Guest Post: How to Reduce Your eCommerce Supply Costs

This week’s guest post is from Nathan Sharpe:

E-commerce is the business of buying or manufacturing products and then reselling them for a profit. Business owners painstakingly search for the best suppliers or manufacturers to do business with. Without realising it, most e-commerce businesses maintain an inflated budget to cover operational costs.

Look at different areas of the business and work to get them all streamlined. Optimise business processes to save money which will allow the company to run on a lean budget. Cutting costs would radically boost company profits, this fact is in all the best business books. There are several methods to save an e-commerce business money.

You just need to analyse existing processes and adjust them accordingly. Decrease supply costs to make sourcing products even more efficient. It is one of the most effective ways to increase annual profits. Along with supply management, proper inventory management processes also need to be streamlined as well.

Quality Control

Customers will sometimes receive defective products. They will contact the seller to complain about the low-quality product and return it for a full refund. The worse case scenario is after the refund the customer writes a bad review about how they received a defective item. Not only will there be a loss of revenue but the negative review may also damage future sales conversions.

The best solution to prevent customers from receiving defective products is to establish quality assurance guidelines. Start at the manufacturing stage of the product. Talk to the manufacturer and make an in-depth quality checklist that each unit must pass. Order samples to ensure that the set quality standards are met before making a bulk order.

It would be ideal for the business owner to visit the factory where the products are made. In case that is not an option, hire a certified product inspector to perform a thorough quality inspection for you. It is vital that all products, every unit is checked to ensure that quality is up to standard. This process would help prevent loss of revenue from returned products.

Lower Total Inventory Cost

Some sellers make the mistake of ordering too much quantity. They get overly excited about the vision they have for their product and order way too many units. Being too headstrong about selling and not doing the proper market research is a bad idea.

You run the risk of getting stuck with too much product that doesn’t sell. The funds used to acquire the excess products would have been better used for more productive endeavours. Instead of overstocking product, set aside a sufficient budget for PPC campaigns in Amazon or Google. That marketing method would increase sales conversions and help move products faster.

The TIC(Total Inventory Cost) also consists of the other charges. It can be broken down into three separate segments. Ordering costs, shortage costs and carrying costs. These three segments represent different processes in the supply chain.

Ordering costs include the price of the product, insurance, transport, currency exchange differences, taxes and other fees as well. Ordering costs otherwise known as landed costs also include any extra services such as paying for a certified product inspector.

Carrying costs are all the charges incurred when storing products. Warehouse or storage fees, insurance and any fee related to holding or storing products. Ideally, carrying costs should only make up about 20-30% of your total inventory costs.

Maximise space by arranging products systematically at every storage location. In case it is costing the business more than the recommended 30% of the TIC then it may be time to re-evaluate how to store the products more efficiently. Take a look at other storage options, and it may be time to tweak existing fulfilment processes as well.

Inventory health

Shortage costs are a result of not keeping good inventory health. Sellers that run out of stock would be forced to put in a rush order of products. A rush bulk order would cost extra. Shipping that rush order will also cost more if you use airmail instead of a freighter.

If you are selling on Amazon, good inventory health achieved by using the Amazon inventory management tools. These tools, such as the Amazon sales coach or inventory management tab, provide sales related data.

There, you can set inventory minimums which can then be used as an alert to order the next batch of products. Other e-commerce platforms do also provide inventory management tools. Master these tools and read all the sales reports and sales projections for each listed product. These reports provide an accurate estimate of how many units should be ordered for each product to fulfil customer demand for a specific time period.

Data from previous seasonal events can be used to forecast customer demand for the current year. In case that data is not available, check the sales of competitors to gauge the demand and purchase enough stock to cover possible orders.  

Expand sales Channels

This method will not only reduce supply costs but also increase business revenue. Instead of making a lateral change and adding another online retail store think about selling products wholesale. The profit margin per unit will not be as good as selling each unit individually in an online marketplace.

Believe it or not but the profit margin will be more significant due to the fact sales will be in bulk instead of per piece. The shift from retail to wholesale will take some getting used to.

A business that has mastered the art of selling online will just need to tweak operations to process, accommodate and sell bulk products. Growing a business to a much larger scale will need direct supervision until it is streamlined.

Getting into wholesaling will allow multi-channel sellers more flexibility. Establish new business relationships that can support ventures into wholesaling. Network with businesses that need your products, it would be best to have the products directly shipped to your B2B customers.

Coordinate with manufacturers about setting new terms for bulk orders. That will also provide the business with a better profit margin as well.

Fulfilment Logistics

The crucial final phase in the supply chain process. Hiring someone to just process orders can become expensive depending on the number of people employed to do just that. Some sellers choose to do process each order themselves.

That can work if sales are sporadic, but once sales start to pick up, processing orders will eat up valuable time. Consider using 3PL(Third Party Logistics), provider. The 3PL option can prove to be more cost-effective since they will be the ones to store the product and process each order.

Once an order comes in their staff will pick the product, package and ship it to the customer usually on the date of the order. For sellers familiar with Amazon FBA, 3PL are the external version of that service. It is vital to set up the most cost-effective fulfilment option to process orders quickly, efficiently and get them to the customer.  


Enhance business processes to become more efficient. Decrease supply chain costs by accomplishing the methods listed above and increase company profits. Have the vision to start selling wholesale, carefully select B2B customers and process their bulk orders while effectively selling across multiple channels as well.

Nathan Sharpe is the entrepreneur behind the business blog Biznas. He knows that you must wear many different hats for your business to be a success. He helps others achieve this success by sharing everything he knows on his blog, as well as any new lessons he learns along the way!

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