Building Your E-Commerce Empire: What is Supply Chain and Procurement?
If you’re reading this, you’ve probably decided to begin scaling your e-commerce business.
You may have even completed some of the early steps of scaling your business like:
- Finding suppliers
- Expanding your customer service team
- Creating marketing materials and a website
These steps can make a huge difference to your profitability. But how do you change a bedroom operation shipping clothes from a single factory to a global empire with a return policy, store credit, and international shipping?
To reach the highest levels of operational efficiency and earnings, you need to learn the basics of something called supply chain and procurement. These two concepts cover every aspect of logistics — and their successful management are your key to massive profits.
As a fourth-party logistics company, we’ve helped many early-stage startups and enterprise-level clients take control of their supply chain and procurement processes. If you’re ready to begin and or change your logistics, we’ve created this short guide explaining all the basics you should understand before you begin.
Read About CBIP's E-commerce Logistics Services
What is Procurement?
Have you ever heard people say a business is vertically integrated? That means they control every aspect of their manufacturing process. Tesla is one famous example: It not only controls the cars it makes, it also owns the factories making the computer chips placed in the car and the factories manufacturing the components in the chips.
That vertical integration notably helped Tesla weather supply chain issues in 2021. While everyone else’s containers were stuck in factories abroad, the company didn’t need to pay extra or wait long periods for components saving them millions.
To obtain the high control over your product that Tesla enjoys, your business needs to focus on its procurement.
If you’ve already found a factory to produce your goods you’ve already completed the first steps of procurement. But that’s just a scratch on the surface. Further steps could include sourcing the wool used to make your t-shirts and the dyes used in your fabrics - even purchasing the farm where your wool is sourced.
Put simply, procurement is all the efforts you put into discovering and acquiring the supplies you need to function effectively. Procurement includes but isn’t limited to:
- sourcing supplies
- setting quality standards
- creating contract templates
- managing suppliers
- settling supplier invoices
- disposing of damaged goods and faulty packaging
- sourcing manufacturers
Procurement notably is an extremely complex process that requires constant innovation. Maybe you’ve managed to source the material for your t-shirt business but then notice your system for invoicing suppliers is inefficient. You could then focus on innovating that only to find your wool sources refuse to comply with your new invoicing system.
Bottom line: Maintaining an efficient procurement system requires time, money, and resources. If done right, procurement can turn a lightly profitable enterprise into a secure, money-making machine.
What’s a Supply Chain?
If you’ve been anywhere near the news recently, you should be somewhat up to date on what a supply chain is.
Supply chains are the part of logistics you usually hear about — the process of getting all these goods you’ve procured to your customers. That’s usually via container ships, warehouses, and trucking companies.
An even simpler way to think of it is to think of procurement as the inputs and supply chain as the outputs of a commerce business.
Supply chain includes (but isn’t limited to):
- Finding people to transport your goods
- Finding warehouses to store your goods
- Finding retailers to sell your goods
- Payment collection for goods
- Staffing every step of the process
In the early stages of building a business, supply chain tends to get more attention than procurement. This is because supply chain is usually managed by commerce businesses much earlier than procurement though even this has changed with the rise of express couriers.
Now, let’s answer the next question you’re probably thinking of:
What’s More Important? Supply Chain or Procurement?
Unfortunately, there isn’t an easy answer to this question. If you sell a complex product like a specialized computer to a small customer base in the US then your procurement will probably be more important than supply chain. Your demand is already there, you just need to assure product quality.
On the flip side, if you are selling simple t-shirts to multiple countries around the world, your supply chain will be much more important. One t-shirt is rarely much better than another and your main differentiator will probably be price and convenience.
It’s up to you to evaluate. The most successful businesses can manage both aspects simultaneously. That brings us to the final term.
RELATED READING: Cheat Sheet: 14 E-commerce Logistics Terms You Need to Know
Supply Chain Management
Supply Chain Management (or SCM) is the oversight of the entire supply chain and procurement process. This is the method you use to make sure both ends of your business are profitable.
Generally, supply chain management is done today through a mixture of manpower and big data.
At most large businesses (the Walgreens and Walmarts of the world) the SCM department is run by a Chief Supply Chain Officer. Below them is an entire department that can range from one, two, or hundreds of people.
According to this McKinsey article from 2020, these are a couple of common positions in supply chain management departments around the world.
Process owners focus almost entirely on analyzing and improving performance. They also make sure different parts of the procurement and supply chain communicate. A reported 65% of companies have this position.
End-to-end value-stream managers are common in companies with many highly specialized lower-rung positions (called planners). Value-stream managers help these specialized teams and individual planners meet specific targets like inventory days on hand and fulfillment lead times.
Planners are used in almost every logistics business. They are responsible for necessary tasks like ensuring warehouse stock levels or planning and managing specific shipping routes. They are usually considered an entry-level position in SCM.
The key point you need to take away from this is SCM is a process that can easily scale into massive complexity. Giant logistics businesses like Amazon hire entire teams just to manage their logistics planning teams. That’s not to mention the growing number of logistics SaaS businesses appearing to fill in the cracks.
But what if you want to get started on your supply chain management without spending half a million on employee salaries? Today, you may be in luck.
Let CBIP Help You With Your Supply Chain Management
Until recent years, the only businesses that worried about supply chain and procurement were multinationals with millions of dollars and an in-house logistics team.
Now, small e-commerce stores mean logistics is accessible to the average business. However, that means you have to do the same logistical work as large corporations just to compete.
Since you’re looking up what supply chain and procurement mean online, chances are you don’t quite have the resources yet to build your own SCM team. But don’t worry — today you don’t have to.
We created CBIP to provide businesses like yours with a full supply chain management team on a proxy basis. We can help you manage, source, and execute your supply chain and procurement by simplifying it to a handful of choices tailored to your business. We do that through our proprietary six-step process.
- We analyze your supply chain
- We simulate changes to your supply chain
- We check our simulations against your financial commitment
- We eliminate solutions that don’t work
- We create contingency plans for each scenario
- We’ll send at least two different plans over for you to review
Are you interested in turning your business into an end-to-end money-making machine? Get on a free, no-strings call with one of our experts and we’ll tell you exactly what we can do for you.