Supply chain management in the e-commerce industry

Supply chain management (SCM) refers to strategies that optimize the flow of materials or services to make available the product or service from inception to the end consumer. It aims to perform this task in an integrated and cost-effective manner (Reis et al, 2014). Supply chain today is a part of every leading industry. The broad categories underlying the standard supply chain management for any industry include demand planning, sourcing, production, inventory management or storage, and logistics. The figure below represents these tasks.

Figure 1: Traditional SCM process in retail industry (Reis et al, 2004)

Figure 1: Traditional SCM process in the retail industry (Reis et al, 2014)

Vital elements of supply chain management (SCM)

The extensive growth of e-commerce is the outcome of the increasing use of internet among consumers. The internet provides these consumers with access to the supply and delivery process by creating their own personal accounts (Yang, 2012).  Thus the new map encompassing e-commerce journey is not limited to setting up a website and selling the products online. Rather, it entails preparedness to product configuration, suitable infrastructure, logistics, and supply chain management (Nurmilaakso, 2008). One of the methods helping e-commerce companies achieving this is e-SCM. It refers to the act of executing the SCM process with the use of internet and computer applications.

E-commerce has accelerated the supply chain process in consideration to the customers’ expectations as well as increasing volumes. Attributes like customer satisfaction and internet inventory management are unique. They demand effective logistic development in the supply chain process. Within the B2C model, e-commerce business SCM system eliminates distributors and manufacturers from the picture.

The figure below depicts various different levels within the supply chain and logistics.

Figure 2: Supply chain and logistics process in the e-commerce industry (WSG, 2016)

Figure 2: Supply chain and logistics process in the e-commerce industry (WSG, 2016)

 Following are the vital components forming the supply chain and logistics process of the e-commerce industry.

Inventory management

Inventory is an important element of supply chain management. With the advent of the internet, the traditional inventory model has been changing. The traditional method of keeping inventory is when the business uses its own warehouse in order to sell the products directly to the customer (Kayikci, 2018). This, however, is not the most efficient method of logistics nowadays. Most recently, the method of ‘risk-pooling’ benefits the whole supply chain (Yang, 2012). In this strategy, e-commerce businesses do not hold their own inventory and rather outsource their inventory to a larger wholesaler. This helps e-commerce businesses to reduce the risk of holding their own inventory. Moreover, it benefits the wholesaler by charging slightly higher for inventory and serving a larger customer (retailers) base (Patil & Divekar, 2014).

Despite the overall benefits of adopting the risk-pooling strategy, about three-fourths of the internet retailers go by the traditional logistic method (Kayikci, 2018). The figures below represent the different models of inventory management followed by e-commerce companies today.

Figure 3: Traditional e-commerce supply chain and logistics model

Figure 3: Traditional e-commerce supply chain and logistics model

'Risk pooling' model of supply chain management in e-commerce companies

Figure 4: ‘Risk pooling’ model of supply chain management in e-commerce companies

In addition, today, more and more e-businesses, especially the ones that are new in business, are adopting the drop shipping model for inventory. In this model a store does not hold the product it sells on its website, rather, it purchases the products from a third party and ships it to customers (Yang, 2012).

Reverse logistics

E-commerce industry has an SCM structure which entails reverse logistics as well. Reverse logistics refers to the planning and execution of the movement of goods from the point of consumption to the point of origin (Elmas & Erdoğmuş, 2011). Since almost all e-commerce websites offer the facility of exchange and returns, the need for logistics inevitably increases. The traditional and e-commerce logistics has certain differences in functionality. Conventional retail model, for the most part, does not offer easy returns facility to the user. On the other hand, e-retailers take additional care to move the goods safely from the consumer’s to the vendor’s warehouse. Hence, realizing how important a role logistics play in e-commerce industries, many big and established e-commerce websites like Amazon and Flipkart have opened their own logistics service.

The present-day supply chain process has evolved drastically from what the scenario of the supply chain was in the past decades.  Retailers are making sure that the supply chain process is optimised with the use of latest technologies (Laudon & Traver, 2013). In present times, supply chains are much more organized, have great levels of customer service levels and also help in cost reduction. With the inclusion of automation, artificial intelligence has helped supply chain management to evolve.

References

  • Elmas, G., & Erdoğmuş, F. (2011). The importance of reverse logistics. International Journal of Business and Management Studies2, 3(1), 161–171.
  • Kayikci, Y. (2018). E-Commerce in Logistics and Supply Chain Management. Encyclopedia of Information Science and Technology, Fourth Edition, (July), 5367–5377. https://doi.org/10.4018/978-1-5225-2255-3.ch466 .
  • Laudon, K., & Traver, C. (2013). E-commerce. New York: Pearson.
  • Nurmilaakso, J. M. (2008). Adoption of e-business functions and migration from EDI-based to XML-based e-business frameworks in supply chain integration. International Journal of Production Economics. https://doi.org/10.1016/j.ijpe.2007.11.001 .
  • Patil, H., & Divekar, B. R. (2014). Inventory Management Challenges for B2C E-commerce Retailers. Procedia Economics and Finance, 11(14), 561–571. https://doi.org/10.1016/S2212-5671(14)00221-4 .
  • Pulevska-Ivanovska, L., & Kaleshovska, N. (2013). Implementation of e-Supply Chain Management. TEM Journal Journal, 2(4), 314–322.
  • Reis, J. G. M. do, Costa Neto, P. L. de O., Fusco, J. P. A., & Machado, S. T. (2014). Supply Chain Strategies in the Context of an E-Commerce Chain (E-Chain). Independent Journal of Management & Production, 5(2), 438–457.
  • Yang, M. (2012). Supply Chain Management under E-Commerce Environment. International Journal of Innovation, Management and Technology, 3(3), 2–4.

Priya Chetty

Partner at Project Guru
Priya is a master in business administration with majors in marketing and finance. She is fluent with data modelling, time series analysis, various regression models, forecasting and interpretation of the data. She has assisted data scientists, corporates, scholars in the field of finance, banking, economics and marketing.

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