Blog 5 minutes

Understanding supply chain resiliency in the age of e-commerce

Catharina Mensak
May 16, 2020

Supply chain resiliency is a supply chain’s ability to prepare, respond, and recover from disruptions. These disruptions could be natural disasters, cyberattacks, trade law changes, human or machine error, and global events, such as pandemics. Every business, no matter what type, is reliant on their industry’s supply chain in order to provide their product or service. Because of this, understanding supply chain resiliency is crucial to long-term success. The rise of e-commerce businesses has certainly caused changes in how supply chains function as well as with regards to supply chain resilience. Despite these changes, there are still ways that you can add resiliency to your business’s supply chain, and meet e-commerce challenges that may arise in the supply chain.

How e-commerce affects supply chain resilience

As e-commerce shopping becomes more and more popular, it continues to change the landscape of business interactions, both in business-to-consumer and business-to-business commerce models. One of those changes is that the e-commerce market is particularly susceptible to rapid changes — both in the products consumers are buying, and the amount and frequency they’re buying them in. Manufacturing trends are also subject to change as businesses make the shift toward digitization. All this rapid change influences consumer expectations, as well as the tools and skills business owners need to compete successfully in their markets.

Unprecedented, disruptive events, like COVID-19, can influence supply and demand for certain products, product and material accessibility, the ability to manufacture products, and consumer pain points. The volatility of these factors in the already turbulent e-commerce market can cause vulnerabilities in the supply chain, which can lead to costly consequences.
One such consequence that may occur is the bullwhip effect. This happens when demand forecasting — which is the catalyst for nearly all supply chain decisions, as it predicts what your client base is most likely going to buy — predicts swinging spikes in demand that can leave businesses with either costly inventory overages that the sales don’t meet, or inventory shortages that can cause consumers to go elsewhere. For larger companies, this consequence may be easier to handle, but for small businesses, a disruption like this could spell bankruptcy, as lost sales or the costs of overstocking inventory become rapidly unsustainable in a volatile market.

Why resilience in the supply chain matters

Protecting yourself against phenomena like the bullwhip effect is why having supply chain resilience strategies as a part of your business plan is so important. You might consider it like insurance — many supply chain disruptions happen unexpectedly and without warning, so having these strategies in place is the best way that you can protect yourself from large scale damage. There are several benefits to this kind of supply chain management, including:

  • Increased flexibility during unexpected disruptions;
  • Decreased stress for unplannable disruptions, like natural disasters;
  • Increased scalability, or growth opportunities, for your business.

Relationship management is also an important part of supply chain resiliency in e-commerce. Because of the unpredictable elements of e-commerce, being able to communicate effectively and efficiently with your customers is incredibly valuable, and can even support customer retention. This can also be applied to supplier relationships. Whether you import from another country or work locally, having open communication lines between your business and your supplier can help strengthen the supply chain your business depends on.

Strategies for increasing supply chain resilience

All businesses need to take steps to fortify and protect their own supply chains in order to stay competitive and successful. However, there are some strategies that are specifically important for e-commerce businesses, such as investing in cybersecurity and using real-time data. Below are some strategies that can help improve your business’s supply chain resilience:

  • Continual risk assessment — performing continual risk assessments can help you gather a better understanding of the current risks or challenges your business is facing. This can include looking at your demand forecast, managing your inventory, and analyzing customer patterns. A risk assessment will look different depending on your niche, your assets, and your market landscape, but broadly, this should be an exercise in looking at and analyzing the current happenings across all aspects of your business.
  • Use real-time data — Using real-time data gives clear and immediate information on important facets of your business, like customer trends, demand forecasts, and even inventory and delivery. Real-time data is an especially important tool for e-commerce businesses because change can occur quickly and in short amounts of time.
  • Plan inventory buffers — This is most applicable to businesses working with tangible goods. Planning for inventory buffers — setting aside storage and budget space — for more inventory than is absolutely essential can help you avoid things like the bullwhip effect, and can help you meet unexpected demand surges.
  • Invest in cybersecurityInvesting in cybersecurity is a good idea for all businesses that store anything digitally, but it is vital for e-commerce businesses that operate entirely online. Cyber attacks lead to customer fraud, compromised private data, and disruptions in your supply chain.
  • Have a diverse supplier network — This is one of the most accessible ways to improve your supply chain resiliency, no matter what your business. Having a diverse supplier network — which in this case means ordering goods from more than just one source — means that you’re not dependent on one supplier’s schedule, and you won’t automatically suffer from any disruptions that the supplier may face, but that may not affect you.

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