most cost-effective materials and procedures? Is your final product durable, high-quality, and easy to ship? These answers can reveal lapses in efficiency,
Studying Supply Chains
As they say, hindsight is 2020 (couldn’t resist), but in all seriousness if 2020 taught us anything, it’s that e-commerce brands can no longer afford to be complacent about the supply chain. By that token, I’d argue the next best thing to hindsight is foresight. Pay attention to what’s happening, both locally and globally, watch for changes, and review past sales and trends to better anticipate future inventory needs. The disruptions of the past 2 years have exposed the weak points in the chain, but that does not mean they have to stay that way.
Online retailers focus their marketing campaigns and logistical efforts around the major shopping events, such as Prime Day and the Q4 shopping season. Anticipating demand to avoid out-of-stock issues means having a solid inventory management system in place in addition to a strong and reliable supply chain. Many sellers leverage inventory forecasting and supply chain management software to streamline this process and safeguard their stock levels. If you have questions about your supply chain management or would like to update your inventory forecasting strategy, agencies like Kaspien can provide help and guidance at any step along the way.
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