Don’t get tangled in your supply chain

• 17th November 2014
• Author Tim Adler
• Management

Businesses should never underestimate the complexity of supply chains when it comes to strategy execution, say experts. 

Supply chain management is becoming increasingly important as every business becomes an e-commerce enterprise. This kind of logistics covers purchasing, packaging, shipping, warehousing and customer delivery.

“Careful supply chain management has been instrumental in conception and growth of our business,” says Julien Callende, co-founder and chief operating officer of furniture supplier Made.com. “The bigger you grow the more complex the supply chain becomes. And the bigger you become, the bigger the impact on customers the smallest mistake becomes.”

Made.com launched in 2010, supplying furniture direct from independent designers to the customer. Gathering orders prior to production with a factory minimum of 50 units was key to its strategy. Its plan was to disrupt the giant furniture retailing businesses such as Ikea and Habitat. Revenue has grown by an average 120 per cent year-on-year since then.

Because three quarters of Made.com’s furniture is imported into Britain, getting the supply chain right and building in expansion plans was crucial.

Callede says: “If I have one piece of advice, it’s never to make shortcuts when it comes to supply chain or information technology. Always think where your company might be in two to five years’ time when your business has grown to 10 times its size.”

The suppliers you work with now may not be the same suppliers you work with in the future, he says. To avoid having to change suppliers mid-flow, Callede says that it is key to “partner with your partners”.

“There’s no such thing as a perfect partner – you need to help them do the job so they can provide what you need.”

Ocado is another e-commerce business where supply chain is everything. Founded in 2000, it is the world’s largest online supermarket, sourcing mainly through its rolling deal with Waitrose and Carrefour and delivering 180,000 orders per week. “In the e-commerce world pressure on supply chain is much greater,” says Ocado director of operations Mark Richardson. “Supply chain management is embedded into Ocado because that’s what the company is about. And supply chain sets strategy to an enormous degree because it’s where our costs are.”

Increasing the speed of and shortening supply chains is ever more important as the pressure to keep inventory down and reduce waste intensifies. Richardson says: “A couple of decades ago supply chain management was all about taking costs out of the system. Today it’s about speed of delivery and the level of customer service. You want it fast and you want it accurate.”

Ocado’s supply chain is different to most e-commerce sites because it does not supply shops, shortening the chain between customer and supplier. The logistics operation moves orders into Ocado’s two distribution centres – based in Hatfield, Hertfordshire and Tamworth, Staffordshire – and from there to the customer’s home.

Richardson says: “Everybody is trying to shorten the supply chain. Speeding up the chain is the problem everybody faces.

“Companies want to reduce the amount of stock they hold so they have to rely less on their forecast in favour of orders already taken. Everybody wants to have replenishment inventory more readily available.”

Ocado makes an effort to get its supply chain as accurate as possible so there is little wastage, says Richardson. The online supermarket claims that it has a wastage rate of just 0.8 per cent – a lot less than other retailers.