How is E-Commerce Affecting the Global Supply Chain?

In today's digitized world, everything is shifting to incorporate technology, especially the retail industry. Customer preferences are changing, and companies have to quickly adjust their strategies and style in order to stay competitive. For example, online retail has been in the spotlight for the last decade. It is convenient for both the customer and the retailer; however, how does it affect the manufacturer's and retailer's supply chains?

A global supply chain is the network and processes involved when companies are sourcing globally. It includes buying the materials, transportation, and managing those foreign inventories domestically. These chains can become extremely complicated, especially as consumer demands increase. People want their items as soon as possible and in the most convenient way. As omnichannel fulfillment practices become popular in order to catch up with demand, companies are redesigning their supply chains and warehouse capabilities. These range from using physical stores as warehouses to fulfill online orders to parcel return when goods are ordered online. These capabilities give customers an easier, better experience overall.

One prominent example shows that unprepared expansions and online competition can really make a company suffer. A U.S.-based fast-fashion chain, Forever 21, recently filed for bankruptcy. The main reasons behind this financial difficulty were poor inventory management and unsuccessful international expansion. In 2015, it had over 250 stores outside of the U.S.; however, due to mispredicted customer taste and rapid expansions, the company failed to make optimal profits. In addition, online orders have caused miscalculations in inventory quantities, leading to overstocking and understocking of items. Gradually, its financial standing declined.

But are companies actually benefiting financially from these renovations? Statistics show that big online retailers are underperforming. For example, Zalando, the biggest European online retailer, is forecasted to have an operating margin that has halved when compared to its performance 3 years ago. Analysts suggested that due to the large inventory used to fulfill online orders, companies are enduring a lot more warehousing and logistics costs.

Instead of blindly chasing after revenue from online sales, companies should first analyze their current capabilities. Not all industries or products are suited for e-commerce, and there is always an optimal balance between brick-and-mortar and online retail. The emergence of e-commerce is destined to shift the global supply chain; however, its impact depends on the individual company's strategies.