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Examining the Risky Business of E-Commerce

More and more, consumers are flocking to online retailers to buy the newest electronic gadgets and gizmos. This retail boon, though, also intensifies the supply chain risk that retailers and electronics original equipment manufacturers (OEMs) are taking on.

Online sales in 2016 accounted for 8.4% of retail sales, according to the U.S. Department of Commerce. For the third quarter of 2016, e-commerce sales in the United States totaled over $101.3 billion, representing a 15.7% year-over-year growth. Total retail sales by comparison increased 2.2% in the same period.

At the same time, online buyers are becoming increasingly demanding. They want the products that they want, and they want those products quickly. In fact, 63% of Americans reported that would consider abandoning a favored electronics brand in the case of product shortages, according to a new survey by Elementum, a real-time supply chain platform.

These two trends together are making smart e-tailers think carefully about the risk of supply chain disruptions. Rather than being rare, disruptions are commonplace. In 2015, 81% of businesses experienced at least one supply chain disruption, according to the World Economic Forum/Zurich Insurance.

The potential risks are myriad. Global and political risk and cyber risk top the list as being the greatest risk over the next five years, according to Travelers 2016 Business Risk Index. (Check out the infographic at the end of this blog for more of the survey results.)

Meanwhile, a number of market realities for electronics OEMs, including shorter product life cycles, increased competition, and unpredictable demand, further de-stabilize the buying landscape and may make things difficult for both the manufacturer and its online retailers. “In this data intensive and automated world we live in, you have to be thinking about backups not just for data but also for your processes,” said Mike DeHetre, vice president of product development at Travelers.

The best way to address risk, though, is to have a plan in place. “A supply chain risk management and business continuity plan is absolutely a competitive advantage,” Ken Katz, property risk control director at Travelers, told EBN in an interview. “The companies that are most successful have diligence, thoughtfulness, and intentionality around these issues.”

Although stripping risk from the supply chain can be a daunting task, organizations should start small and build on success, Katz said. For example, begin by looking at single source suppliers and the impact of delays by that supplier. “Especially in electronics, there are good business reasons you may want single sources, but you have to weigh that against whether it is a good risk management strategy compared to having multiple suppliers,” he added. In these instances, it may be worth the time and energy to identify alternative products or suppliers prior to a problem.

Secondly, organizations should consider asking supplier partners to delve deeper into their own supply chain to identify potential issues. “It is common to have visibility into the first tier of the supply chain, but you need to ask yourself if you can let the visibility end there,” said Katz.

In addition, organizations should look at emerging technology as a way to get and analyze supply chain information. “Certainly, data and communications increasingly are becoming easier and, at the same time, the real challenge is to make sense of data you are collecting and consider how you can granulize that to inform decisions you have made,” Katz said. Technology allows organizations to get data more quickly and to recognize relationships in that data more accurately.

Finally, organizations need to look beyond supply risk at ways that the organization is protecting its intellectual property (IP). “Often, IP has the potential to be overlooked,” said Katz. “You need to think about who will remain control of information and product designs, as well as manage the legal risks in the company.”

Solid risk management is the best kind of insurance, making OEMs and retailers alike more safe than a policy that pays out in the case of an emergency. “Insurance should be the last resort answer,” said Dehetre. “We can insure some things and provide funding after a disaster, but a lot of the biggest risks are not insurable and are incredibly difficult to recover from.” Instead, insurance should be applied to close the gaps in a solid risk management and supply chain strategy, he added.

Have the upcoming holidays got your organization worried about the supply chain? How have you been planning ahead? Let us know in the comments section below.

— Hailey Lynne McKeefry, Editor in Chief, EBN Circle me on Google+ Follow me on Twitter Visit my LinkedIn page Friend me on Facebook

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