The supply chain crisis is a topic that’s been impossible to avoid for eCommerce sellers. It’s been front and centre in the media, both in the UK and across Europe, as supply bottlenecks affect consumers’ access to the goods they want, when they want them. Known as the ‘just in time’ supply chain, the various factors hampering it have been declared by US President Joe Biden as a global issue.
Indeed, eCommerce businesses across Europe are feeling the pinch in numerous ways. In the past year, we’ve seen the unfolding of many supply chain issues, from the unavailability of certain items to increased shipping costs and delayed shipping times. Spurred by challenges brought on from the COVID-19 pandemic, retailers around the world have had to contend with more hiccups, delays, and stock issues than ever before. Behind these problems are multiple global and economic factors driving the current bottleneck in the supply chain.
The ways in which eCommerce sellers – many of whom rely on dropshipping as a critical component of their operations – navigate these issues and manage customer expectations will affect the success of their brand. These are challenging times for eCommerce, yet the business decisions that eCommerce brands undertake to alleviate the detrimental effects of these issues will determine which brands exit the supply chain crisis relatively unscathed and which will not be so successful in weathering the storm.
According to the global consulting group McKinsey, companies that pivot quickly in response to uncertain events and adapt their operating models to work within the constraints of those events are more likely to see success with consumers throughout the crisis.
Let’s look at the challenges at play, the impact on eCommerce brands broadly, and the lessons that can be applied to shore up success in uncertain times.
Understanding The Just-In-Time Supply Chain
Much of Europe relies upon what is known as the ‘just in time’ (JIT) supply chain. This is a supply chain management strategy based upon demand, which synchronises consumer demand with the need for materials to produce items as they are required in the manufacturing process. JIT is designed to reduce the need to store excess materials in a warehouse and relies on an intricate synchronisation between operations to function correctly.
The JIT supply chain aims to reduce timing delays and costs by perfecting the timing of ordering materials. The objective is for businesses to have precisely the right amount of materials needed at that moment to meet customer demand. JIT aims to be a lean, efficient operation that optimises materials while delivering on what customers want in a given time frame.
For JIT to work, businesses that produce items must not only have a keen grasp of consumer demand, but they must also have strong, reliable relationships with their suppliers to be able to source materials for production without lengthy lead times.
Introduced in the 1980s, the JIT model has been the backbone of European commerce and has worked successfully to date. However, this model is not impervious to crisis, as evidenced by what Europe and the UK are experiencing today.
Defining The Problem: A Multi-Pronged Look at Supply Chain Issues
JIT has worked very well to provide consumers in Europe and around the world with what they want when they want it. But because it relies on an intricate network of raw materials, factories, rail, roads, networks, shipping, delivery (and more) to function, it can be thrown askew when problems arise. The results of essentially a spanner thrown into the works are what we are currently experiencing not just in Europe but around the world.
In the past year, we’ve seen the disruption of supply chains in manufacturing and across retail channels, leading to an increase in prices and a decrease in the number of products available. The reasons for this supply chain problem have been multi-pronged. Undeniably, the COVID-19 pandemic has been the impetus for many of the issues. For example, when factories that manufacture goods in Asia have had to shut down due to COVID lockdowns, this has presented a massive challenge to the global supply chain.
Yet, it’s not just factory issues that are the problem. Economic issues, including energy shortages in countries with manufacturing economies, production shortages, poor harvest results in regions that produce raw materials, combined with labour shortages and strangleholds at key shipping ports, have all contributed to the problems facing eCommerce sellers today.
The supply chain is like a symphony, with each part of it playing an essential role in a complex, global business ecosystem. Just one unfortunate event taking place around the world can have immense repercussions downstream, and this is what we are seeing play out across the eCommerce supply chain right now.
Energy Crises Around The World
Energy crises have occurred in various parts of the world, significantly impacting the supply chain. For example, this year, China has faced an energy crisis. Over 20 of its provinces experienced power cuts due to reduced energy outputs affected by the increasing price of coal worldwide. As a result of the power cuts, productivity has slowed in factories in the provinces experiencing these energy difficulties. The consequence is that even as the demand for Chinese-produced goods remains constant, the supply output is jeopardised by the lack of available energy to power the production factories.
In Germany, these energy shortages have directly impacted auto manufacturing, its largest sector. The German auto industry has directly felt the effect of the supply chain crisis due to a shortage of Chinese magnesium, which is used in the production of aluminium alloys for car parts. This shortage has been driven by factory closures due to the above-mentioned energy shortages. As winter progresses, this problem is expected to worsen due to freezing temperatures and not enough energy supply to meet the running of the companies producing up to 95% of Europe’s magnesium.
The Impact Of Lockdown On Labour Productivity
Likewise, disruptions stemming from the COVID-19 pandemic, which led to workplace shutdowns in Japan and Korea, affected the supply of key components found in most electronics. Lockdowns have shuttered factory doors, creating a productivity loss that cannot be carried out in alternative ways.
Simply stated, when chip manufacturing companies were shut due to the pandemic, this led to a global shortage of computer chips, the necessary components in laptops, webcams, and other remote-working electronics that rely on 5G technology to function.
Natural Disasters: Impacting The Supply Chain All The Way Down To Your Morning Cup Of Coffee
On top of this, other unexpected events in the natural world, such as a drought in Brazil, have led to a poor coffee bean harvest. As one of the world’s largest producers of coffee beans, the disappointing harvest in Brazil this year has impacted the supply of coffee around the world.
This is further compounded by the fact that most of Brazil’s electricity comes from hydroelectric power reservoirs, meaning that electrical output is also affected in times of drought. The result of these conditions, in turn, impact consumer pricing at all cafes and restaurants selling coffee around the world. Coffee bean scarcity means higher prices, which impacts the margins of retail sellers and hits consumers’ wallets as they look to purchase their morning cup of coffee.
Truck Drivers Wanted
In addition to the issues of material supplies, one of the most important factors powering the supply chain is the human labour moving its intricate bits and pieces from one place to the next: the trucking industry. Unfortunately, first the UK and now continental Europe are both facing a shortage of lorry drivers.
In the UK, the reasons behind this shortage were due in part to Brexit, which caused many drivers to leave the country, returning to their homelands. The UK government responded by offering more than 5,000 temporary work visas to drivers from abroad. Europe is now experiencing similar shortages, driven by COVID lockdowns. When businesses locked down, drivers were put out of work, and companies scrambled to fill jobs when the economy reopened following the worst effects of the pandemic.
Reports show that the trucking labour problem existed both in the UK and EU even before the pandemic, with around 24% of trucking positions unfilled in the UK already in 2019, with 22% unfilled in Poland and 20% in Spain.
It is evident that the supply chain is fragile and highly interconnected; an impact in one corner of the world shifts downstream to consumers in countries halfway across the globe. Modern commerce today depends on globally sourced items, hence a robust, quickly moving supply chain is of the essence. As we see, when unprecedented issues occur, it can have very tangible effects on retailers everywhere.
The Shipping Crisis As An Exacerbating Factor
Compounding the factors mentioned above is a global shipping crisis that is additionally stressing the supply chain, making it difficult for sellers to physically obtain the goods they need – even if they are produced and available.
Stemming from the pandemic, there has been a worldwide shipping container shortage, coupled with COVID-19-related shutdowns in major European port cities such as Hamburg, which have disrupted supply chains across the EU retail sector. COVID-19 border restrictions and social distancing requirements at major ports like Felixstowe have led to increased freight rates on main shipping routes throughout Europe. Wholly unexpected freak accidents such as the blockage at the Suez Canal have also significantly impacted the ability to obtain goods in a timely fashion.
As a consequence of these issues, the shipping cost has risen dramatically in the past year, with the UK topping Europe as the most expensive shipping destination. Analysts from Deutsche Bank have also predicted that average container prices could rise by 30% by 2022. Undoubtedly, this impacts retailers’ profit margins and causes retailers to pass the cost increases on to their customers. This is a tricky scenario, given that many consumers are frustrated with lengthier shipping times and delivery delays.
A Perfect Storm: The Impact On European eCommerce Sellers
Every eCommerce brand understands that reputation is everything. Industry-leading behemoths like Amazon recognise this and have made it their bread and butter to deliver products with uncompromising speed, customer service and promise. While industry giants like Amazon can weather the current supply chain crisis, smaller online brands must be more cautious about how to respond to the challenges ahead.
Logistically speaking, the result of global supply chain problems is that European eCommerce sellers must now contend with a lack of available items, an inability to source specific materials or desired items, delayed shipments, and atmospheric shipping costs passed on to the consumer.
From a customer perspective, eCommerce sellers who previously delivered on consumers’ need for instant gratification in the form of a wide array of product choices, delivered at lightning speeds, now must contend with managing customer expectations given these exacerbating factors.
As McKinsey advises, for eCommerce brands (and all businesses, more broadly) to succeed despite uncertain and rapidly changing global conditions, they must be ready and able to pivot. The ability to think one step ahead and prepare for possible scenarios are the best ways to mitigate against potential risk and shore up success.
How European eCommerce Businesses Can Mitigate The Impact Of The Global Supply Chain Crisis
Navigating the current supply chain crisis takes forethought, business savvy and a keen ability to manage customer expectations while keeping customers satisfied to maintain loyalty throughout trying times.
Staying Ahead Of Seasonal Curves
Planning is everything. Ahead of key shopping seasons such as the Christmas holidays, Valentine’s Day, and Mother’s Day (to name just a few), eCommerce sellers should take longer lead times to order stock, with the understanding that shipping delays may be imminent. Adding double (or even triple) the lead time to your typical ordering cycle can be helpful in times when shipping is slowed down.
Identifying New Suppliers
With events around the world impacting typical production and manufacturing markets, this can be an excellent time to try out new supplies from different geographical regions. Paying close attention to wholesale costs and margins is imperative; however, knowing that your business can access the products your customers demand is a winning strategy.
Protecting Profit Margins
Without a doubt, in times of volatility, prices are bound to fluctuate. As an eCommerce brand, it’s essential to try to key your price to consumers as stable as possible without jeopardising your profit margins. You can protect your profit margins by employing a pricing strategy based on cost so that you don’t go into the red on sales – particularly important if your brand is a marketplace seller.
Manage Customer Expectations
As mentioned throughout this post, expectation management is everything when it comes to customer satisfaction and protecting your brand reputation. When there are shipping delays, it’s best to be honest with your customers about delivery times and keep lines of communication open. After all, customer service is about building relationships and staying transparent plays a key role in relationship building.
Maintain Customer Service Standards
Satisfied customers are more likely to make repeat purchases and tell others about their positive experiences with your business. Therefore, it’s important to continue to work towards a high standard of customer satisfaction, even when, behind the scenes, conditions are not ideal. In addition to being transparent and managing expectations, offering vouchers on future purchases due to the inconvenience of delayed shipping times, for example, can help customers remain satisfied and ensure that they continue to shop with your brand in the future.
Implement The Right eCommerce Tools
Purpose-built tools that can work with real-time data, like eDesk, can help eCommerce brands stay on top of all customer orders, ensuring that nothing slips through the cracks and that fulfilment stays at the top of its game.
Weathering The Storm: The Long Game
Experts predict that the supply chain backlog will take upwards of a year to clear. There are many factors at play, including battling the pandemic by ensuring that manufacturing employees have access to vaccines to keep safe and remain productive in the workplace. Sorting out such labour issues, onboarding new manufacturers and increasing shipping capacity by opening ports around the clock are also key initiatives to help clear the backlog. There is a need to get the supply chain back on track to the normal delivery times that European consumers are accustomed to.
While this delicate balancing act will take a bit of time, it means that eCommerce brands must be patient and flexible in their approach. By following the best practices laid out above, they will be able to navigate a difficult situation in the short term while shoring up customer goodwill in the long term. Remember, it’s a marathon, not a sprint, and with some ingenuity, eCommerce brands can weather this storm for sunnier days ahead.
To help your brand weather this supply chain storm, our experts are here to advise you. Take a proactive approach and get in touch with our team today.