A supply chain isn’t something you can see, touch, or hear, but when it’s running well, you and your customers know it—your ecommerce site lists all your products with no wait time or back orders. The opposite also is true: When your supply chain falters, stockouts and lost sales result.
Supply chain management that delivers speed and consistency at the lowest cost can give your business the competitive advantage it needs to meet its bottom line and prosper for years to come. Read on for seven ways to improve your supply chain efficiency, with real-world examples from successful Shopify merchants.
What is supply chain efficiency?
Supply chain efficiency refers to a company’s ability to use its resources—technology, labor, and capital—to minimize waste and maximize product output, distribution, and delivery. At its core, supply chain efficiency is about making your logistical operations function in ways that best support your specific business model.
For some brands an efficient supply chain strategy might prioritize cost-minimization by scaling freight volume, while others might focus on producing locally to reduce shipping distances. Ultimately, an efficient supply chain isn’t just fast—it’s designed to reliably deliver your products while reducing waste and inefficiencies, enabling you to pass on greater value to your customers and improving your profit margins.
To measure supply chain efficiency, you have to look at multiple factors, including: how well you manage inventory, the speed of your lead times, and the accuracy of your demand forecasting. Although cost minimization is a major goal, an efficient supply chain strategy also prioritizes supply chain performance metrics, including:
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Perfect order rate. Measures the percentage of orders that are error-free from beginning to end. It captures the overall efficiency and reliability of your supply chain.
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Stockout rate. Measures the frequency of out-of-stock items when customers place orders and reflects the accuracy of your demand forecasting.
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Fill rate. Tracks the percentage of customers’ orders filled on the first shipment, without any back ordered or missing. Reflects supply chain efficiency and your ability to deliver on time.
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Cash-to-cycle time. Tracks the duration between when you pay vendors for raw materials to when customers pay you for the product made from these materials.
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Customer order cycle time. The duration from when a customer places an order to when they receive it. It measures your supply chain responsiveness and the efficiency of your fulfillment processes.
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Supply chain cycle time. The time it takes your business to deliver an order, starting from sourcing raw materials to delivering the finished product to the customer. It measures the end-to-end efficiency of your supply chain processes.
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Inventory turnover rate. How frequently your entire inventory sells during a specific period. High turnover indicates an efficient supply chain.
7 ways to improve supply chain efficiency
- Onshoring goods
- Producing locally
- Eliminating transfer freight and intermediaries
- Sourcing your own packaging materials
- Scaling volume to negotiate better freight rates
- Using micro-fulfillment
- Centralizing data for smarter order routing
Here are seven ways successful ecommerce businesses made their supply chains more efficient, from producing locally to utilizing micro-fulfillment.
1. Onshoring goods
Long lead times from overseas manufacturers can result not only in long lead times for customers, but also in shortages, stockouts, or even delivery of goods that are obsolete by the time they arrive. By moving production closer to your end customer, you can implement a more responsive supply chain model.
Tom Hassell, president of the apparel and accessories brand Life is Good, experienced a large shift in 2019 when the company moved production from overseas back to the US. “We were manufacturing all of our goods overseas, and there was a six-month lead time between creating a new work of art and getting those products on the shelf,” he says on a Shopify Masters podcast.
The company decided to move onshore, printing on blank t-shirts only after an order is placed. “We were able to reduce our lead times from six months down to literally two and a half days,” Tom says. “We’ve eliminated a lot of waste in the system. There are just so many benefits to bringing the production onshore.”
By using Shopify’s inventory management tools, Life is Good utilizes real-time data and analytics to manage inventory levels. Proper inventory forecasting ensures the brand isn’t paying for storage space it doesn’t need, while staying ready to print on demand at a moment’s notice. And by shrinking lead times from months to days, the brand avoids the cost of having unsold finished inventory and ensures customers get the latest designs almost instantly. This responsiveness keeps shipping fast and customer satisfaction high, without the financial risk of overproduction.
2. Producing locally
For brands selling heavy items, the cost of logistics is often tied to the distance the product travels to reach the end customer. Producing locally reduces warehousing costs and the risk of potential disruptions in global distribution networks.
Canadian mattress company Polysleep chooses to manufacture its mattresses in Quebec instead of factories overseas. “For our mattresses, producing them locally avoids the operational complexity and environmental cost of shipping ‘air and weight’ 6,000 kilometers,” founder Jeremiah Curvers says on Shopify Masters. This local focus doesn’t just cut shipping costs; it ensures a consistent, high-quality product that reaches the customer faster, reinforcing brand trust through reliability.
Jeremiah also utilizes a streamlined returns management system. For heavy, bulky items like mattresses, an efficient supply chain doesn’t end at delivery; a simplified returns process aids in continuous improvement in packing processes and ensures that even if a product comes back, customer satisfaction remains high.
3. Eliminating transfer freight and intermediaries
Supply chain efficiency often comes down to minimizing the number of times a product is touched. This involves eliminating intermediaries like third-party brokers or distributors who add markups without adding value to the product. It also requires transfer freight, which is the cost of moving inventory between different warehouses or processing facilities before it even reaches the customer. Each of these extra steps adds to your supply chain costs and increases the likelihood of damage or inventory shrinkage.
Alex Matthews, co-founder of Mexican soda company De La Calle, focuses on minimizing transfer freight. Once the base product and packaging arrive at the co-packer, the finished goods (canned sodas) only leave the facility for direct shipment to customers. “The more hands that touch your products, the more expensive it gets,” Alex says on Shopify Masters.
By consolidating manufacturing and fulfillment, De La Calle eliminates the overhead cost of an intermediary warehouse, passing on those savings to the customer through competitive pricing. Furthermore, minimizing the number of times the product is handled reduces the risk of shipping damaged or leaky goods—ensuring the customer receives a fresh, pristine product every time.
4. Sourcing your own packaging materials
Although turnkey manufacturing models—where a factory handles everything from sourcing ingredients to final packaging—are simple, they often include hidden costs. Because the manufacturer handles raw materials procurement, it typically adds a sourcing markup (essentially a finder’s fee) on top of the market price for cardboard, wrappers, and ingredients. It may also tack on administrative fees to cover managing those vendors. By sourcing your own product packaging materials directly, you eliminate those cost contributors and gain more control over your supply.
Will Nitze, founder of brain and body nutrition company IQBAR, described moving his packaging procurement in-house during the COVID-19 pandemic to combat rising costs. By sourcing his own cardboard and wrappers directly, he told Shopify Masters, he was able to avoid the manufacturer’s markups and increase his gross margins.
For IQBAR, the benefits of this shift were both financial and operational. By taking control of procurement, Will restored the 3% to 5% margin that the business had lost to manufacturer markups. More importantly, it gave the brand a direct line to its suppliers, ensuring it could secure an inventory of shelf-stable packaging materials for its perishable nutritional snacks even when the manufacturer’s own sources were constrained. This strategic shift let IQBAR keep its prices stable for customers while ensuring the product was always in stock.
5. Scaling volume to negotiate better freight rates
In freight shipping, scale is the ultimate lever for cost reduction. This strategy is best suited for merchants that ship heavy or high-volume items where logistics costs can significantly reduce the gross margin on every sale. By scaling your order volume, you move from standard rates to negotiated rates. To do this, you must present carriers with consistent, high-volume data that proves your business is a reliable, high-volume account.
Eugene Ravitsky, co-founder of FactoryPure, found that this was the only way to stay competitive while selling heavy electrical generators. “Freight shipping is kind of its own atmosphere where you have to figure out which companies to use and how to negotiate pricing with them, because you can very easily get to a point where half your margin is eaten on shipping,” Eugene says on Shopify Masters. “For example, you have a $1,200 product, and it costs $500 or $600 to ship. We were trying to scale to a point where we could then go back to the freight carriers and negotiate with them to get a pricing that allowed us to actually make a profit.”
By scaling to the point of leverage, FactoryPure can offer lower shipping costs to customers, making its high-ticket items more attractive without sacrificing the company’s profitability. For a business shipping heavy goods, this scale is the difference between a sustainable model and one that is eaten by overhead.
6. Using micro-fulfillment
Traditional supply chain network models rely on large, centralized hubs, but as shipping costs rise, many merchants are finding efficiency in micro-fulfillment. By strategically placing small amounts of inventory in localized hubs, brands can drastically reduce the last mile distance. This not only cuts carrier fees but also allows faster— sometimes even same-day—delivery.
Peace Collective, a lifestyle apparel brand, optimized its fulfillment by utilizing a localized strategy during peak seasons. By shipping from hubs closer to its densest customer bases in Canada, it bypassed the delays and high costs associated with long-zone shipping from a single central warehouse. Peace Collective founder Yanel Dhailieh described on Shopify Masters how she leveraged the Shopify Fulfillment Network to bridge the distance between her company’s physical inventory and the retail customers selling her merchandise in brick-and-mortar stores. This third-party logistics (3PL) network strategically places physical inventory closer to customers, allowing the company to ship across a wider geographical area at reduced last-mile costs.
7. Centralizing data for smarter order routing
Supply chain visibility is a key ingredient in increased efficiency. Using supply chain software to create a single view of stock lets you automate supply chain processes and avoid split shipments. Smart routing ensures that multi-item orders arrive in a single box from the nearest location, reducing shipping waste and providing a seamless delivery experience.
Navid Jilow, director of technology at the clothing company Belstaff, implemented a complete tech overhaul dubbed “Mission Phoenix.” By migrating to Shopify Plus and utilizing its order routing and distributed inventory management tools, the brand gained a real-time view of stock across all global warehouses and retail stores. “This sort of order management system allowed them to implement order routing logic that ensures an order is fulfilled from a single location whenever possible,” Navid says on Shopify Masters.
By centralizing its data, Belstaff eliminated the inefficiency of split shipments and reduced the distance each package traveled. For the customer, this means receiving their entire order in one box, faster and with less packaging waste—a hallmark of a truly efficient supply chain.
Efficient supply chains FAQ
What are efficient supply chains?
Supply chain efficiency refers to the optimization of supply chain processes to provide products to customers at the lowest possible cost while maintaining high order accuracy. It involves balancing cost-cutting with fulfillment speed, while remaining nimble enough to handle demand fluctuations and disruptions.
What is an example of an efficient supply chain?
An example of an efficient supply model is Mexican soda company De La Calle, which focuses on minimizing transfer freight. Once the base product and packaging arrive at the co-packer, the finished goods (canned sodas) only leave the facility for direct shipment to customers. By consolidating manufacturing and fulfillment, De La Calle eliminates the overhead cost of an intermediary warehouse.
What are the characteristics of an efficient supply chain?
Ultimately, an efficient supply chain doesn’t just mean that you’re moving your product quickly—it means that you’re optimizing the entire system to achieve your company’s own goals of reliability, speed, accuracy, and cost. While supply chain approaches will differ by company, in general supply chain efficiency can be characterized by:
- Low costs
- Fast fulfillment times
- Short lead times
- High order accuracy
- Accurate demand forecasting
