The Purchasing Lever of eCommerce Efficiency
The Volo Levers framework is a symmetrical model of 5 levers you can pull to increase your sales growth, balanced by 5 levers that improve your ecommerce efficiencies (there’s also a bonus 11th ‘super lever’ which we’ll touch on at the end of this series). We’ve devoted a post to each of them. The first 4 efficiency levers are inventory & stock control, warehousing & operations, fulfilment & dispatch and customer service. In this post we cover the 5th efficiency lever on ecommerce purchasing best practices for your business across marketplaces like Amazon, eBay and OnBuy, and webstore platforms like Magento and Shopify.
When it comes to managing your costs, is there anything more important than the purchasing price you pay for your products, especially when supply chains are squeezed and buyers become even more focused on bargains? The majority of companies in multichannel ecommerce businesses are buying products from suppliers which they then sell on to their customers. In many cases then, the price you pay for an item – which you need to sell on at a considerable margin in order to make money at the end of the day – is your single most substantial cost. The other costs that turn your gross margin into net margin pale by comparison.
It follows, then, that the most successful companies are those who can command the best prices for good, reliable products that they then distribute to customers quickly and efficiently. It’s easy to see why sellers often jealously guard the names and details of their suppliers.
Purchasing is an industry in its own right. It covers a multitude of areas in the spend business, from sourcing through to procurement, purchase order management, contract management and supplier management. It’s a truly global business. The days are long gone when you had to rely on 3 quotes from your 3 local suppliers. Now you can buy your products from anywhere in the world and factor in the huge variations in shipping costs to deliver the products you need.
Even though price is extremely important, it’s not all of the purchasing picture. Another area is the reliability of your suppliers. Do they deliver when they say they will? Do they deliver what they say they will? Do they give you accurate figures for the stock they have left, and accurate lead times for getting the products to you? What’s the reliability of the products they supply you with? What’s the reliability of the information on the products that they supply? In what format do they send you the data? How much work do you need to do with that data in order to get their products into your warehousing system and get them listed on the various marketplaces?
Much of the purchase power that sellers can exercise over their suppliers comes down to the power of information sellers have on the performance of their business. They need to know which items are selling well. They need to know how quickly those items are selling and what the lead times are for getting more in so that they don’t run out. They also need to know the items that are not selling, where the dead stock is and how long items have languished without moving. They need to understand the percentage of items that are being returned because they’re faulty, not performing as advertised or the wrong item. They also need to be able to analyse and report on this across suppliers and regions.
An additional major headache is the management of the ecommerce purchasing process and the accompanying purchase orders and documentation. Purchasing needs an organised approach. You need to achieve the right balance between having enough stock in and carrying too much stock for all your items, each of which sell at different rates. You need to have your lead times under control, and make sure orders and re-orders don’t get forgotten, leaving you with no stock to sell or exposing you to over-selling situations which threaten your seller ratings and status in your key marketplaces like Amazon, eBay and OnBuy.
Adding an extra dimension of complexity to purchasing are the different business strategies that ecommerce companies can take. Many of our customers use drop-shipping arrangements where the supplier does the order fulfillment and dispatch for the seller. This is a great way to broaden your offerings but sellers still need to agree the various components that make up the purchasing agreement. Some of our customers also do back ordering, where they adopt a ‘just in time’ approach and bring in a percentage of the items to fulfill orders as they come in. Again, this has the advantage of minimising the amount of stock being carried, but places additional demands on the purchasing side of the things.
So, a number of challenges face the ecommerce manager or business owner in the effort to stay close to suppliers and purchasing / sales data in order to make the best possible order and re-order decisions. Here’s some of the expertise we’ve been able to amass from working with customers to improve their ecommerce purchasing.
The art of sourcing is spotting opportunities to sell new or different products and creating, fulfilling and satisfying demand in different markets or regions. In addition to your normal internet research, try using a resource like eBay’s Terapeak for example, or pay-for packages Helium 10 or Jungle Scout for Amazon. These research tools can be used for analysing, understanding and predicting consumer and product behaviour. They can help you identify new categories, or categories where there’s less competition. They can also help you find specific product opportunities. Once you’ve purchased your products, some of them can also help you improve your listings and search rankings.
Systems like Volo can also help you streamline your purchasing across all your channels, using a great deal of automation. Automating your purchasing cuts down the time and effort of doing it manually. You can set thresholds so that you automatically reorder product when stocks go below a certain level, and this automation can also factor how fast you’re selling the items and how long it takes for the new product to arrive, so that you’re not carrying too much stock or else running out of stock for your best selling items. Some systems have rules-based flexibility built in so that you can introduce manual over-rides into your processes and give you that extra degree of confidence and control.
Automating your purchase order system and keeping electronic records helps you improve your supplier communications and general business practice. It’s so much harder to keep on top of everything if you’re placing orders manually by fax or telephone. Furthermore, having a digital record of all your purchasing means that you can both show transparency in your purchasing activities and comply with any relevant policies or regulations around procurement.
Timing is everything, especially when it comes to re-ordering products. It’s key from a cash flow perspective that you can convert the products you buy into cash from your paying customers as soon as possible. An intelligent ecommerce system like Volo can take the statistics from your sales performance to determine how fast your products are selling and how many days’ stock you have left at those selling speeds. It can also factor in the lead times for getting new product in and either automatically re-order for you at the appointed time or else send you regular alerts so you can approve and place the re-order yourself.
Fast-moving stock is great for your business and a testament to your purchasing prowess, but let’s not forget those items you bought in with the best of intentions but which are just not moving fast enough and occupy space in your warehouse and tie up your money. Good reporting can advise you of the poorly performing products and dead stock, as well as products with a poor returns and credit/refunds record, allowing you to address this with your suppliers.
With the right research and the right information on your buying and selling performance, you’re in a powerful position to locate and retain the best and most reliable suppliers of the products that sell quickly and at good margins. You’re well placed to negotiate the best prices, the best supply, and the best payment terms from your suppliers. You also optimise your cash flow and limit your financial exposure by minimising the time between investing in products and seeing a return on your investment in the form of satisfied buyers giving you their money. After all, you have the knowledge and experience, and you should translate those assets into real purchasing power.
Successful ecommerce purchasing businesses have powerful, flexible and accurate supplier information and take advantage of rules-based automatic re-ordering with manual overrides. When you’re great at purchasing, you have great supplier choice, get great prices and you accurately manage your returns and costs. Volo helps companies improve ecommerce purchasing efficiencies through intelligent workflows and the joining up of supplier information, ordering and accounting systems.
Vehicle parts and accessories merchant The Green Spark Plug Company uses Volo for managing its purchasing and increased its revenues ten-fold in the first three years with us. Tom Green, Director, The Green Spark Plug Company: “It’s hard to single out one thing about the platform because it does so much. We can list many thousands of items easily and quickly, which is really important in our business with there being so many variations. I really like the fact that we can centrally control the stock, automate our purchase orders to suppliers, deal with customer service queries in one place, that kind of thing.”
Appliances merchant Cheapest Electrical uses the Volo platform for managing its purchasing and estimates the system saves it 2 members of staff every year. Paul Lever, Director, Cheapest Electrical: ‘We also manage all of our refunds through Volo. If we didn’t, it would be really hard to find the right transaction somewhere and do it manually. From my side, I can see the daily sales and the best sellers and this helps me manage our orders from our suppliers more accurately.”
To open the conversation about ecommerce purchasing best practices and how the other Volo growth and efficiency levers can help you, please contact us here.
