A growing number of e-commerce entrepreneurs see opportunities for growth outside their home turf. Rightly so: deliver fast and complete, and you can earn a lot of money in Europe. Yet many e-commerce entrepreneurs also encounter disappointments in their foreign adventure, such as longer delivery times, cultural differences and shrinking margins. With some smart choices you can do much better.
International growth does create extra pressure on your inventory management: those who know exactly which products to have on hand at which inventory locations can offer their foreign web shoppers the highest level of service at the lowest cost, while keeping a close eye on working capital. The latter is particularly important now that the global economy is slowing down, forcing many businesses to critically look at their cash-flow. Credit is more expensive and investors have higher demands: previously, they mainly looked at sales growth, today they focus on other KPIs. More than ever, e-commerce entrepreneurs need to right-size their inventory, even internationally, and keep working capital in reserve.
Supply chain optimization
Especially in the supply chain, there is still a lot to be gained in this respect. Until recently, online retailers, leaving aside the very large players, have never been very concerned about supply chain optimization. They didn’t have the time, the people or the software. And quite frankly, there was no need. Their priorities were products, sales channels and – when it came to logistics – the last mile.
Freeing up working capital
In today’s market, things are different. Every penny counts, and moreover, that ‘last mile’ – delivery to the end customer – often turns out to be considerably longer and more expensive abroad than these entrepreneurs are used to in their home country. This presents many webshop owners with high costs. Especially if you like want to consolidate your inventory in one central European fulfilment center, nice and compact and efficient. After all, inventory located in various locations across the continent would put extra pressure on working capital. But this is more nuanced: the benefits are much greater, provided you organize it smartly.
For many e-commerce companies, supply chain costs amount to 25 to 30 percent of total costs; for international players, this is often even higher. 5 to 8 percent of this cost can quickly be shaved off with smart inventory management, a well thought-out European fulfillment footprint, streamlining processes, competitive local transportation contracts and solid forecasting. Additional benefits beyond the cost savings: a smart supply chain increases conversion and thus sales. More and more companies are discovering this win-win proposition.
Especially when operating on the European market, you can make the difference as an online entrepreneur with supply chain optimization. While on your domestic market you can offer excellent delivery promises with one central inventory, for foreign customers you need to keep inventory locally to deliver within 24 hours.
Look at inventory
Successful and responsible cross-border e-commerce therefore requires a close look at your inventory. Which products require 24-hour delivery, and thus require you to hold local stock in each country? How large should such inventory be? How do you make your estimates? Which fulfillment party can facilitate the items that you offer? Who will deliver those products? And for which products is 24-hour delivery not a rigid requirement, and can you (continue to) deliver from a central European inventory? Many webshop owners do not have this specialized knowledge: they continue to ship from one central inventory location, and miss out on international growth opportunities (and margin!).
Little by little, e-commerce entrepreneurs are discovering the “art” of distributed inventory in their cross-border expansion. They are switching to smartly distributed storage of their product portfolio in various locations, striving for an optimal balance between proximity and cost efficiency. Merchants can dramatically improve their logistics service level and sharpen their online proposition.
The (slightly) higher inventory costs are more than compensated by exponentially lower last mile delivery costs. Smart inventory management and solid forecasting help in right-sizing inventory and avoid overstock scenarios. This keeps working capital available for subsequent growth steps. An additional benefit: spreading inventory makes you less vulnerable to incidents such as staff shortages, strikes, system failures or other supply chain disruptions that could jeopardize optimal fulfillment.
Towards a successful cross-border supply chain
As e-commerce matures, a new generation of service providers is emerging that can design, build, run and optimize successful cross-border e-commerce supply chains. Smart orchestrators with supply chain knowledge, state-of-the-art systems and, above all, a European-wide network of local fulfillment parties and carriers. They reduce the fragmented European logistics landscape to one clear interface with a clear pricing structure. They offer 1 customer service, can make continuous improvements based on data analysis and thus improve cash flow. A fresh alternative in a world dominated by large marketplaces (such as FBA) on the one hand and centrally held inventory with high last-mile costs on the other.
This new development enables customization, and keeps the margin in the hands of the entrepreneur who has taken the daunting step to truly spread his wings internationally.
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