Ecommerce Store using more than one Supplier = Lost Profits!

Suppliers, distributors and manufacturersObjective:

To provide the existing e-commerce store owner or someone considering getting into e-commerce the considerations of having more than one supplier (also known as distributor/strategic alliance/partner or even your “warehouse”). It will touch on the various layers of middlemen in a supplier/retailer relationship and outline questions to contemplate. To maximize your profits when selling online, it is essential that you understand this.

Many companies online offer products for sale to customers – that is the easy part.  Fulfillment is the trick. The author of this article has been selling online for [level-premier-free]over 12 years utilizing a single distributor. The distributor that handles hundreds of manufacturers, requires only a single phone call to get that day’s order processing. On the flip side, there are businesses that require ordering product from 2, 3, 5 or more sources – what a potential nightmare!

Consider this scenario:

You receive a large order from a customer for 20 different products. You then have to get 20 different products from 20 different sources. Not all sources have the product in stock and so some of the items will be back-ordered, discontinued or shipped at a later date.  You have to decide if to hold up the entire order or pay for shipping in stages to get the product to your customer in a timely fashion.  This is extremely complicated, costly and frustrating for the customers and I can assure you, once a customer experiences this, they will not shop at your store again.  You can count on them talking or blogging about the experience.

But, its not that complicated.  In fact, if the business model is established properly, the process is a breeze.  Sure, there will still be the occasional back-order or sold out item, and those limited scenarios are potential bonuses if handled correctly!  Watch for another blog on that soon!

These are the Reasons why Multiple Suppliers=Fail:

  1. Back-orders, discontinueds, recalls and out of stocks happen.  The chances are your customers will order products that you need to get from your suppliers (multiples if you have it setup that way).  Somewhere along the line you are going to run into crunches where you will be holding up orders or shipping them out and then reshipping product as it comes in.  The communications, frustrations and costs associated with this alone makes it a clear case against using multiple suppliers.
  2. Shipping a partial order frustrates all customers.
  3. It is difficult to code your product database properly to order products from more than one supplier.  When a customer service rep., or you pull  an order, you must have a visual of what to pull and where its to come from.  Assuming you do not have an API or other tie in to the distributor, this is another headache.
  4. Having more than one supplier is a much, much slower process.  Delays happen and with eCommerce, speed is everything.
  5. You can command a better wholesale rate with most distributors if you commit to purchase from them only.
  6. Using more than one supplier requires more than one credit account, bills to pay and communications on a daily basis.  This consumes time, time is money and it also increases the likelihood of errors.
  7. You increase your workload for updating product data, pricing and images.

 

Questions you must ask!

  • Is there more than one supplier with this business model?
  • Is the supplier an actual distributor or a wholesaler middleman?
  • Does this supplier/distributor meet the guidelines outlined in the just in time business model block?
  • Can I negotiate with a supplier better by having a secondary supplier waiting in the wings?

 

Require:

  • Setup a backup distributor or supplier for an emergency, Plan B backup.
  • Use a distributor or supplier that is in the same country you operate in and preferably within a 1-2 day ship time.
  • If you use more than one supplier, code the second suppliers product information in a way that is easy to see which products come from which source.
  • Will all suppliers, require a commitment to ship timely or within a certain amount of time.

 

Avoid:

 

Summary:

In reviewing the above information with your decision to get into the e-commerce world, it’s in poor that you avoid being sucked into a bad situation. The author has tested having multiple suppliers and can assure you that it is a disaster that you cannot even begin to understand. There are implications with regards to extra shipping costs, e-mails, phone calls from customers and an overall frustration to the customer base that they should just not experience with your business. Having a single supplier is absolutely essential to the excess success of your online business. Do not let anybody tell you otherwise and if they try, assume that their are a slick used car salesman.

Recommendation?  Stick with a single, large market distributor – a king in their field.  It will take some poking around to find out who that distributor is, but once you find them, they will help you earn more profits alone than if you had multiple distributors.  If you must use more than one, grow into it and set guidelines that make the customer happy.

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One comment to “Ecommerce Store using more than one Supplier = Lost Profits!”
  1. Great article!! I agree 100%, if everyone can do drop-ship is it the right solution for me? You clearly pointed out the ups and downs of it, great article for anyone considering an ecommerce store period!

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