How Does E-Commerce Fit into Supply Chain Management?

E-commerce is not a new business strategy, but it is one of the top sales catalysts in today’s distribution operations.

Your customers want to buy through multiple distribution channels. This is why it’s imperative for distributors to integrate their e-commerce system with the rest of their software into a single database. E-commerce is the most popular distribution channel because it’s easy for customers to use, and it reduces distributors’ costs for getting information to the customer and securing orders from them.

The influx of e-commerce and even mobile commerce has “revolutionized” distribution, according to Supply Chain Brain. A Jones Lang LaSalle report found that today 92 percent of retailers sell online, 68 percent maintain brick-and-mortar stores and 64 percent use catalogs.

“Smart retailers are tapping multiple channels to sell their merchandise — from traditional stores, by catalog, through the Internet and increasingly via smart phones and tablets,” the article continues. “Technological advancement means that the store is now everywhere, in consumers’ pockets, at their homes and at the mall.”

How Can Distributors Make the Most of E-Commerce Strategies?

1. Increase Worker Productivity

Being more productive boils down to keeping labor costs under control. You want to try to conduct business with the same amount or even fewer people. Depending on the type of business, 60 to 65 percent of gross profit dollars can get eaten up in labor compensation. Your employees shouldn’t waste time manually re-entering data or suffer with inefficient processes. Most businesses that operate only with e-commerce as their distribution channel do so with a relatively low employee headcount.

2. Integrate Seamlessly

The last thing a distributor needs is to get bogged down with too many databases. Eliminating multiple databases should be high priority to distributors. Maintaining multiple databases is an expensive, error-prone, time-wasting headache. It’s cost-prohibitive and difficult. Distributors need to integrate their back office system with their e-commerce system so they’re not maintaining a customer database and a product database on their e-commerce system in addition to a customer database and a product database in their back office system.

3. Provide Simple Access to Customer Data

Key business and customer information needs to be accessible. Your customer business data needs to be shared throughout the company with the people who need that data. Customer relationship management (CRM) software is the ideal portal for capturing, analyzing and viewing customer data. It provides real-time, visible and accurate customer data.

4. Be Flexible

Multi-channel marketing gives your customers options for how they want to place an order. Maybe last week it was easiest for them to visit your website and place an order digitally. But tomorrow they might be on the road and realize they need to order more products, so they call your phone center. It’s very important that distributors stay flexible so customers have options.

5. Pay Attention to Your Cost-to-Serve Reports

Distributors must avoid the pitfall of losing money in the logistics costs of e-commerce. They could be losing money trying to compete by offering free or discounted shipping, for example. Those selling costs may be the biggest cost for some distributors doing business.

Distributors need to control the cost to serve their customers. You have to map out the cost to serve each customer, highlighting the services they’re willing to pay for. The challenge is to match up the cost to serve with customers’ needs and what they’re willing to pay. It makes no sense continue providing services the customer ultimately doesn’t really want or need. Sometimes this means rethinking a pricing program or, in an e-commerce distribution channel, altering shipping and handling costs.

6. Use Third-Party or Fourth-Party Logistic Providers

3PLs or 4PLs are a big factor in e-commerce, and you should be considering them for e-commerce fulfillment. These public warehouses make shipments for you, but they do it in your name. To the customer, it appears that the product came from the distributor, but it was actually fulfilled and shipped by a 3PL or 4PL. While the 3PL or 4PL may handle all the parts, the distributor still handles the back-office details.

In nearly all situations, there’s an obvious advantage to minimizing distributors’ fixed costs through a 3PL or 4PL. Your needs aren’t really predictable, and rather than committing to long-term capacity, through a 3PL or 4PL a distributor can adjust its capacity based on the needs of the customer.

The bottom line? Distributors that aren’t embracing e-commerce as an effective, low-cost tool are missing out. Integrating your e-commerce system with the rest of your databases will make your business thrive.

How do I Apply E-Commerce to Distribution Sales Management?

E-commerce is a key part of distribution sales management, but it’s important to remember that it’s a transactional tool and not a strategy. Industrial Supply lists some of the transactional benefits of e-commerce, including the separation of purchasing and selling, customer convenience and thorough product information.

What e-commerce does so well is separate the purchasing activity from the selling activity. The purchaser can make the decision to buy the product 24 hours a day, seven days a week from wherever they are. They can buy anytime they want to, and the technology of e-commerce enables the distributor to provide all the important information — the price, whether it’s in stock and the technical specifications — very efficiently.

Although e-commerce itself isn’t a strategy, it does make some new strategies possible. We’ve seen it with, Grainger and MSC Industrial Direct. Those companies developed a distribution sales management strategy based on not using salespeople to find new customers or not using salespeople to handle large customers. That’s the strategic application of e-commerce — finding ways to do business with customers without using salespeople.

Meanwhile, technologies like handheld devices are really driving the e-commerce trend. These devices help the customers locate the products they’re looking for without having to drive around to find it.

So, will e-commerce create some strategic opportunities for distributors? Yes, for sure. It already has, and it will create more.

However, as the article explains, the concept of e-commerce still isn’t catching on with some distributors who could benefit from changes to their sales management: “Far too many distributors dismiss the technology and stick with the tried-and-true model of belly-to-belly seller to account model replete with local branches.”

But it’s a fact that distributors will need to embrace more efficient uses of technology to survive in today’s business environment.

On the Flipside: Don’t Rely too Heavily on E-Commerce for Supply Chain Management

Integrating e-commerce into your supply chain management strategy can be beneficial, but it’s unwise for most distributors to rely too heavily on it.

E-commerce is a useful tool, as it allows consumers to make purchases anytime, anyplace, among other advantages. An article on the Industrial Supply magazine website reports that e-commerce first arrived on the distribution scene in the late 1990s, yet only 25 to 35 percent of distributors have an e-commerce capability today.

Wholesale distributors have some choices if they want to use e-commerce as part of their supply chain management strategy, one of which is to just make it a service for their existing customers. That way, customers can order 24 hours a day, seven days a week through the website. That can be done very crisply with the right distribution software. ERP software is well-suited to seamless e-commerce and can be purchased by the distributor.

The idea that they’re going to use e-commerce as a way of attracting new customers who they’ve never met before — through search engine optimization or trolling for small orders from faraway customers — is something that wholesale distributors really don’t entertain. They’re mostly looking for an excellent way for their existing customers to do business with them on a 24/7 basis using e-commerce.

The best strategy for distributors is to buy, rent or lease the best available interface that they can afford. Ideally, it would be one that works seamlessly with their distribution software.

To put it simply, distributors should not attempt to reinvent the wheel themselves. Trying to compete with a company like Amazon is not just a mistake—it’s a dangerous supply chain management plan. But as the Industrial Supply magazine article explains, it’s also not smart to ignore the technology and run away from e-commerce entirely.

San Asuti

Article written by

San Asuti, VP of Sales, has been focused on ERP and Supply Chain Software and Services for a major part of his 20-year career. During his career he has been responsible for several global implementation initiatives that involved ERP and Supply Chain Software for large manufacturing and distribution companies leveraging i2 Technologies, Oracle Process ERP, Marcam and Mapics. San holds a BSEE and a Masters in Industrial Management from the Indian Institute of Science. San’s interests include Golf, Yoga, Social Work and Technology. He lives with his wife and two children in San Jose, CA.

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2 responses to “How Does E-Commerce Fit into Supply Chain Management?

  1. Supply chain management is a heart of e commerce. All these points mentioned above are relevant for making the process efficient but out of these many organisations are using 3pl services for cost effective solution.

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