How A Strong Supply Chain Produces A Healthy ROI On Your Business Acquisition
February 12, 2023
The linchpin of any ecommerce business is its supply chain. It dictates how much the business earns and spends, how the business model is designed, its operational capacity, its defensibility against the market and competitors, and its growth potential.
There are many moving parts in supply chains. It’s no easy feat to build a formidable logistics system that enables a business to consistently deliver high-quality products while maintaining profitability levels that allow it to thrive.
Needless to say, ecommerce businesses with strong supply chains are pretty rare gems, so it’s worth knowing how to identify them.
It’s also worth understanding how they can generate a healthy ROI on your acquisition so you’re able to take advantage of this type of asset.
This article aims to give you the knowledge you need to find a quality ecommerce business and be successful with it.
We’ll start with the heart of the supply chain: suppliers.
Reliable Suppliers Make Business Performance Predictable
Suppliers are the linchpins of all ecommerce businesses. Every part of an ecommerce business should be built around its supply chain because the business’ number one goal is to source and deliver products.
How your supplier operates feeds into the rest of the business:
- The production cycle determines how you plan your inventory ordering
- Materials and production methods determine how your product works and looks
- Communication proficiency determines how well you’re able to manage orders and inventory
- Production capacity determines how much stock you can order
- Operational standards impact your product quality and if they’re produced in accordance with industry standards
- Location determines where you send and store inventory
- Costs impact your profit margins
It takes time to organize these elements with the supplier and understand how they influence the business.
When working with a reliable supplier who’s communicative and consistent, it’s easy to build the rest of the business around this strong core. You can plan your inventory ordering with confidence knowing when your supplier is going to be able to turn the products around. You can feel comfortable knowing that the products you’re sending to customers are high quality, so you don’t need to worry about returns or complaints.
Also, when you’re ready to scale or you’re going through high-demand months, you know how much your supplier is able to cope with and can plan your ordering accordingly.
All of these benefits contribute greatly to making your business performance predictable.
With a few years worth of consistent sales data, you’ll be able to predict how much your business will make in sales over future months. You can also have a good idea of how much you’ll be able to scale your pay-per-click (PPC) campaigns.
With data on costs, including product returns and product damages in manufacturing, you can predict your business’ profitability.
When a business has a reliable supplier producing products in a predictable manner, it allows the owner to build a formidable logistics system.
Efficient Logistics Allows For Effective Planning and Delivery
The lifeblood of an ecommerce business is its supply chain. Any ecommerce store offering stellar customer service by delivering high-quality products on time has the potential to outperform its competitors. Conversely, a store offering poor service will be limited in its capacity to grow.
There are a few key elements of a supply chain that when working effectively allow the business to offer great service.
Storage
When inventory storage is well organized, the business avoids the consequences of poor inventory management, including the perishments of goods and storage overpayments.
Many ecommerce businesses work with third-party logistics companies (3PLs) who handle most of the logistics. A good 3PL is communicative, reliable, and has strong inventory management contacts to facilitate an efficient supply chain.
3PLs are especially helpful for business owners who are weak in inventory management.
Effective inventory storage enables you to generate an ROI on your ecommerce business acquisition as it enables the business to consistently remain in stock and sell products, and it limits expenses.
Quality Checking
Most 3PLs offer product quality checking to ensure your products produced by the suppliers meet quality standards.
Quality checking is a worthwhile operation to have in your business’ logistics as it prevents costly product returns and negative reviews. Once your supplier has built up a track record of consistently meeting standards, you can consider removing that step in operations to save on costs.
Order Tracking
Supply chain technology is becoming increasingly important for effective inventory management.
Having real-time data allows you to track inventory as it goes through your supply chain. With this data, you can plan your inventory ordering throughout the year when there are sales and holidays, keeping your products in stock and maintaining sales.
You can also adapt quickly to any issues that arise and execute contingency plans to mitigate the effects of supply chain problems.
What’s more, you can offer a great service to customers with live updates on product orders.
Having clear visibility over your supply chain allows you to identify bottlenecks and areas where efficiencies can be improved.
Contingencies
There are always going to be expected or unexpected events that disrupt your supply chain. That’s why your supply chain needs contingencies built in to account for these disruptions.
For example, during the Chinese New Year period, the Chinese factories close down for two weeks.
A strong supply chain has alternative suppliers if needed to continue to produce products and keep the business in stock. Or, if the business has been managing its inventory ordering well, it can account for the closure of the factories and maintain sales with the products it already has stored in warehouses.
If there are periods where the business needs to increase production due to a sudden boost in demand, effective inventory planning and a reliable supply chain to handle the extra load allow the business to take advantage of the high months and win more sales.
A business with a strong logistics system is easy to plan for. Inventory management is simple and predictable, meaning the owner can focus on planning and implementing structures to scale the business and up production.
A Strong Supply Chain Produces High Profits
Because the supply chain is the core of an ecommerce business, it’s where the majority of its profitability stems from—the products generate the revenue and the majority of expenses are paid into the supply chain.
The more you can save on expenses and increase income, the more your business will earn.
Expenses Saved With A Strong Supply Chain
One of the main goals of a supply chain is to consistently deliver products with as few losses as possible.
Packages can get lost and damaged in the inventory fulfillment process. If you work with proficient suppliers, 3PLs, or warehouses that have good systems for handling inventory, then the amount of products that don’t make it to the customer is kept to a minimum.
Also, products with a shelf life can perish if stored for too long. Organizing inventory ordering effectively allows products to flow through the chain before they lose their shelf life. It also saves on unnecessary storage costs coming as a result of over-ordering.
Effective inventory planning also helps prevent delivery delays, the results of which can be costly.
Dissatisfied customers can leave negative reviews, impacting your brand’s reputation. If you’re selling independently on an ecommerce platform like Amazon, which has strict rules over operational effectiveness, then your business could be hit with a penalty for poor service.
Having low expenses and losses in your supply chain allows your business to earn considerable revenue.
Revenue Gained With A Strong Supply Chain
Keeping in stock is one of the biggest challenges ecommerce businesses face because there are so many moving parts in supply chains.
This is why if you’re able to keep in stock, you have a big advantage over your competitors who may be struggling to manage inventory effectively. You’re able to keep your store open 24/7 with products available for purchase. Whereas if you stock out, you have to stop taking orders.
If you’re consistently delivering high-quality products with few returns and complaints, then you’ll build a large audience of satisfied customers that will support your business. You’ll also be able to resell to this audience to increase your customer lifetime value.
Because your customers like and trust your brand since you consistently satisfy them, they will be open to buying more of your products, allowing you to increase average order value.
The quicker you can deliver products, the more customers you welcome into your brand, and the more of a competitive advantage you have, which enables you to take more market share.
Overall, having a strong supply chain as the foundation of your ecommerce business enables you to take advantage of all of the revenue-earning opportunities. What’s more, not needing to worry about satisfying customers and micro-managing your supply chain allows you to focus on growth.
Hands-Off Operations Allows You to Scale
With all of the teams and tools in place running on efficient operations systems frees you up to spend your valuable time scaling the business.
You can dedicate time and resources to marketing and building a brand, including launching creative marketing campaigns and brand collaborations. This is considerably harder to do for a business that offers low-quality products and can’t deliver on its promises.
You’ll also have a considerable amount of capital to invest in growth since your business is generating high profits.
Your free time can also be spent on market and competitor research to take advantage of new trends and opportunities arising. These opportunities may include expanding into new markets, selling on new platforms, obtaining trademarks and patents, further developing your current products, and going global.
All of these opportunities are available to you with a strong supply chain supporting your business.
You might now be wondering where you can buy ecommerce businesses with strong supply chains.
Where to Find High-Quality Ecommerce Businesses For Sale
At Empire Flippers, we have the world’s largest curated online business marketplace.
Unlike other marketplaces, we thoroughly vet every business that’s submitted to us before listing it for sale. Our vetting process is so thorough, we reject 91% of businesses from our marketplace.
The reason we do this is to maintain a high-standard marketplace where buyers can trust the quality of the businesses for sale.
Since all of the ecommerce businesses on our marketplace have passed our vetting process, you don’t need to worry about whether they’re legitimate or whether their financials and other details are accurate.
This allows you to focus on assessing whether the business is the right one for you within your skills, experience, and budget. To find your ideal business in minutes, create a free account and browse our marketplace with over 40 search filters.
