When shipping rates began to rise at the start of the COVID-19 pandemic, there was hope that the situation would be short-lived. Unfortunately, two years later, it has become clear that shipping issues are here to stay. Now, on the heels of Russia’s invasion into Ukraine, the global market is feeling the strain, as rates increase once again.
It’s important for e-commerce businesses to keep in mind the impact that geopolitical conflicts and natural disasters have on the supply chain. Due to the many interconnected factors at play, even a local conflict has the ability to produce widespread effects. In fact, it’s now estimated that significant supply chain disruptions occur every 3.7 years.
This grim statistic highlights the need for a new priority in supply chain planning and management. While businesses used to aim for the most efficient, cost-effective supply chains, many are now shifting their focus to flexibility and resilience.
Introducing flexibility into supply chains isn’t an easy task, and requires a great deal of forethought and planning. Sellers and e-commerce businesses are learning to rethink much of what was once taken for granted, investing money in alternative aspects of the supply chain, and finding innovative ways to overcome disruptions and delays before they arise.
In the past, sellers sought out suppliers that offered the lowest price, regardless of location or distance. This was a great strategy for those whose priority was to bring costs down and manufacture their product with minimal investment. During times of geopolitical stability and few natural disasters, it worked, too.
Using a faraway supplier comes with added risk, though. If a conflict or setback occurs in the supplier’s region, it could trigger severe delays in the supply chain. Furthermore, since the product has a longer journey to travel to its final destination, there are more points along the way where disruptions could occur, raising the likelihood of harmful delays and added fees.
A local supplier is often more expensive in the short term, which is a deterrent for many sellers and businesses. With current supply chain instability predicted to continue into the future, however, the long-term benefits often outweigh the initial costs.
Local suppliers shorten the distance that goods travel, lowering shipping lead times and eliminating a number of potential problems along the way. Sellers don’t need to worry about the impact of overseas conflict and disaster. It’s also easier to maintain transparency and work closely with local suppliers, since sellers can make the trip to meet in person more frequently.
More Eggs in More Baskets
Supply chains are unstable and always changing, so it’s wise for businesses to diversify, giving their supply chain the flexibility to react in real time. Sourcing from multiple suppliers protects the supply chain from disruptions and gives sellers the ability to divert their product flow in the event of a delay.
Working with various partners is another way to infuse flexibility into a supply chain. For example, partnering with a third-party logistics provider can save a great deal of time, funds, and energy during a supply chain crunch. 3PLs often have access to multiple warehouses, shippers and ports, allowing them to quickly pivot to avoid delays and find solutions to disruptions. If possible, working with more than one 3PL gives a business even more logistics options, minimizing the chance of a severe delay.
Orchestrating various shipping alternatives is also a great way to avoid running out of stock. While shipping via sea freight is generally less expensive than air freight, cargo ships take much longer to arrive and can run into severe delays in narrow channels and overcrowded ports. If inventory is needed urgently to fulfill demand, or if a sea route is delayed, ordering an air shipment is a great fix. Sellers can order a smaller batch of inventory via air in order to fill the immediate need while they await the sea shipment.
Sellers should heed the saying “Don’t put all your eggs in one basket,” and avoid large shipments which move all of their product at once.
I recently spoke with a seller who learned this lesson the hard way. He ordered his entire Q4 inventory in one shipment, which was then significantly delayed in transit. It didn’t arrive as scheduled, which of course meant that he had no inventory for Q4 —every business owner’s nightmare.
In order to avoid serious setbacks, it’s a good idea to order multiple smaller shipments. That way, if one runs into trouble, there’s still more inventory on the way. It also allows businesses to pivot and make changes more easily if a disruption is predicted.
With all of the other supply chain elements to consider, it’s crucial not to get carried away with spending. Businesses and e-commerce sellers should stay on top of their unit economics to make sure that the business remains profitable, particularly in the face of rising supply chain costs and frequent disruptions.
Sellers should also keep an eye on market trends and product pricing. Optimizing pricing can help businesses maintain profitability even with high supply chain costs. If the whole industry is raising the price of a particular item, it’s often best to follow suit.
Supply chain flexibility is important, but without a sustainable business model, it won’t get sellers too far. Keeping the bigger picture in mind and making sure each and every aspect of the business and supply chain works together is the best way to sustain success.
Roei Yellin is co-founder and chief revenue officer at 8fig.
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