Wholesaling 101: Challenges and growth strategies

To avoid running out of stock, retailers need to constantly replenish their inventory. But have you ever wondered where shop owners get their products?

Many retailers get their products from wholesalers — who play the crucial role of bridging the gap between manufacturers and retailers. Thanks to wholesalers, manufacturers don’t need to worry about distributing their products. Instead, retailers are able to get their products from one place.

Wholesalers are an indispensable part of the supply chain, and the global wholesale market is estimated to reach around $64 billion by 2025. So, just how important a wholesaler’s role is in the supply chain? If wholesalers can’t do their job correctly, both manufacturers and consumers suffer. In this article, we’ll go through common issues wholesalers face and practical strategies to overcome those challenges. Let’s dive right in!

 

What is wholesaling?

Wholesaling is a distribution model where businesses buy items in bulk from manufacturers or distributors and sell them to other companies. Wholesalers are able to acquire products cheaply because they only purchase in large quantities. Essentially, wholesalers are the middleman between manufacturers and retailers.

Although wholesalers and retailers are very closely related and perform similar functions, they are different from each other. The difference between wholesalers and retailers can be explained with three terms:

  • Quantity – Wholesalers purchase in large quantities from manufacturers, whereas retailers purchase in small amounts from wholesalers.
  • Purchase intent – Individuals who purchase from wholesalers resell those items at a higher price to their customers. Conversely, individuals who buy from retailers plan to use those items rather than sell them to someone else. Retailers – who purchase from wholesalers – are not consumers; instead, they resell to consumers.
  • Transaction type – Wholesalers are generally business to business sellers (B2B), whereas retailers are usually business to consumer (B2C).

Alibaba is the largest B2B marketplace, and you can find plenty of wholesalers selling their goods to retailers there. In the United States, Orangeshine is a popular online wholesaling marketplace that allows fashion wholesalers to sell products.

 

4 reasons why wholesalers are essential

Reason #1: Wholesalers support manufacturers and retailers

Wholesalers purchase products in bulk from manufacturers. They assemble products from various manufacturers and then sell them to multiple retailers by breaking them down into smaller quantities. This helps distribute products from manufacturers to retailers.

Reason #2: Wholesalers help store products

Manufacturers have limited storage space, and it’s not feasible for them to continue producing items if their storage space is full. Wholesalers solve this problem by purchasing inventory in bulk and storing it in their own warehouses. This helps manufacturers focus more on production and less on worrying about inventory storage.

By taking care of storage on their own, wholesalers facilitate the assembly of products from various manufacturers and safeguard them in one place.

Reason #3: Wholesalers stabilize supply and demand

Since there is time between the manufacturing and consumption of goods, there can be a mismatch between goods demanded and goods supplied. Wholesalers help in striking a balance between demand and supply. They are able to store products when demand is low, and then they can sell products when retailers’ demand rises.

Reason #4: Wholesalers take on risk

Wholesalers are responsible for transporting goods from their warehouses to various retailers. If there’s any damage during transit or storage, wholesalers take full responsibility and cover that loss.

 

Wholesale challenges and how to overcome them

Challenge #1: Cutting out the middleman

Manufacturers and retailers often try to streamline operations and cut out middlemen to increase profit margins. And in this example, the wholesaler is the middleman. By cutting out wholesalers, retailers can save money, and manufacturers can make more money.

Obviously, this is a concern to your existence as a wholesaler. In these situations, your solution might be dropping your prices, which in return would reduce your profit margin. While this might be a viable option for the short term, there will always be another wholesaler who’s willing to offer even lower prices than yours. At that point, you’re simply in a race to the bottom.

Rather than focusing on decreasing your margins, you should focus on increasing the value that you bring to the table. You should ask yourself, “How can I better serve my customers — other than lowering my prices?”

For example, you can help manufacturers take care of logistics and distribution. Bulk purchases can get you a discount from manufacturers, and retailers can benefit by purchasing from you instead of manufacturers.

However, manufacturers are now exploring ways to handle shipping and logistics of their products on their own to increase profit margins. Some retailers are even searching for ways to connect with wholesalers themselves to find a better deal directly.

To offer more value in this case, you should try to leverage your existing distribution network. You might be able to convince manufacturers that they would get better returns by working with you, rather than experimenting and trying to handle logistics on their own. By offering quicker delivery to retailers, you can prove that you provide better value.

As you deal with large amounts of stock, tracking can turn into a nightmare. That’s why it’s essential to invest in a good inventory management system that tracks inventory in real-time and automatically places purchase orders when stock is low. This, too, can be a differentiator.

Challenge #2: Slow shipping

Delays from wholesalers can lead to stockouts for retailers, which can reduce customer loyalty. Modern consumers are accustomed to 1-2 day delivery thanks to Amazon. This has, in turn, also raised the bar for wholesalers. Retailers now expect wholesalers to quickly deliver products so that they can serve their own impatient customers.

The challenge for wholesalers is not just shipping more quickly; in reality, it’s both shipping quicker and making fewer mistakes. Inaccurate delivery affects wholesalers’ reputation and often requires paying a fee.

Accurate delivery can be a great value add-on for savvy wholesalers. If you successfully provide quick and precise delivery, you’ll be able to convince retailers to buy from you.

This is exactly why it’s necessary to invest in good order management software. Barcode scanners can also be implemented to cut down on packing and picking errors, too. You can scan items at multiple stages, which further boosts accuracy and speed of processing.

Optimizing your warehouse helps reduce storage costs and speeds up inventory processing — which in turn, leads to faster shipping.

Challenge #3: Inventory damage

Damage to inventory is also another huge factor in a wholesaler’s performance. The core function of wholesaling lies in storing inventory and distributing it to retailers. Property damage is a serious threat to any wholesale business, and it can lead to huge losses in both value and ability to store products.

There are several ways stock can be damaged — fire, earthquakes, flooding, and more. Transit can also damage items due to heat, or if the ride is too bumpy. Mistakes from workers can lead to damages, too. This is exactly why it’s so important to constantly troubleshoot both equipment and machinery.

It also might be a good idea to get your property insured to help cover losses when natural disasters do occur. Plus, employee-related damages can be reduced by offering adequate training on products and their use.

Lastly, you should make sure to check product quality as soon as you receive them. This way, you’ll be able to detect damage and return products before they become inventory.

Challenge #4: Slow growth

Every business aspires to grow fast and constantly improve sales. Fostering relationships with your partners is a great way to help in accelerating the growth of your wholesaling businesses.

International expansion can also aid in getting more customers. When you focus on building contacts locally and internationally, you can expand your customer base. The COVID pandemic has proven the value of an online presence and international supply chains.

Challenge #5: Fines and penalties

In the early stages of their career, many wholesalers do whatever it takes to get contracts with manufacturers.

While having a contract certainly offers assurance, it can also backfire. If contract guidelines are not correctly adhered to, manufacturers can legally penalize wholesalers. And these penalties have to be paid, whether mistakes occurred accidentally or intentionally.

Therefore, rather than signing a contract hastily, you should first consult a lawyer and get a comprehensive understanding of all the terms and conditions mentioned in the agreement.

A lawyer’s cost when going over contracts is negligible compared to the amount that could be paid in the penalties. Only once you are fully aware of the terms should you proceed with the deal.

If you have any concerns about specific conditions, you should openly discuss and negotiate with your manufacturer. If your manufacturer refuses to negotiate, you can always go to another manufacturer who meets your demands. Remember that a signed contract is the foundation of your relationship with the manufacturer — so it should be carefully considered.

Challenge #6: Theft

Employee theft and shoplifting led to retail sector losses totaling $61.7 billion in 2019. The wholesaling business is not immune to theft, either. Since wholesalers deal with large quantities of goods, theft can compound quickly and lead to significant losses.

Theft can occur in warehouses and transit, so investing in security is necessary. You can install security cameras to monitor goods on your premises regularly. You should also consider arranging for staff to monitor goods when in transit and when unloading inventory.

Challenge #7: Inaccurate data

Wholesalers need to know exact quantities for goods purchased, goods sent to retailers, inventory in stock, and more. Storing information manually in ledgers can lead to human error and cause severe losses, which makes it challenging to get accurate information about current levels.

Real-time data helps when trying to meet the demands of manufacturers and retailers. A manual counting process simply isn’t good enough when dealing with massive numbers. Therefore, the best option is to invest in real-time inventory management solutions.

One solution is Radio Frequency Identification Tags (RFID), but they can cost up to $50 per unit. Still, RFIDs allow you to accurately track inventory without employees having to enter any data. Since wholesalers already operate on thin margins, implementing RFIDs might not make financial sense.

A cloud-based inventory management system does the same job and offers real-time information about inventory without being as expensive. Plus, It also helps create a dashboard and generate reports to get important information at a glance. This allows you to make data-driven decision-making.

 

Grow by focusing on value instead of price

Wholesalers are an important part of supply chains — but they can’t get complacent about upgrading business practices. As retailers explore technological advancements like ecommerce stores, wholesalers must also upgrade their systems and processes to keep up with new challenges.

Ultimately, to survive in the long run, wholesalers need to focus more on delivering value, and less on lowering prices. That’s where Cin7 can help separate savvy wholesalers from their competition. Get in touch with the Cin7 experts to learn more about how we can help you with automation, data collection, and more.

 

Here’s how digitizing your supply chain can breathe new life into your business

Digitization has reached almost all aspects of businesses — including supply chains. New technology like embedded sensors, RFID, and GPS have helped companies transform their traditional supply chain structures into flexible, agile, open, and collaborative digital models.

In fact, according to a McKinsey survey, 93% of supply chain executives say they are actively planning to make their supply chains more resilient. And in this day and age, “resilient” means digital. Many companies are seeing the need to become more organized — and they’re doing that  by regionalizing their supplies and nearshoring their processes. This type of organization ensures products don’t have to travel long (and expensive) distances.

Either way, there’s no denying that digitizing supply chains will allow these companies to improve their agility, visibility, and efficiency. Digitization allows for organizational flexibility and accelerates innovation.

Now, let’s dive into the meaning of digital supply chain management, understand how it’s different from a traditional supply chain, and explore the benefits of supply chain digitization.

 

What is a digital supply chain?

In a traditional supply chain, companies need to source parts and raw materials to make their product. After they understand demand for their product, companies will then find the correct sales channels and use logistics to provide customers with visibility into their orders.

A digital supply chain, in contrast, offers significantly more visibility throughout the process. The integration and application of advanced digital technologies allows customers and stakeholders to monitor supply chain operations — from procurement data and inventory management, to distribution and transportation.

For example, Bluetooth Low Energy (BLE) asset tracking can offer instant updates on location, including when cargo is in transit. The main goal of supply chain digitization is to enable insight for greater efficiency. This, in turn, can cut down on redundancies and greatly increase profits.

Companies with digital supply chains can move their resources, assets, people, and inventory to where they need it at any given time. Digitization helps you reduce costs by giving you the ability to respond proactively to both transportation and manufacturing risks.

The potential payoffs of any fully-realized digital supply chain include saving time, money, and resources. It will allow your company to be less wasteful and more environmentally sustainable.

 

Traditional vs digital supply chains

Traditional supply chains work based on historical transactional inputs, while digital supply chains function in real-time. Digital supply chains are networks, while traditional supply chains are linear. Supply chain networks communicate almost instantaneously, whereas linear supply chains move slowly and inefficiently.

Digital supply chains are also more accurate. Information from operational technology and IT systems are integrated with digital supply chain management, while traditional supply chains rely on standalone systems. When companies go digital, they can more efficiently find potential problems and predict likely risks.

Traditional supply chains rely on humans to make nearly every decision. Digital supply chains, on the other hand, have built-in automated decisions that are monitored by humans. Because of this, digital supply chains are exponentially faster.

 

Why your supply chain should go digital

Digitization in supply chain management empowers planning, sourcing, and logistics teams to collaborate. It also allows those teams to automate processes and leverage analytics. This type of synergy among teams drives growth, mitigates risk, and optimizes costs. Here are some more supply chain digitization benefits:

More organizational flexibility

A digital operating model gives management more freedom and flexibility. For instance, what degree of centralization is needed to support specialization? How can you minimize process costs when you factor in local labor? How can your processes become more productive? With Digitization, you can answer these questions by analyzing data in multiple ways. And then you can be more flexible when implementing solutions.

Better decision making

Once you integrate your supply chain with digital technologies, you can also make faster and more informed decisions for each function. Digitization helps you measure performance accurately and efficiently by aggregating and organizing transactions. This, in turn, allows you to access information at both the micro and macro levels.

For example, BASF (a German multinational chemical corporation) uses AI and machine learning-based technologies to predict the optimal time to replenish supply when stock is running low. This type of automation leads to increased inventory visibility that supports smarter replenishment planning, more efficient decision-making, and better customer service.

Increased automation

An end-to-end digital platform can improve data accuracy, enhance efficiency, and increase supply chain efficiency by automating many labor-extensive processes. From determining the most appropriate shipping mode, implement smarter scheduling, and more — automation saves time and money.

Alerts can also be generated automatically, especially if purchase orders are in danger of delays or complications. This helps companies take precautionary measures and be prepared to handle customers who may have logistics-related complaints.

Accelerating innovation

All digital transformation processes inevitably lead to innovation. Why? When data becomes available, it’s much easier to see trends and inefficiencies. This improvement over conventional supply chain management helps to strengthen the company’s business model over time and builds stronger relationships with suppliers and customers.

End-to-end customer engagement

Digital transformation in supply chain management also increases customer engagement throughout their buying journey. For instance, when placing an order, digitization allows your customers to automatically stay updated with their order details. They know their order status all the way up to receiving it — thanks to the supplier’s automated tracking system. Here, digitization ensures that customers feel more secure and in control when buying.

For example, Farmer Connect uses Blockchain technology to connect coffee growers with the consumers they serve. By launching a mobile application, “Thank My Farmer,” they allow coffee lovers to trace the origin of their coffee and directly support the farmers who grow the beans. The app is a win-win for companies, workers, and customers. It connects the purchaser to traders, farmers, brands, and roasters.

 

Top trends for supply chain digitization

If you’re looking to improve your organizations overall productivity and performance, here are some supply chain trends you should try:

Integrate your eCommerce website

Integrating eCommerce helps provide a more seamless customer experience and makes your operation more efficient. Once again, the free flow of information across departments is key. Thus, companies immediately see the benefits of interconnected supply chains for eCommerce operations.

Utilize artificial intelligence (AI)

AI in the supply chain helps companies analyze data, enhance performance, and perform routine tasks. AI also helps supply chain leaders solve problems with increased visibility across networks that were previously disparate or remote.

Leverage the Internet of Things (IoT)

An IoT is a network of physical objects connected to the internet. The IoT already plays an important role in the supply chain, and it will gradually grow in importance with increasingly diverse applications. As a matter of fact, within a few years, up to 50% of companies could be using these advanced technologies to support supply chain operations.

IoT has the ability to improve fleet tracking, warehouse management, inventory control, and even technological and mechanical maintenance. Plus, imagine how “smart” warehouses and fleets might increase the accuracy and efficiency of multiple areas of the supply chain.

Integrate Blockchain

Blockchain can be greatly beneficial for businesses to minimize supply chain disruption and improve customer service. In fact, by 2024, global blockchain spending is expected to reach almost 19 billion U.S. dollars.

Blockchain has already helped integrate carriers, logistic providers, and shipping lines into a single platform. The transparency offered by blockchain technology helps to identify issues and cut out waste early in processes.

Create a supply chain digital twin

A digital twin is a model that  simulates the supply chain’s performance with AI and advanced analytics, and explores the complexities that show risks and vulnerabilities. Basically, it’s a virtual representation of the supply chain that consists of hundreds of warehouses, assets, inventory, and logistics positions.

Having a digital twin helps increase visibility. It also allows leaders to be more strategic and ready to take advantage of opportunities — especially in complex supply chains.

 

Five steps to digitize your supply chain

Transforming your traditional supply chain into a digital one is a complex process. However, it’s absolutely necessary to stay competitive. Here’s how to do it in five steps:

Step #1: Define your vision

The first step in implementing digital transformation in the supply chain is to define a clear vision and set some clear, attainable goals. These goals can be related to business objectives like faster decision making, improved supply chain visibility, and automated operations. When defining a vision, you need to:

  • Assess your resources and existing systems: Identify where you are, and see where you can improve. Do your existing systems use technology that supports your new goals? Can you Identify digital solutions that help you achieve desired business outcomes?
  • Access your current ability to analyze data: Can you currently collect, generate, and analyze data? If not, it may be hard to come away with actionable insights.
  • Access your workforce’s skills: Does your team have the necessary skills to work with and adapt to the new business model?

Step #2: Unify your processes

When you unify your processes into one system, you gain end-to-end supply chain visibility. That means you get enhanced transparency to streamline core functions including warehouse management, inventory management, logistics, demand forecasting, and more.

Step #3: Automate as much as possible

Wherever you can, you should replace recurring or routine tasks with automated processes. Not only does it help you simplify tasks, it also allows you to derive meaning from large volumes of data. Make sure not to automate processes that include complex situations or require collaboration between planners — but look at each part of your business and see what can be automated.

#4. Leverage data and analytics

Supply chain leaders need access to real-time data to make more informed decisions. Access to data and analytics helps you deal effectively with partners, suppliers, and your workforce. Real-time data also helps you identify potential disruptions and greatly increases visibility across the supply chain.

You can use AI-powered analytical tools for improving planning processes and drawing actionable insights. For example, using analytics, you can help prevent stock from being depleted completely and adjust your inventory accordingly.

#5. Align your people with your processes

Even if you are looking to shift to a digital supply chain, the switch would be worthless unless your team members are aligned with your new techniques and processes. Always make sure your shift integrates technologies with people, processes, and management. Without full integration, teams won’t be able to achieve your desired results with your new business model.

 

Allow Cin7 to help with your digital transformation

The quickly evolving technological landscape and increasing customer expectations are causing organizations to revisit how they do business. Adapting new technologies and integrating your supply chain leads to greater flexibility, efficiency and resilience.

For businesses re-evaluating their supply chains, now’s the time for action. Supply chain digital transformation isn’t easy, but it’s definitely worth it. If you have any questions about digitizing your supply chain, get in touch with Cin7 today and we’d be happy to assist you on your digital transformation journey.

Vertically integrating your supply chain

Businesses are always looking for ways to increase profit and expand market share. However, there are countless challenges that impede them from achieving this goal — pandemics, supply chain disruptions, delays from the suppliers, cutthroat competition, and more.

One of the best strategies to overcome these issues and increase profitability is to become more self-reliant. In order to control more aspects of production, Henry Ford, the famous founder of Ford Motor Company, purchased railroads, acquired coal mines, built a sawmill, and bought over 700,000 acres of timberland!

When businesses reduce dependency on intermediaries on distributors and suppliers, they can better control their supply chain and avoid disruptions. Vertical integration is a strategy utilized by famous companies like Amazon, Netflix, and Apple. After reading this article, you’ll understand how these companies use vertical integration. You’ll also see whether it’s suitable for your business or not. Let’s get started!

What is vertical integration?

There are many stages in the supply chain that facilitate a product’s journey to a consumer. First, the manufacturer gets raw materials from a supplier. After finishing production, the goods are sent to a distributor. The distributor then transfers goods to retailers, who finally sell goods to consumers.

Vertical integration is the process in which a business expands in order to gain ownership and control of more than one stage of their supply chain. In simpler terms, vertical integration is when a business attempts to perform production and distribution in-house instead of outsourcing it.

Vertical integration has been common since the industrial revolution. Andrew Carnegie was one of the pioneers — he owned iron mines that were utilized to mine steel resources for his company, Carnegie Steel. He also owned coal mines to get fuel for creating steel, and he owned railroads for transporting his materials. With this level of vertical integration, Carnegie created an entire ecosystem that helped him control his supply chain from production to transportation.

 

Types of vertical integration

There are three types of vertical integration: Backward integration, forward integration, and balanced integration. Let’s look at these concepts in more detail.

Forward integration

In forward integration, businesses expand, acquire, or merge with another business that’s “farther up” in the supply chain. For example, EA sports – a video game development company – relies on distributors to sell their games to customers. EA sports decided to acquire a retailer (Gamestop), which is an example of forward or “upstream” integration. Generally, forward integration aims to seek control over distribution.Backward integration

In backward integration, businesses expand, acquire, or merge with a firm “below” them in the supply chain. For example, IKEA – a DIY furniture company – needs wood to manufacture furniture. IKEA decided to acquire a wood supplier, which is an example of backward or “downstream” integration.

Generally, backward integration aims to seek control over supply or manufacturing of a product. That way, they’re able to source everything themselves. This cuts costs and makes businesses more self-reliant.

Credits

Balanced integration

Balanced integration is the combination of forward and backward integration. Through balanced integration, the company attempts to take control of both upstream and downstream activities in their supply chain.

 

The difference between horizontal and vertical integration

Like vertical integration, horizontal integration helps businesses expand and gain more control over the supply chain. Many people get confused between horizontal and vertical integration. After finishing this section, you won’t be one of them!

 

Horizontal Integration Vertical Integration
The expansion in the same level of the supply chain (usually within the same industry) The expansion into different stages of the supply chain (forward and backward)
Aims to increase market share and product differentiation, leading to a monopoly or oligopoly. Aims to make a business self-reliant and get greater control over various stages of the value chain — from manufacturing to distribution.
Example: Facebook acquiring Instagram (a competing social media platform) Example: Netflix is a video streaming platform (distributor) that also creates movies and web series (producer).

 

Examples of vertical integration

To better clarify vertical integration, here are some real-life examples.

Vertical integration example #1: Apple

Apple is a premium consumer electronics company that leverages vertical integration to scale its business. Apple performs backwards integration by owning manufacturing plants in San Jose, Taiwan, and more. They also perform forward integration by owning retail outlets (The Apple Store) that help them connect with their customers.

Vertical integration example #2: SpaceX

We all know that Elon Musk wants to colonize Mars and explore space. Like Tesla, SpaceX is one of Musk’s companies that manufactures rockets and spacecraft. SpaceX uses vertical integration to reduce the cost of space exploration.

At first, Musk wasn’t able to source rockets at an affordable price. After some research, he realized that it only cost 3% of the sales price to manufacture a rocket! This incentivized him to produce rockets in-house (backward integration). One of his competitors, United Launch Appliance, was charging $460 million for each satellite launch into orbit, SpaceX was able to achieve the same for just $90 million.  This is how vertical integration helps SpaceX offer their services for 5x less than their competitors.

Vertical integration example #3: Zara

Zara is a famous fast-fashion brand that has over 1,000 stores worldwide, and they are vertically integrated with their manufacturers and designers. While their competitors are at the mercy of independent designers, Zara designs in-house. This way, they can rapidly adapt to market trends. Because they own both retail and distribution, Zara is able to more efficiently manage their stock.

Vertical integration example #4: Ikea

Ikea is a do-it-yourself (DIY) furniture brand that offers ready-to-assemble furniture and fittings. Customers can choose furniture from Ikea stores and assemble it at home. Ikea primarily sells wooden furniture, so they purchased a Romanian forest and integrated vertically. By doing this, they gained more leverage on raw material production (backward integration), which in turn gives them more control over manufacturing and distribution processes.

 

Advantages of vertical integration

Most companies have realized how advantageous vertical integration is. Here’s why.

Advantage #1: Leveraging economies of scale

Economies of scale have an inverse relationship between cost and quantity. For example, if you increase production, the cost of producing each unit goes down. Whenever a business doubles its production output, the manufacturing costs fall from 70% to 90%.

So, how does an increase in production lead to a decrease in cost? When you manufacture goods in larger quantities, you place a larger order with your supplier. When you purchase items in bulk, you can get them at a discounted rate — which helps bring down production cost.

There are also some Technological benefits to economies of scale. As a company produces more of a product, they discover better ways to make the product. This leads to specialization and reduction of wastage.

Finally, there are also Governmental benefits, which is an example of external economies of scale. For example, there may be a shortage of oxygen cylinders at a time of medical emergency – like COVID – and the government may want to incentivize businesses to produce more oxygen cylinders. To achieve this, government can give tax benefits to the manufacturers to incentivize them to increase production. This would reduce the manufacturing cost.

When an organization adopts vertical integration, they achieve economies of scale by eradicating intermediaries and streamlining operations.

Advantage #2: Greater control over your supply chain

When a business is not vertically integrated, it depends on other parties in the supply chain. When and if there are supply chain disruptions, this can stop or slow down your operation. Through vertical integration, your business enjoys more control of the supply chain. You are able to maintain stability by solving problems external distributors can cause.

When you are not dependent on external suppliers and distributors, you’re better positioned to negotiate and do less business with suppliers who attempt to dictate the market. Protection of trade secrets is also easier when you’re not outsourcing manufacturing. Plus, by manufacturing on your own, you can shorten turnaround time and ensure that production quality matches your standards.

Walmart is an excellent example of this. Since they own their distribution centers, they have a massive amount of leverage. Walmart constantly experiments with emerging technologies such as augmented reality, drones, and hyperlocal distribution centers.

Advantage #3: More market knowledge

When retailers maintain direct contact with customers, they are better positioned to understand customer’s preferences. If you’re only a manufacturer, you focus solely on producing goods. Through forward integration, manufacturers are able to better understand customer behavior and calibrate their process to make products that are in higher demand. They can also create “knock-off” products of competitors’ best sellers to meet market demand.

By catering to customers’ needs and offering a better value proposition than other players in the market, fully integrated companies are able to win more market share.

Advantage #4: Better profit margins

Profit margin shrinks as more players enter your product’s supply chain. Successful vertical integration eliminates intermediaries and saves you money. By producing on your own, you’re able to leverage economies of scale and reduce your overall transaction cost. You can leverage these savings and even transfer them directly to your consumer by offering better deals. This strategy is commonly used by platforms like Best Buy and Walmart.

Advantage #5: Global expansion

Vertical integration allows you to beat your competitors. By opening your own distribution centers, you’re able to offer a superior customer experience. This is exactly what Apple did in 2001 when they opened their first retail store, and it helped them out-compete Microsoft.

For geographical expansion, companies can either acquire other brands or launch their own distribution centers. Louis Vuitton, a luxury fashion brand, became a worldwide destination for leather goods after opening stores in fashion capitals across the globe.

 

Disadvantages of vertical integration

Even though vertical integration is a great strategy for some of the most successful companies, there are some downsides. Let’s take a look.

Disadvantage #1: Massive upfront investment

This is by far the biggest drawback of implementing a vertical integration strategy. As a distributor, integration requires extensive capital. You need to invest in land, labor, and machinery if you want a factory. Building and maintaining production plants is expensive, too. And when a manufacturer decides to integrate forward to acquire distribution channels, they’ll need to invest in developing both their distribution centers and necessary personnel.

Disadvantage #2 Decreased flexibility

When a business is not vertically integrated, they have the flexibility to choose and replace vendors and distributors when a better alternative is found. When you attempt to do these tasks in-house, it’s a lot more tricky.

Since technology keeps on evolving, it can be expensive to adapt to trends and upgrade processes. Retraining employees on new technology requires a lot of time and money. If you’re not vertically integrated, you can simply source products from a different, more technologically up-to-date vendor. And you don’t have to worry about maintenance costs, either. Vertically integrated businesses may also find it difficult to outsource production to foreign factories with cheaper labor and operating costs.

Disadvantage #3: Losing focus

Running a distribution or retail business is a lot different than running a factory. Retail stores require sales and marketing personnel, whereas a factory requires people with engineering backgrounds. In an attempt to become a “jack of all trades,” businesses may lose focus and put valuable time and energy into places where they aren’t as skilled or experienced. This has the potential to lead to a worse product, declining profits, and worse.

Disadvantage #4: Antitrust and labor Issues

If you are the dominant player in a market and attempt to further control the supply chain process by controlling production, it can lead to antitrust issues. By trying to consolidate via vertical integration, you can face conflicts from both government and competitors. Vertical integration can also lead to labor issues, especially when a union company integrates with a non-union company.

Disadvantage #5: Intense competition

Doing everything on your own can increase profit margins,However, it often takes a long time to reach that stage. When you first set up your new production unit, you will make mistakes that can lead to manufacturing inefficiency and higher production costs.

You might also find it challenging to compete with existing players who outsource their production to companies that are both more experienced and cheaper. Vertical integration makes your business less flexible, too. Thus, vertical integration has the potential to backfire — resulting in the loss of your competitive edge.

Warren Buffet sums it up best: “Should you find yourself in a chronically leaking boat, energy devoted to changing vessels is likely to be more productive than energy devoted to patching leaks.”

 

Is vertical integration right for your company?

Vertical integration can help businesses increase profitability and provide better experiences for their customers, but it doesn’t come without its risks. When done right, however, the results can be amazing. All we have to do is look at Amazon, which has complete control over distribution. This allows them to offer quick delivery and lower transportation costs. By analyzing sales data, they’re also able to track best-selling products and create their own branded variants (AmazonBasics) — which is an example of perfectly executed backward integration. Amazon also offers a video streaming service called Amazon Prime, which improves customer experience and ensures recurring revenue.

Vertical integration can be a great expansion strategy, provided that the company has deep pockets and the ability to take risks and overcome challenges. Unfortunately, not every company can do what Amazon does. It’s best to find the balance that works for you. Should you focus on what you’re best at, and outsource everything else? Or is vertical integration the best way forward? Contact us for a Cin7 demo and gain advice, tips, and more information about your options.

7 core benefits of AI-powered supply chains

The global supply chain is filled with several variables that add to its complexity: government regulations, ever-changing customer demand, rising transportation costs, and international events such as pandemics. Any innovation that helps improve the supply chain’s efficiency can help increase your bottom-line profit.

Artificial intelligence (AI) is one such innovation that helps optimize the supply chain by better forecasting customer preferences and cutting costs by automating some repetitive manual tasks.

IBM defines AI as, “leveraging computers and machines to mimic the problem-solving and decision-making capabilities of the human mind.” In common parlance, AI is a technology that can think like humans to solve problems.

A survey by PricewaterhouseCoopers New Zealand (PWC) suggests that AI-based applications could potentially contribute up to $15.7 trillion to the world economy by 2030.

Artificial intelligence is soaring in popularity —  in fact, Gartner predicts that by 2023, 50% of IT leaders will move their AI projects from proof of concept to maturity.

Giant conglomerates such as Amazon already leverage AI to   better control   the supply chain. For example, Amazon has already transformed the ecommerce business through free shipping and 1-day delivery practices. It is now devising systems using AI and machine learning (ML) to automate its warehousing processes and drone delivery.

If you are considering AI-powered supply chains, here are seven benefits that could help transform and evolve your business:

#1 Warehouse automation

The warehouse should not be treated simply as a place to store goods. Furthermore, if the items in the warehouse are not properly stored, there could be difficulty in retrieving the items when required. This in turn can increase your fulfillment time, not to mention your customers’ frustration. Instead, the warehouse should be regarded as a strategic asset that can help with storage and faster fulfillment of goods, thanks to automation.

Automation can help with the timely retrieval of goods from the warehouse and facilitate a smoother fulfillment of orders. As you keep purchasing inventory, the algorithm continues to learn from the data, and – based on this purchase and supplier data – the AI can provide stocking recommendations.

Lack of real-time information can lead to inefficient warehousing. Using a warehouse management system can offer much-needed clarity and help in streamlining your operations. A warehouse manager can get real-time insights about the various parts, components, and finished inventory stored in the warehouse, since the technology takes virtually no time to process and analyze large swaths of data.

Drones are also helping to automate warehouse operations. In movies and wedding ceremonies, drones are often used for videography from a higher altitude. At the warehouse, drones scan and capture information from barcodes and RFID tags, as well as reconcile data with your warehousing software.

Apart from scanning, the drones can also pick up inventory and aid with quicker shipping. Using drones to fetch items from higher shelves also mitigates the risk of warehousing staff injuries caused by falling from height.

Helpful hint: Apart from speeding up the work and saving you time, AI automation can reduce the otherwise required number of warehousing staff and save money that would have been devoted to payroll.

#2 Minimize operational costs

Plant managers deal with several challenges in running business operations. There can be inventory shortages, unplanned machinery downtime, or a rise in raw material pricing. All these can increase overall operational costs. If you are operating on lean margins, any activity that helps with cost-cutting can be crucial for your success. To combat such supply-demand mismatches, businesses have started implementing AI technology, leading to cost minimization and delivering a better customer experience.

Research from McKinsey suggests that after introducing artificial intelligence in their supply chain, 44% of executives reported cost reduction, and 63% had increased their overall revenue.

Helpful hint: Unlike humans, technology can run 24/7 with maximum productivity. It is free of human error and reduces workplace accidents.

#3 Predicting trends

It can be challenging to plan for the supply chain due to globalization, competition, increasing product varieties, and varying customer preferences. Unplanned events such as pandemic-related lockdowns and logistical issues can fuel the fire.

When final production relies on the timely availability of several spare parts and critical components, their unavailability can create bottlenecks in the supply chain. With a robust AI-powered forecasting system, businesses are equipped with the necessary intelligence to prepare themselves before such events disrupt production.

Along the lines of AI, there is a buzzword called “Big Data” that is commonly used. As the name suggests, Big Data refers to data that is huge in volume and keeps compounding over time. For example, when customers purchase items from Amazon, they browse through many products that can yield insights into their consumption patterns.

Analyzing such a massive dataset may seem unfathomable by humans, but it can be done through AI-driven tools. Intelligent systems can analyze data and guide the forecasting of supply and demand. This can prevent your business from accumulating excessive stock. A study by McKinsey suggests that implementing artificial intelligence and machine learning can reduce supply chain forecasting errors by up to 50%.

Through machine learning, businesses can also leverage predictive analytics. This way, companies can spot patterns from historical data and current buying patterns for better forecasting.

#4 Better fleet management

The term, “fleet,” refers to a group of vehicles owned by businesses used for transportation. Fleet management is crucial for the smooth functioning of the supply chain as it links the manufacturer (supplier) to the customer. From rising fuel costs to labor shortages, fleet managers need to tackle many challenges. Managing a large fleet can be an arduous task if the necessary information is not available in a timely manner.

Using AI in logistics can offer real-time tracking and vital information for shipments. AIcan also assist in reducing the losses arising from fleet downtime and make the most of the fuel capacity.

AI-powered autonomous vehicles are also gaining popularity. Utilizing self-driving trucks can help reduce the cost of drivers and improve efficiency. Although it is a relatively new technology, the trend for autonomous trucks is gaining traction in the US logistics market, and it will continue to expand over the coming years.

#5 Improve inventory management

Inventory management lays the foundation of proper supply chain management. Effective inventory management can ensure a logical flow of goods in and out of the warehouse. With so many variables to consider – like order picking, packing and fulfillment – manual inventory management is time-consuming and prone to errors.

Inventory bottlenecks lead to delays and reductions in revenue. With the help of AI, businesses can gain complete visibility of supply chain variables and identify the processes that act as bottlenecks. Upon identifying bottlenecks, you can quickly eliminate them by strategically finding opportunities for improvement.

Apart from bottlenecks, understocking and overstocking are also issues that adversely affect your business. Understocking leads to losses arising from missed sales opportunities and risks reducing customer loyalty. Conversely, overstocking poses the risk of loss due to not being able to sell the inventory. Businesses can use demand forecasting (through AI) to avoid overstocking and accurately predict trends. Based on the data, the production and stock levels can be calibrated to maintain optimum inventory.

Cloud-based inventory management software can provide a centralized view of all inventory across multiple locations. With accurate information about their inventory, purchase managers can determine when to place new orders.

Thanks to technological advancements, even the purchase order process can be automated. By customizing quantity thresholds, a purchase order can be automatically generated and sent to  suppliers to avoid stockouts.

Helpful hint: Machine learning algorithms can also mitigate fraud by automating auditing and inspections. Audits help to spot any deviations from common product patterns. Privileged credential abuse is another challenge that causes a breach in the supply chain, but with the help of AI technology, such misfortunes can be prevented.

#6 Speedy shipping

What good is producing excellent products and services if you cannot deliver them to your customers in a timely fashion? Even after using state-of-the-art technology to improve your warehousing and operational processes, if you cannot ship products on time, your profitability will suffer.

Using AI in the supply chain can not only assist you with forecasting the products’ demand but can also lead to better shipping control. It factors in customer’ locations to deliver the products, along with the time it takes to ship them.

Your operations managers can get real-time information about the delivery schedules, and the team can be warned upon detection of a discrepancy. You should not overlook last-mile delivery as it constitutes around 28% of delivery costs.

#7 Enhance customer experience

Offering a stellar buying experience is essential to fostering a better relationship with your customers. Happy customers not only lead to repeated sales but also act as ambassadors to promote your brand through positive word-of-mouth.

It is plausible that your customers have questions about your product and will contact the company. If your support team makes them wait too long, the chances of them switching to your competitor are all but guaranteed to increase.

Implementing AI-based chatbots on your website can help you tackle such issues. Chatbots are available around the clock, and studies suggest they can answer up to 80% of routine questions. As the answers are already installed in the system, the bots can quickly solve the queries, allowing your support team to prioritize other projects.

Apart from answering questions, chatbots can also act as sales agents allowing potential customers to interact with and submit purchase orders.

Amazon has a fine example of machine learning to offer a better customer experience. Their algorithm helps them to provide better product recommendations based on previous orders and searches made by the customer. They also use chatbots to offer assistance regarding purchases, returns, and refunds.

In summary

Based on the benefits examined in this article, it is evident that AI can make a breakthrough impact on the supply chain. From reducing costs to optimizing operations, it can help your business outpace the competition.

As challenges in the supply chain increase, businesses will welcome the opportunity to upgrade their technology and better serve their customers. While external variables might accelerate the adoption of AI, it is already transforming from a nice-to-have to a must-have item that will help your business stay relevant and represent the standard in supply chain management.

Cin7 inventory and order management software should be your go-to solution as you pivot towards AI for your sales operations. Gain the same advantages as the top product sellers who have already discovered Cin7’s connected multichannel solution. Book a demo with one of our consultants and take a step closer to adopting the efficiencies that await.

Strategies to Strengthen Your Supply Chain

In these times of supply chain disruptions, online sellers are looking for ways to mitigate the delays caused by the scarcity of raw materials, labor, drivers and warehouse space. One option sellers have in an effort to appease impatient buyers is to shave time off the fulfillment of products they have in inventory by partnering with a 3rd party logistics provider (3PL).

 

Winning Supply Chain Strategies

A recent survey conducted with over 4,000 businesses found that product sellers who use 3rd party logistics providers (3PLs) to manage their warehouse network are 30% more likely to improve their profitability. Why take on the HR burden of extra employees and processes to oversee?

A reputable 3PL allows sellers to manage the geographic distribution of their products and the fulfillment operations within their warehouses.

Successful businesses are responding to the rapid developments in retail and online selling by investing in robust inventory management systems (IMS) to further streamline order management and fulfillment. Speeding product turn increases the bottom line and makes up for time lost due to supply chain disruptions. Companies that continue to rely on patching legacy, on-premises inventory systems or that rely on manual processes will lose out to more modern competitors.

Businesses would be wise to assess their current inventory and order management software solution to determine if it integrates with 3PL providers and increases product turn by shaving time off restocking, order management and fulfillment. A cloud-based IMS improves information flow, speeds the flow of physical products and introduces multiple process automation efficiencies.

Sellers can also increase the number of opportunities for buyers to find the products they’re shopping for by expanding their number of sales channels. The right IMS allows for seamless integration of multichannel sales operations.

The same survey referenced above found that in 2020 when 28% of single channel retailers experienced more than a 5% decline in revenue, 6% of multichannel product sellers achieved a more than

20% increase in sales and 23% enjoyed more than 10% growth.

The primary difference between the businesses that grew during the pandemic and the ones who suffered was the number of sales channels the winners chose to integrate with. Multiple sales channels broaden the available customer base that these successful businesses are able to sell to.

Let’s review the types of sales channels necessary to run a modern, profitable sales operation with the broadest possible market presence. Keep in mind that some IMS providers charge per sales channel connection while others include them as part of an affordable monthly subscription fee.

Ecommerce

Successful online retailers who sell directly to consumers know that the more ecommerce channels they integrate, the more buyers they’ll reach and the faster their businesses will grow. These companies benefit most from an inventory management system that includes connections and costs to integrate multiple channels like Shopify Plus, WooCommerce, Magento and BigCommerce.

Marketplaces

As with ecommerce channels, the same holds true for connecting to multiple online marketplaces. IMS Solutions that include connections to online marketplaces like the complete Amazon selling suite, Etsy, Walmart and Ebay help retailers to gain significant market share and rapid sales growth.

EDI Retailers

For successful online sellers who supply major retailers like Walmart, Macy’s, Bloomingdale’s and Target, an inventory management solution with built in electronic data interchange (EDI) is the key to automated order fulfillment. When EDI connections are built-in and included in the monthly cost of an IMS, major retailers replenish their stock by sending electronic POs that flow straight through to the seller’s order management system eliminating human error and delays associated with manual processes.

Retail

Finding an IMS that also offers a built-in POS solution for brick-and-mortar and connections to 3rd party POS systems is ideal for the sellers who rely on traditional retail. A robust IMS will allow for the transfer of inventory wherever it’s needed – to other geographic locations, including stores.

Innovative companies that leverage these supply chain strategies will continue to mitigate the effects of the current disruptions through 2023 and on into the future. Key to their success will be the adoption of a robust inventory and order management system that creates a coordinated ecosystem that serves their multichannel goals.

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A Resilient Cold Chain Starts with Automation and Nearshoring

The pandemic has completely altered global supply chains and continues to be unpredictable. This has been especially tough on the cold chain due to rigorous traceability standards and perishable products, meaning that there is little-to-no room for error or delay. And, as we continue to experience many challenges that affect the overall functionality of our global supply chains, perhaps none has been more impactful than the countless supply shortages we’re still dealing with today. And, there’s seemingly no end in sight with food distributors recently warning schools and districts that they will likely run out of supply to meet the expected demand with students returning to the classroom this fall.

As troubles persist in procuring materials amidst supply and labor shortages, transportation issues and more, supply chain managers have had to substantially revamp their operations in order to compete in today’s challenging and dynamic landscape. The time for stopgaps is clearly over, and the future cold chain must be built to ensure a resilient, flexible foundation.

To be prepared when issues arise, many business leaders have turned to technology to help automate and make processes more efficient and traceable. They also must have channels in place to nearshore supply, so that when the unexpected does occur, they have access to product in another warehouse that can be shipped and guarantee orders are fulfilled.

Increased visibility with nearshoring

U.S. manufacturers have already begun witnessing the benefits of nearshoring with average operating costs being cut by 23% when shifting operations from China to Mexico. By bringing supply and warehouses closer to home – such as neighboring countries rather than overseas – organizations have been able to increase visibility and reduce risk for stakeholders and third parties so that shipments and individual products can be tracked on every step of the journey from start to finish.

While nearshoring is becoming increasingly necessary for business operations as the sustainability of global logistics remains uncertain, it also requires sophisticated software and technologies that will allow for collaboration and integration with third-party logistics (3PL) providers. Many organizations do not have the necessary resources to build out their own warehouses in different locations across the globe, so being able to work with a 3PL is particularly important for nearshoring efforts or even temporary pop-ups for a few months at a time if businesses need to reroute operations.

Cloud-native enterprise resource planning (ERP), warehouse management and inventory management systems will be essential for future success because they are highly flexible, easily adaptable as business needs shift and allow for businesses to scale quickly. For example, if a U.S.-based company is moving all operations from China to Mexico because of increased tariffs, cloud-based software helps enable a fast and seamless integration with a new partner.

Enhanced traceability and compliance

Modern technologies not only allow you to easily operate with third parties, but they also enable you to track goods as they move throughout the supply chain. Traceability is important in every sector operating within the supply chain, however it’s doubly important in the cold chain because businesses must comply with strict regulatory standards, or they may face costly fines and risk losing the ability to operate within certain markets.

Utilizing cloud-based software ensures that all supply is accounted for and can be easily traced on every step of the way from Point A to Point Z, which leads to quality control, reduces waste, minimizes loss and allows businesses to guarantee they are in compliance with local regulations. For instance, if a food distributor learns of a recall of their products, they must be able to track down each and every product that came from a specific farm and alert customers of the compromised product. Only an integrated warehouse and inventory system is able to quickly identify which items need to be taken off the shelf or thrown away by consumers.

Supply chain resiliency

As we’ve learned – and continue to learn – throughout the course of the pandemic, our supply chains are extremely fragile and face mounting pressure with growing regulatory, public and consumer scrutiny. To encourage trust and dependability of your organizations’ preparedness to get product into customer hands – even during a shortage or unforeseen disruption – business leaders are taking steps today to strengthen and future-proof operations with continual investment in technology and automation. Forward thinking producers operating on cloud software have a large and growing advantage over their competitors depending on older technologies and legacy software.

 

While supply chain operations may have been an area that businesses could cut costs for in the past, consumer demand and expectations no longer withstand missing or delayed product availability, inferior quality of goods or the inability to trace where exactly their food or other items originated from. By investing in nearshoring and persistent innovation, we will ultimately experience a more seamless movement of goods across the globe and create a resilient infrastructure that cannot be so easily disrupted in the face of adversity.

 

Originally published by Food Logistics here.

What Is 4PL and Does Your Business Need It?

Amazon in the US was carrying 480 million products in its catalog as of the end of 2015.

This ocean of inventory is what has turned the eCommerce giant into a logistics enterprise, enshrined by Amazon’s Operation Dragon Boat, a strategy for building an international shipping and logistics company within company walls.

The strategy includes buying up 3PLs and fleets of trucks, directly operating cargo planes, and generally taking ownership of the entire supply chain without third-party support to reduce shipping expenses, the bulk of its cost for order fulfillment. Aside from owning the supply chain outright, Amazon is doing for itself what Fourth-Party Logistics (4PL) providers do for others: take control of an entire supply chain.

The 4PL concept originated in 1996 when the management firm Accenture consolidated a multinational company’s freight forwarder base. 4PL became a somewhat self-serving acronym for any contractor who manages all the pieces of a supply chain and to give clients the “control tower” view of complex supply chains with a huge mix of warehouses, shipping companies, freight forwarders and agents to oversee.

Amazon’s strategy owning and managing its supply chain itself is simply out of the question for companies that aren’t rooted in eCommerce, moving very high volumes of product, and, well, that aren’t Amazon. So what does the rest of the world do?

Proceed from Your Business Model

Most businesses don’t have anywhere near the complex supply chain that Amazon has, but a business of any size must start out with a supply chain strategy suited to its business model.

Still, light manufacturers, suppliers and wholesalers will have to contract at least one 3PL to store and/or move inventory. A 3PL historically specializes in one particular aspect of a supply chain: warehousing, packaging, freight forwarding, cross-loading, logistics analytics, even IT services.

The boundaries have become fluid over the years. Bigger 3PLs will manage their own fleets of trucks and warehouses, and most 3PLs will also offer 4PL services themselves or team-up with a 4PL to provide it as an add-on service.

Early-stage businesses won’t need 4PL services, frankly. If your supply chain management strategy matches your business model, and you’re meeting your fulfillment rate targets, and it’s small enough to easily monitor and control everything that’s happening in your supply chain from your office, you won’t need 4PL services.

Rethink Strategy with 4PL

A 4PL is defined as an integrator that assembles and manages all the resources, capabilities and technology of a supply chain across multiple providers and internal company managers.

The 4PL function undertakes overall responsibility for logistics performance and the ability to impact the entire supply chain and not just single elements and aims to manage people, process and technology. Businesses tend to look to 4PL to improve efficiencies and increase the bottom line through back-end system integrations, standardization, and automation of order placement, and reduced procurement costs and order cycle times.

However, the time to consider a 4PL provider is after you’ve established a supply chain management strategy after you have internal processes in place and experienced staff that can evolve with new systems. In other words, 4PL is more geared to the older or larger enterprise that has to manage a multi-tiered and highly complex supply chain.

See for yourself how Cin7 can give you the control you need to manage your supply chain.

The 4 Principles of Demand Planning

Companies fall in two categories vis a vis inventory forecasting, a white paper written exclusively for Cin7 asserts.

One type of company makes forecasting (or demand planning) a top priority to optimize its supply chain management. Another asserts there is no point to predicting the future.

Those who don’t prioritize demand planning make excuses, like “We know forecasts will be wrong” or “Ours is an in which it is impossible to forecast”, writes supply chain expert Keith McNeil in his How to Master Demand Planning paper.

“Yet, most businesses are driven ultimately by a series of planned sales numbers,” he writes.

The goal of demand planning is to move toward perfect order fulfilment with optimal inventory levels. In this paper, McNeil describes the rationale for demand planning, four guiding principles to forecasting, and a process that any organization can use to make it an indispensable tool. Demand planning is not the fortunetelling exercise that neigh-sayers may have you believe, but properly executed, it is the best educated guess an organization can make.

“The more accurate that you are able to make your forecasts, the less inventory you will need to cover fluctuations in demand,” McNeil writes. “This in turn allows you to deliver higher customer service, better control of working capital and better profitability.”

Download the guide now: How to Master Demand Planning

Do Companies Need Local Supply Chains?

Experts have debated the virtues of global versus local supply chains forever.

Two UK-based procurement experts back in 2003 made valid points for both.

Local supply chains means lower transport costs, lower supply chain risk, greater sustainability.

Global sourcing offers more choice of suppliers and the best available prices. A local supply chain may not be more sustainable than a global supply chain. The procurement expert noted, that lamb production in New Zealand produced 25% less CO2 than UK-bred lamb, even factoring in transportation emissions.

Those considerations have not changed over the years. Cloud solutions make it easier than ever to manage supply chains regardless of geography or complexity.

Companies of any size can outsource manufacturing now just as easily as they can source materials from anywhere around the world.

Big apparel retailers have seen incredible cost reductions by using technology to bring overseas sourcing and production facilities closer together.

Some companies go further to make “local sourcing” part of their story. Research shows customers make purchasing decisions based on concepts of sustainability, natural resources, and corporate responsibility in labor practices. Local supply chains can make a strong argument in that appeal.

Going Local

You may have many good reasons to build local supply chains.

One supply chain expert writing in Forbes suggested we’ve entered an age of trade protectionism.

Big companies that outsourced production and stretched their supply chains across the globe face pressure to build local supply chains if nations start putting tariffs on imports.

Globalization may not be under immediate threat, but companies have plenty of good reasons to consider building local supply chains anyway.

Webb’s recommendations for developing local supply chains appear to apply more to large companies, big manufacturers with a lot of influence over suppliers.

He recommends companies look to developing local suppliers, encouraging them to collaborate or even merge in order to meet the company’s demand.
Other experts say it pays to research the suppliers in your local market, if you don’t work with them already, to learn if they can meet your needs.

What is Pull Strategy and Does it Benefit eCommerce?

Inventory is a delicate balancing act, and eCommerce doesn’t make things any easier.

Carrying too much stock drives up your costs in warehousing and expiration of goods. Carrying too little loses you sales.

Getting inventory just right is the Goldilocks tale of commerce, which is why so many strategies have emerged over the last 50 years (especially from the manufacturing sector) including Agile, Lean and Just in Time processes. Companies most certainly employ a combination of these various approaches depending on what they sell, what customer service levels they’ve set, and what sales channels to which they are applying a strategy.

The nature of online sales, whether that is direct to customers or B2B eCommerce, may benefit to some degree from the pull inventory strategy.

(Bear in mind that the terms used in this article are generalized. Supply chain management as an academic discipline encompasses a much more technical and nuanced comprehension of push, pull, agile, etc.)

What is Pull Strategy?

Pull strategy is inventory management that responds to actual customer demand in realtime. It is often contrasted with push strategy, which builds inventory in advance of anticipated customer demand based on forecasts, seasonal demand planning and historic trends.

Pull begins with the customer’s order, which is why it is sometimes referred to as “demand-driven inventory planning”. A company using a pull system maintains inventory based on what is happening right now, which means they don’t keep a lot of that item in stock, if any at all. It will maintain inventory at that level by procuring or manufacturing the item only after it has been sold, or by replenishing a sold item with only one more item.

A pull strategy works for products you can manufacture/replenish quickly, products with an uncertain demand, or products that do not benefit from economies of scale (ie, making a lot of it doesn’t reduce the cost of selling it).

While a pull strategy does not require the comprehensive historic data that a push strategy calls for, it is still essential to track sales of that item on a daily basis across all sales channels.

Does Pull Benefit eCommerce?

The first advantage to pull strategy is the ability to sell without the associated cost of carrying inventory. If you can deliver on promise without that cost, you lower the cost of goods sold and increase your profit margin. The margin increases when taking into account the low cost of eCommerce versus the high overhead of running a retail store.

The benefit of pull to eCommerce goes beyond that, particularly if you’re not selling complicated products (electronics or machinery) or if you are selling and managing inventory (fashion, for instance) that is subject to quickly changing tastes.

eCommerce gives you have the potential to attract a wide, global customer base. A pull strategy can work when you’re selling a highly specialized or individualized product that may not move in volume in a small market, but may attract appreciable interest worldwide.

The pull strategy here requires more lead time to gather components from your suppliers (such as a particular pattern or fabric, for example), so it is important for you to emphasize to customers that their order may take longer to fulfill.

The pull strategy may also come in handy for smaller organizations that have low inventory budgets but that want to provide more options to far reaching customers through their website.

The truth is, however, eCommerce will most likely require a company to adopt a combination of strategies: a push strategy for high volume SKUs that you know have sold well based on forecasting; and a pull strategy for special items that you can’t afford to keep in stock, but that you have reason to believe will appeal to your customers.

Regardless of your strategy, you will need an inventory management solution that can track and report your sales.

Click to find out how Cin7’s reporting capability lets you see your sales in realtime and in historic contexts to help you focus your eCommerce strategies.

3 Reasons You Don’t Really Need ERP

Enterprise Resource Planning solutions used to be the only game in town. When a business grew to a certain point, the various software they used to run things grew too difficult to manage separately.

For example, they’d run separate software each for accounting, payroll, manufacturing, inventory, and customer resource management. It made sense for these businesses to graduate to an ERP to bring these together. But ERPs were born in a time when businesses made huge investments in servers, PCs and networks. Additionally, ERPs were expensive to integrate and maintain. While these solutions have slowly moved to the cloud, do all businesses really need ERP?

Some May Need ERP, But Do You?

At some point, your business may outgrow the technology you used to manage your system from the start. A lot of businesses in your shoes try ERP when they’re accounting software and inventory spreadsheets become too difficult to manage. They often regret it and look for a more cost-effective, integrated, easier to use solution. Why wouldn’t a business need ERP and what can they use when spreadsheets and accounting software aren’t enough?

It’s Too Complex for Your Purposes

The term ERP arose in the early 1990s, with a direct connection to manufacturing processes. Since then, big manufacturers and other large enterprises used ERPs to integrate a broad range of business processes. However, even many of these organizations find ERPs too complex to use. Thus, they return to spreadsheets to make their lives easier. According to the authors of one report, companies refer to ERP as “Excel Run Production”, with 88% of respondents reporting the use of spreadsheet due to “usability” issues. You certainly don’t need ERP and its complexity if, for example, you don’t have to manage complex, multi-step manufacturing. For light manufacturers and product-focused businesses, ERP simply isn’t suited to the task.

It’s Too Rigid and Too Expensive

ERP solutions have a reputation for offering an inflexible solution to business problems. For one thing, ERPs were born in the server-based world, and the majority of companies that need ERP still run it as an on-premise solution. ERP providers offer cloud-based provision to lower a customer’s hardware costs. However, these solutions appear to be designed around specific businesses uses almost etched in stone. Thus, they do not reflect the kind of flexibility modern retailers and light manufacturers need to meet the challenges of an omnichannel world. Furthermore, the cost to implement and integrate an ERP for an SMB can reach up to $500,000 not including recurring maintenance, licensing and upgrades. Simply put, ERPs can be cost prohibitive for product-focused businesses that need flexibility to grow.

It Takes Too Long to Adapt

Big businesses may need ERP to manage much more extensive supply chains than smaller organizations manage. Accordingly, any change or addition to their supply chain requirements requires extensive adaptation. This means time, staff and third-party consultants.

Smaller product-driven organizations need to integrate new sales channels and fulfillment processes quickly and cost-effectively. Additionally, they must maintain complete visibility of their supply chain as they grow. This requires a solution that gives them control, automation, and product visibility as they expand. ERPs simply don’t provide a nimble solution for light manufacturers and small to medium-sized wholesalers and retailers.