May 2013 | Commentary | Viewpoint: Logistics & Supply Chain Analysis

8 Ways to Strengthen Online Retailer Supply Chains

Tags: 3PL, Retail, Supply Chain Management, E-commerce

John Haber is Founder/CEO, Spend Management Experts, 404-840-2010

Most online retailers are well aware that effective supply chain execution is the strategic heart of their business. Here are eight ways to keep online retail supply chains running smoothly and cost-effectively.

1. Invest in people. Make sure your supply chain managers have adequate experience and knowledge. The right skill set can't be learned on the run; it's important to invest in and nurture your supply chain team. This can provide you with a competitive advantage, and play a big role in your company's long-term success.

2. Monitor shipping costs. For online retailers, shipping can be more expensive than the product being shipped. So it's always important to move goods from Point A to Point B as quickly and cost-effectively as possible. A wide array of shipping services and carriers is available. Make sure you are exploring all the available options.

3. Commit to delivery dates. If you can't live up to a delivery date, many customers will lose faith. Amazon and Walmart have introduced same-day delivery service in several test cities. Other Internet retailers will have to offer faster delivery to compete. The seven-day delivery window is just not acceptable anymore.

4. Prepare for disruptions of global operations. Map out different strategies and what-if scenarios so you are prepared when disaster strikes. The 2011 earthquake and tsunami in Japan and volcanic eruption in Iceland wreaked havoc on U.S. import supply chains for months.

In Asia, some semiconductor companies shut down for six weeks. In Europe, when the volcano halted air traffic, companies were still able to ship products to the coast via rail or truck, but once they arrived, they had to wait in line. Although ocean freight lead times are generally six weeks from Europe to the United States, ocean liners did not have enough capacity.

5. Create contingency plans for domestic operations. You also need back-up plans for when your U.S. supply chain gets disrupted. For instance, a Midwest retailer should have operations in the Southeast and West in case its primary location goes down.

If you've outsourced your shipping to a third-party logistics (3PL) provider, you should have a contingency plan written into your contract. If your distribution center is already underwater, it's too late to negotiate the best rates.

6. Evaluate all available resources. Outsourced supply chain services are every bit as important as outsourced investment, tax, and bookkeeping services. Decide if it is more effective to develop internal shipping capabilities or to hire a 3PL. For many companies, shipping is not core to their business, and outsourcing to a 3PL makes the most sense.

7. Identify your weaknesses. An online retailer may be expert at moving goods, but not at managing contracts with transportation providers. Negotiating contracts to get the best terms can be tough.

Hiring expert contract negotiators or spend management providers brings in a whole new skill set. Most take a risk-free financial approach, in which they do an analysis and create a report card. There's no cost to the retailer until the savings are delivered.

8. Monitor your contracts. The logistics marketplace is dynamic, so review service provider contracts regularly. Outsourcing logistics spend management guarantees you have an advocate during this process.

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