It’s been more than two years since the first substantial wave of impacts hit the economy, and we’re still feeling the aftershocks. Supply chains continue to buckle under the pressure of increased demand and months of disruption across the globe, and fulfillment has become an urgent, ongoing concern for most companies.
A recent Accenture survey shows that 94% of Fortune 1000 companies saw supply chain disruptions in the last two years, and 55% of those companies have downgraded or plan to downgrade their growth outlook as a result. If the big guys can’t weather the storm, how are small businesses and retailers managing persistent challenges that don’t look to go away anytime soon?
The Heart of the E-commerce Supply Chain Issue
The supply chain is a complex, multifaceted system that was always designed to work just in time and to scale appropriately to demand. It was not designed to absorb a sudden, unpredictable surge in demand, reduction in capacity, and global turmoil. As a result, we’ve seen several issues develop that are impacting all facets of the supply chain.
At one point in summer 2021, the average cost of a shipping container increased by four times from where it was the year before. Prices have peaked as high as $20,000 or more (from average prices well below $5,000), and today still average more than $10,000. This means that shipping costs are higher in general, and the reduced capacity that this represents means delays in shipping many goods.
In addition to the higher costs, ocean freight is taking upwards of 5-6 weeks longer than it did in early 2020. This leads to shortages of popular goods, reduced capacity in retail stores and e-commerce shops, and general frustration from consumers.
Of course, this isn’t it. Inflation has become a dominant concern in 2022 with the International Monetary Fund predicting 5.7% global inflation, following an increase in consumer prices of 8.5% in the United States in March 2022. Prices continue to go up, which means many suppliers are passing those costs on to e-commerce retailers, who must now contend not only with delays in receiving goods but the need to increase prices.
Having the Supply Chain Conversation with Customers
With costs up, shipments delayed, and relief seemingly still months away, how should e-commerce retailers communicate these issues to customers without fracturing an already delicate relationship?
To start, do everything you can to maintain trust and transparency with your customers. Even outside of these particularly trying times, there is an increased expectation from consumers about the relationships they have with retailers. That means listening and responding to customer feedback, utilizing the channels that customers are most likely to use, and measuring customer response to fully understand what is most concerning. There are several elements of the e-commerce supply chain and inflation crisis that are outside of your control, but that doesn’t mean customer concerns should be ignored. Let’s take a closer look at how to communicate these issues in a way that is open and considerate:
- Communicate Availability and Delays Clearly – Ensure your systems are capable of showing inventory data, communicating limitations on stock, and showing any adjustments they should expect to ship times.
- Map Out Substitution Strategies – Some products may go out of stock and stay that way for weeks or months at a time. Don’t lose sales because you don’t have a clear plan in place for how to accommodate customers interested in products that are not currently available. Map out clear alternatives, communicate them to shoppers and employees, and send emails to anyone who is actively viewing out-of-stock product pages.
- Increase Communication Frequency – Especially if there’s a risk of delays due to stock shortages, shipping delays, or other supply chain-related issues, send frequent emails and updates about orders, especially preorders that might be influenced. Preempt questions about order status by overcommunicating.
Few e-commerce retailers are immune to the impact of supply chain delays and shortages in 2022. Communicate specifically how these issues influence your company and customers will appreciate the added transparency.
What About Price Increases?
The second half of the one-two punch retailers are feeling right now is inflation and the near-universal increase in prices. If your suppliers are increasing prices, you’ll almost certainly need to do the same at some point, so how do you communicate these changes sincerely to maintain valuable customer relationships?
- Plan Ahead – Communicate price changes as far in advance as possible to avoid sticker shock and backlash. Acknowledge that it’s not something you want to do, but that it’s a necessity in the current context, and provide clear, transparent reasoning behind any increases. While prices are increasing across almost all industries, this isn’t enough for most consumers, who are dealing with rising costs in all aspects of their life. Explain the need to maintain the integrity and quality of your brand and how an inevitable price change is part of that commitment.
- Follow Up Frequently – Send additional messages as the price increase approaches so that all customers are given the chance to see the message and act accordingly (including ordering ahead of the scheduled change if they desire).
- Keep Your Customers in Mind – Consumers are savvier than ever and will sense ulterior motives for a price increase if you are not transparent and considerate in how you approach the change. Did you just launch a new website, hire a bunch of employees, or launch a new headquarters? Price increases may send the wrong message as you experience visible growth and profit.
Taking a Proactive Approach to Minimize the Impact of Supply Chain Issues
Supply chain issues are expected to persist through 2022 and much of 2023 due to the ongoing inflation, the continued impact of COVID 19, and geopolitical upheaval such as the war in Ukraine. So how do you set your e-commerce business up for success as consumers start to tighten their wallets and place greater scrutiny on the companies with which they do business?
Implement Systems Designed for Delays
One of the most frustrating aspects of the supply chain crunch of the last two years has been how hard it became to get certain goods, many of which would be purchased and resold at high markups by third-party sellers. Implement reservation and preorder systems that reward loyal customers, reduce the risk of bots and resellers hoarding stock, and get goods into consumers’ hands. Revise systems to create a steady, reliable pipeline of products to your customers.
Be Proactive with Vendors
Supplies are limited across all industries, so it is the proactive, supply-savvy retailers who are finding the most success. Work with vendors to purchase materials and goods in a timely way. The just-in-time days of ordering a day or two before stock is needed are gone for now, and while it is risky to over-purchase, it’s becoming equally risky for many to wait as their websites fill up with out-of-stock notifications.
Building a Sustainable Business
E-commerce supply chain issues are having a direct impact on the bottom line of most American companies and will continue to do so for the next year or longer. To address these issues, it’s important to revisit how you communicate with customers, buy and sell products, and manage expectations in an age of frequent, unprecedented upheaval. Those that take these extra steps will be in a much better position to succeed in continuing volatile market conditions in the months and years ahead.