Ask any eCommerce seller about the main issues weighing on their mind (and their balance sheet) and undoubtedly supply chain will come up as a topic of conversation. In the past year, we’ve seen the unfolding of many supply chain issues, from the unavailability of certain items to increased shipping costs and delayed shipping times. Here’s what you need to know about the global supply chain crisis – and how you can mitigate its impact.
There are many global and economic factors driving the current bottleneck in the supply chain. Spurred by challenges brought on from the COVID-19 pandemic, retailers around the world have had to contend with more hiccups, delays, and stock issues than ever before.
The ways in which eCommerce sellers – many of whom rely on drop shipping as a key component of their operations – navigate these issues and manage customer expectations in these unprecedented times will affect the success of each brand.
How eCommerce brands perform during unprecedented times and the business decisions they make to alleviate the detrimental effects of the challenges at hand will determine which brands exit the current supply chain crisis relatively unscathed and which will not be so successful in weathering the storm.
According to the global consulting group McKinsey, the companies that can pivot quickly in response to uncertain events and adapt their operating models to work within the constraints of those events are more likely to see success with consumers throughout the crisis.
Let’s look at the challenges at play, the impact on eCommerce brands broadly, and the lessons that can be applied to shore up success in uncertain times.
Defining the problem: a multi-pronged look at the issues
In the past year, supply chains across retail channels have been disrupted, leading to an increase in prices and a decrease in the number of products available. The reasons for this supply chain problem have been multi-pronged.
Undeniably, issues stemming from the COVID-19 pandemic (such as lockdowns within factories) have been the main force spurring the issues at hand, but this is not the only reason behind the current supply chain crisis.
Economic issues, including energy shortages in countries with manufacturing economies, production shortages, poor harvest results in regions that produce raw materials, combined with a stranglehold at key shipping ports, have all contributed to the problems facing eCommerce sellers today.
The supply chain is like a symphony, with each part of it playing an essential role in a complex, global business ecosystem. Just one unfortunate event taking place around the world can have immense repercussions downstream, and this is what we see play out across the eCommerce supply chain.
Energy crises around the world
For example, this year, China has faced an energy crisis. Over 20 of its provinces experienced power cuts due to reduced energy outputs affected by the increasing price of coal worldwide. As a result of the power cuts, productivity has slowed in factories in the provinces experiencing these energy difficulties. The consequence of this is that even as the demand for Chinese-produced goods remains constant, the supply output is jeopardized by the lack of available energy to power the production factories.
The impact of lockdown on labor productivity
Likewise, disruptions stemming from the COVID-19 pandemic, which led to workplace shut-downs in Japan and Korea, affected the supply of key components found in most electronics. Lockdowns have shuttered factory doors, creating a productivity loss that cannot be carried out in alternative ways.
Simply stated, when chip manufacturing companies were shut due to the pandemic, this led to a global shortage of computer chips, the necessary components in laptops, webcams, and other remote-working electronics that rely on 5G technology to function.
Natural disasters: impacting the chain all the way down to your morning cup of coffee
On top of this, other unexpected events in the natural world, such as a drought in Brazil, have led to a poor coffee bean harvest. As one of the world’s largest producers of coffee beans, the disappointing harvest in Brazil this year has impacted the supply of coffee around the world.
This is further compounded by the fact that most of Brazil’s electricity comes from hydroelectric power reservoirs, meaning that in times of drought, electrical output is also affected. The result of these conditions, in turn, impact consumer pricing at all cafes and restaurants selling coffee around the world. Coffee bean scarcity means higher prices, which impacts the margins of retail sellers and hits consumers’ wallets as they look to purchase their morning cup.
Going postal: Changes to USPS mail delivery
In addition to the crises taking place abroad, one home-grown problem lies with the US postal service, which announced earlier this fall that it would be implementing new service standards that will cause mail delivery to slow.
As part of sweeping changes brought in by Postmaster General Louis DeJoy, first-class mail delivery service will be longer, and there will be reduced hours at the nation’s post offices. These changes are due to a restructuring of the service known as “Delivering for America”, which seeks to make the postal service more modern and energy friendly.
Although the aim behind this program is to have net positive results, those won’t be seen for some time. In the present, eCommerce brands using USPS to ship their products may find that shipping rates increase while service slows down. Many brands may choose to ditch the post office for delivery alternatives such as UPS or FedEx, though the knock-on effect for these carriers is the impact of higher volume on their services.
It is evident that the supply chain is fragile and highly interconnected; an impact in one corner of the world shifts downstream to consumers in countries halfway across the world. Modern commerce today depends on globally sourced items, hence a robust, quickly moving supply chain is of the essence. As we see, when unprecedented issues occur, it can have very tangible effects on retailers and e-tailers everywhere.
The shipping crisis as an exacerbating factor
Compounding the factors mentioned above is a global shipping crisis that is additionally stressing the supply chain, making it difficult for sellers to physically obtain the goods they need – even if they are produced and available.
Stemming from the pandemic, there has been a worldwide shipping container shortage, coupled with COVID-19-related shut-downs in port cities such as Long Beach, which have disrupted supply chains across the US retail sector. Shortages of staff available to deliver goods and offload empty shipping containers from the ports have also exacerbated the problem in shipping, along with import/export politics and climate change issues. Wholly unexpected freak accidents such as the blockage at the Suez Canal have also had a significant impact on the ability to obtain goods in a timely fashion.
Because of these issues, the cost of shipping has risen by 480% in the past year, impacting retailers’ profit margins. Undoubtedly, this causes many retailers to pass the cost increases on to their customers. This is a tricky scenario, given that many consumers are frustrated with lengthier shipping times and delivery delays.
A perfect storm: the impact on US eCommerce sellers
Every eCommerce brand understands that reputation is everything. Industry-leading behemoths like Amazon recognize this and have made it their bread and butter to deliver products with uncompromising speed, customer service and promise. While industry giants like Amazon can weather the current supply chain snags, smaller e-tailers must be more cautious about how to respond to the challenges ahead.
Logistically speaking, the result of global supply chain problems is that US eCommerce sellers must now contend with a lack of available items, an inability to source specific materials or desired items, delayed shipments, and atmospheric shipping costs passed on to the consumer.
From a customer perspective, eCommerce sellers who previously delivered on consumers’ need for instant gratification in the form of a wide array of product choices, delivered at lightning speeds, now must contend with managing customer expectations given these exacerbating factors.
As McKinsey advises, for eCommerce brands (and all businesses, more broadly) to be able to succeed despite uncertain and rapidly changing global conditions, they must be ready and able to pivot. The ability to think one step ahead and prepare for possible scenarios are the best ways to mitigate against potential risk and shore up success.
How eCommerce businesses can mitigate the impact of the global supply chain crisis
Navigating the current supply chain crisis takes forethought, business savvy and a keen ability to manage customer expectations while keeping customers satisfied to maintain loyalty throughout trying times.
Staying ahead of seasonal curves.
Planning is everything. Ahead of key shopping seasons such as the winter holidays, Valentine’s Day, and Mother’s Day (to name just a few), eCommerce sellers should take longer lead times to order stock, with the understanding that shipping delays may be imminent. Adding double (or even triple) the lead time to your typical ordering cycle can be helpful in times when shipping is slowed down.
Identifying new suppliers.
With events around the world impacting typical production and manufacturing markets, this can be an excellent time to try out new supplies from different geographical regions. Paying close attention to wholesale costs and margins is imperative. However, knowing that your business can access the products your customers demand is a winning strategy.
Protecting profit margins.
Without a doubt, in times of volatility, prices are bound to fluctuate. As an eCommerce brand, it’s important to try to keep your price to consumers as stable as possible without jeopardizing your own profit margins. You can protect your profit margins by employing a pricing strategy based on cost so that you don’t go into the red on sales. This is particularly important if your brand is a marketplace seller.
Manage customer expectations.
As mentioned throughout this article, expectation management is everything when it comes to customer satisfaction and protecting your brand reputation. When there are shipping delays, it’s best to be honest with your customers about delivery times and keep lines of communication open. After all, customer service is about building relationships and staying transparent plays a key role in relationship building.
Maintain customer service standards.
Satisfied customers are more likely to make repeat purchases and tell others about their positive experiences with your business. Therefore, it’s important to continue to work towards a high standard of customer service, even when behind the scenes, conditions are not ideal. In addition to being transparent and managing expectations, offering vouchers on future purchases due to the inconvenience of delayed shipping times, for example, can help customers remain satisfied and ensure that they continue to shop with your brand in the future.
Implement the right eCommerce tools.
Purpose-built tools that can work with real-time data, like eDesk, can help eCommerce brands stay on top of all customer orders, ensuring that nothing slips through the cracks and that fulfilment stays at the top of its game.
Weathering the storm: The long game
Experts predict that the supply chain backlog will take upwards of a year to clear. There are many factors at play, including battling the pandemic by ensuring that manufacturing employees have access to vaccines to keep safe and remain productive in the workplace. Sorting out such labor issues, as well as onboarding new manufacturers and increasing shipping capacity by opening ports around the clock, are also key initiatives to help clear the backlog and get the supply chain back on track to the normal delivery times that US consumers are accustomed to.
While this delicate balancing act will take a bit of time, it means that eCommerce brands must be patient and flexible in their approach. By following the best practices laid out above, they will be able to navigate a difficult situation in the short term while shoring up customer goodwill in the long term. Remember, it’s a marathon, not a sprint, and with some ingenuity, eCommerce brands can weather this storm for sunnier days ahead.
To help your brand weather this supply chain storm, our experts are here to advise you. Take a proactive approach and get in touch with our team today.