13.10.2015 3

The supply chain of the digital era improves e-commerce efficiency

Trade is undergoing a major transformation. E-commerce is changing many customary trade procedures, from sales to delivery. The most significant change is the internationalization of trade, which both increases competition and offers growth opportunities.

Where are we coming from?

The shop-based retail supply chain has been built so that it is efficient for customers visiting the shop. The supply chain usually consists of 3-4 stages from the manufacturer to the shop: the manufacturer, the importer, the wholesaler and the shop, with transport between all stages.

In addition to sourcing, the wholesaler's task is to optimize transport from the warehouse to shops. For the consumer, the most visible part of the supply chain is the shop, the place where they pick and pay for the products as self-service and then transport them home. The assortment has been selected by the local retailer or shop manager on the basis of earlier sales, the understanding of local customers and the size of the shop. This supply chain is not about to disappear but e-commerce requires its development.

The online retailer has a reason to smile as the supply chain of the digital era increases inventory turnover and fast deliveries improve customer satisfaction.

For instance, warehouse operations are changing significantly as instead of pallets delivered to shops, an individual product is picked from the pallet, packed and sent as a parcel to a consumer. Sometimes this change is visible to online store customers as slow deliveries-warehouses handle consumer orders only after shop orders.

According to consumer surveys by Posti, the most important competitive factor in e-commerce is the price, followed by the assortment of the online store. When comparing e-commerce to the shop supply chain, the greatest difference might be the extent of the assortment.

In principle, there are two models for expanding the online store assortment. The traditional model is to buy a broad assortment that is stored in one's own warehouse, and the newer model is direct delivery from the importer's or manufacturer's warehouse.

A warehouse for fast turnover products

An own warehouse is the best solution when the goods sell quickly, that is: inventory turnover is fast. In this case, the retailer can take advantage of volume discounts in sourcing goods and transfer these discounts directly to the product prices.

It is also a good idea to include the in-shop inventory in the assortment of the online store. This offers the opportunity to enhance the shop's inventory turnover through the online store. In addition, using the shop as a pick-up point for the online store orders creates a chance for additional sales.

The own warehouse model becomes non-optimal if the turnover of goods is not fast, in which case capital is tied to the inventory value and warehousing costs. In practice, this increases the cost of the product to be sold each second.

Direct delivery frees up capital

Direct delivery is a good model when product turnover is slow, the products are difficult to store or the capital available is not sufficient for expanding the assortment. In direct delivery, the expansion of the online store offering is practically done by adding the products of the suppliers' warehouses into the online store assortment and by transmitting the online store orders to the supplier's warehouse for direct delivery to the end customer. This frees up capital for more efficient use, such as marketing or business development.

Profitable trade

In Posti's philosophy, the online store supply chain is based on processing information and material flows. To put it simply:

  1. we combine the suppliers' products with the online retailers' assortment and
  2. we transmit the online store orders to the warehouse from where
  3. we deliver the products quickly to the consumer.

The goal is an increase in sales that benefits all parties and a smoother everyday life for the customers. 

Pasi Ketonen

Author: Pasi Ketonen

Service Portfolio Manager, eCommerce Solutions

Read more about solutions for online retailers