Impact of E-Commerce Integration on Supply Chains

The retail industry in Australia has gone through some fairly significant changes over the past 10-15 years. The most obvious, of course, is the impact of e-commerce rapidly becoming a significant channel for revenue growth for retailers in Australia, as well as foreign merchants gaining the attention and spend of our consumers beyond our shores. If Australian retailers want to prosper in this highly competitive e-commerce world, the successful integration of online channels with physical supply chains is vitally important.

Frost & Sullivan estimates that local and overseas online retail purchases by Australians alone will reach $25 billion this year. But the worrying trend is that currently 33-50 percent of all online expenditure is now going to overseas sites. The impact is that selling online is becoming a commercial necessity for many Australian businesses.

This has completely disrupted the traditional single channel supply chain as we knew it. Many of today’s retailers are simply not set up to handle consumers’ increasing expectations for speed and convenience in a cost-effective way and are already cracking under the strain of the new omnichannel world.

To throw another spanner in the works, the sheer geographical distances between Australia’s capital cities means competition in the online game is being determined by how well the supply chain is working, and whether customers maintain their loyalty.

A robust yet flexible supply chain is
 no longer a competitive advantage in e-commerce – it’s become a crucial requirement for survival. There’s no doubt that a supply chain is only as strong as its weakest link. Once business partners connect or integrate their systems, they rely on each other to keep their promises to their customers.

THE ICONIC and SurfStitch are two classic examples of online retailers that are aggressively backing this strategy, both offering next day delivery, free shipping and generous return policies. But for many, the costs – a large portion of which stems from expensive IT systems and warehousing, and the actual deliveries of goods to people’s homes once they’ve been ordered online – are tenaciously high, and new revenues coming in may not be increasing quick enough.

What is clear is that there are three key strategic drivers – customer, flexibility and visibility – that are critical components of successfully integrating online channels with physical supply chains.

Power of the customer

Selling anything is about understanding and responding to the customer’s requirements. Customers will continue to raise the bar of expectations with 24×7 accessibility on the device of their choice, and instant, accurate access to product specifications, price and availability along with flexible delivery and payment options.

The implication is that everyone up and down the supply chain must provide accurate, real-time data. Stock availability, pricing, delivery dates and cost, order status and so on, must be updated, calculated and recalculated within seconds. Mobile devices capturing every transaction along the supply chain clearly plays an important role, so barcoding and scanning at pick, pack and delivery interfaces is vital. Ease of use, tight integration and investment in the training of staff to not only use the devices properly but also understand the implication of misuse will be key.

Strive for flexibility

Conventional supply chains once had clearly defined links and hand-overs between manufacturers, distributors, retailers and consumers. Bulk movement and storage of physical product was common. End consumers didn’t mind or even preferred to select, pay and collect their product in person from a real store. If delivery was required it was from that retail store to the buyer’s home. 

Today, dynamic multi-dimensional networks are required. The picture of a strong inflexible hard wired supply ‘chain’ is replaced by an image of a finer more elastic supply ‘web’ that is equally strong, but with many endpoints and a built in real-time communication system.

The challenge to brand owners and their supply chain participants is to make the flow of commerce faster and more responsive to the pull of customer demand. Planning and forecasting capability is a feature that is often overlooked, but is a key factor to enable demand driven pull planning with scheduling and rescheduling production and distribution on the fly. It means less reliance on error-prone ‘seat of the pants’ human forecasting and more responsiveness to movements in actual demand. 

The ability to respond to changing demand is crucial. For instance, fashion trends can change overnight and when that happens, it could dramatically reduce the demand for and value of that item resulting in obsolete inventory. Likewise, if a new fashion trend kicks off and there is not enough inventory available to satisfy demand the result is loss of sales. The implication is that supply needs to be flexible enough to ramp up or down to meet fluctuating demand, including allowing shipments to be diverted or expedited at short notice.

The logistics industry continues to mature and respond to these changes. Increasing sophistication in 3PL, 4PL and e-freight marketplaces play an important role in helping to organise and streamline interaction between point-of-sale and freight providers. Cloud-based integrated logistics and warehouse management systems are becoming easier to use, implement and integrate.

Real-time visibility is critical

To compete, smaller players must be able to match the system capability of larger organisations by deploying modern systems that offer real-time visibility of stock and order status, robust and secure ordering and payment options, all partnered with reliable and cost competitive delivery options.

Speed is of the essence. The same truck or courier may well deliver competitors’ products, so competitive advantage comes down to who can get the right product on the first delivery. Effectively, both data accuracy and availability has become a fundamental success factor and differentiator between competitors.

Real-time visibility of your own data, as well as the data of suppliers and supply chain partners can be either hugely beneficial, or a major disadvantage without it.

Cloud computing changing the game

The ability for companies to effectively run a very efficient supply chain to manage all of these ecosystems really relies on their ability to interconnect immediately and have complete visibility of the entire business in real-time, which you can only do with technology via the internet. That means operating your entire supply chain from one system on the internet – giving you deep, and up to the minute visibility of every interaction, transaction and relationship occurring in your business in every market, anywhere in the world.

From small regional or niche retailers to multi-million dollar global giants, cloud technology is revolutionising how the industry engages with trading partners, monitors performance and identifies opportunities for improvement. It plays a crucial role in helping Australian retailers achieve supply chain success.

As supply chains continue to be challenged by changing disruptive forces, there is little doubt that by investing in the latest cloud-based technologies, retailers will be in a far better position to compete and survive.


3 thoughts on “Impact of E-Commerce Integration on Supply Chains

  1. Hi Mark
    I work for the distribution partner of SurfStitch and whilst I agree with you on the need for speed, flexibility and transparency, I do disagree with point that the costs largely stem from “expensive IT systems and warehousing”. For a lot of major retail customers we run 3PL warehouses that only charge for what space is used and this saves customers a lot of money in rent compared to their own underutilised space, we train our operators to pick pack and despatch often with better systems and processes than our customers have developed on their own, our technology platforms are inhouse costs and available to our customer for free, they show real time stock levels and full order track and trace visibility, we provide website integrations that automate and speed up workflows that again are free for customers.

    • Rob Barry - GM Client Accounts & Retaildirections
    • 29th April

    Whilst speed through the supply chain and real time data visibility are crucial a cloud based solution is not necessarily the silver bullet. Alternative solutions can be equally viable and the key is how effective the behind the scenes “plumbing” is in terms of end to end systems integration. The less moving parts the better, so ideally an end to end fully integrated Omni-Channel Retail Management platform is the optimum solution. As an analogy a fully integrated platform is like the best performing mid range car, it may be built from components that in isolation are not the best available (or most costly) but once assembled it starts first time every time, there is no quirky performance and it is easy to service. In comparison a solution utilising best of breed and legacy applications, connected via middle-ware often results in a complex multi vendor supported platform that is costly to run and difficult to adapt cross-channel to rapidly changing consumer demands. In summary Omni-channel success is not dependant on where your business systems are located or who provides them but whether the interaction between them is seamless, in real time and that they are designed to handle rapid cost effective functional change.

    • Carolyn Harrington -
    • 25th June

    This is an issues we see our e-commerce retailers having to deal with all the time. There is a real issue with shipping and understanding the impact on their profit margins and how the length of time impacts on customer satisfaction.

    I don’t think many retailers have got this last step correct. I don’t think it is about it being a cloud based bullet (if though our software is cloud base). It is more about making sure you combine all the information into the one place to make sure you have complete transparency.

    So include cost of shipping per order, length of time it takes to ship, email communications sent to client and any customer service interaction with the client. These systems then need automation to keep the customer up to date and also the supplier chain manager up to date.

    Always a nice you have received your product/s and we hope you like them email needs to be built into the process but is never done.

    There is a lot that needs to be done to sort this out. I am sure it will be sorted though.


Leave a Reply

Your email address will not be published. Required fields are marked *

PowerRetail Extra Enewsletter