Despite being taxed on exports, maquiladoras benefit from duty-free imports of raw materials and equipment, reducing total production costs. As a critical cog in the U.S. production globalization, the maquiladora system has a rich history and a significant future.

What Are Maquiladoras?

Maquiladoras are foreign-owned manufacturing or assembly plants incentivized by tariff programs from the United States and Mexico to boost trade. They operate in diverse sectors from textiles to complex industries like automobile and aerospace manufacturing.

Maquiladoras provide a cost-effective solution for companies to scale economically and comply with trade regulations. This setup fosters foreign investment, employment, and economic growth, particularly in Mexico’s border regions.

Origins and Evolution of Maquiladoras

Maquiladoras were initiated in 1965 through Mexico’s Border Industrialization Program, a response to unemployment issues following the Bracero Program’s end. Over time, their number and operation complexity have grown significantly. This growth was accelerated by the North American Free Trade Agreement (NAFTA) in 1994, eliminating trade and investment barriers between the U.S., Canada, and Mexico. These trade agreements enabled maquiladoras to become integral to North American supply chains, enhancing their economic significance.

How Maquiladoras Operate

Operational maquiladoras import raw materials duty-free, convert them into finished goods, and export them, often to the source country like the U.S. They maintain ties with their parent companies, such as Honeywell or Mattel, who often control key functions like product design and marketing. The parent company enjoys reduced labor costs and trade agreement benefits, while the host country benefits from job creation and industrial activity increase.

Maquiladoras’ Economic Impact

Maquiladoras profoundly affect local economies, particularly in Mexico’s border towns, where they trigger urbanization and job creation. They also impact the global economy by being essential in international supply chains and attracting foreign direct investment. Maquiladoras foster export-led growth in Mexico and deepen economic integration between Mexico and its main trade partners, particularly the U.S.

Advantages and Disadvantages of Maquiladoras

The maquiladora system brings job creation, skill development, and economic growth. Companies also benefit from cost savings, lower labor costs, and easy access to foreign markets. However, they face criticism for promoting low wages, poor working conditions, and environmental damage. Furthermore, they create economic dependence on foreign investment, which has potential downsides for the host economy.

Maquiladora Success Stories

Successful maquiladoras, like those in Tijuana’s electronics and telecommunications sector, have significantly impacted local economies, turning Tijuana into a tech hub known as the “king of television manufacturing.” However, failures exist due to economic downturns in parent countries or mismanagement. These cases serve as cautionary tales for potential investors.

In my 10 years of experience of working with 3PLs, one common misconception I hear working with clients looking for 3PL is that the term 3PL means 1 thing and 1 thing only. Not true. 

3PLs offer a variety of services. They don’t act solely as a transportation carrier or e-commerce fulfillment provider. 

In this blog post, we’ll explore the definition of 3PL, the different types right for your business, and provide insights on how to choose the right 3PL provider for your business.

Definition of 3PL and Its Importance in Logistics

In simple terms, 3PL is the outsourcing of logistics and supply chain management to a third-party provider. This involves the management of transportation, warehousing, and distribution of goods, and may also include other value-added services such as packaging, labeling, consulting, and customs brokerage. The importance of 3PL lies in the fact that it allows businesses to focus on their core competencies while leaving logistics, or the coordination and movement of goods and information, to the experts.

The differences between 1PL, 2PL, and 3PL

There are several levels of logistics providers, each with its own unique set of responsibilities. These include:

1. 1PL (First-Party Logistics): In this model, the company manages its own logistics and supply chain operations. Think about a tomato grower that grows the tomatoes and manages the shipment to their own store.
   
   Another example that I have personally worked with in the past is that Walmart handles parts of their entire supply chain: setting up transportation, their own drivers move the product, and it’s delivered to their own store. An easy way to tell if a logistics company is 1PL is if they own the goods they are shipping.
   
2. 2PL (Second-Party Logistics): In this model, a company outsources one or more logistics functions to a second-party provider. This may include transportation, warehousing, or distribution.
   
   An example of a 2PL would be a trucking company hauling goods from 1 place to another. The trucking company in this case would not own the freight at any point and the manufacturer or entity requesting the shipment of the goods between 2 locations would facilitate all of the pick-up, drop-off, and set-up details.
3. 3PL (Third-Party Logistics): In this model, the company outsources all logistics and supply chain management functions to a third-party provider. This includes transportation, warehousing, distribution, and other value-added services. The difference between a 3PL and 2PL as an example would be if a 3PL takes on any additional responsibility such as 3PL specializing in warehouse management.
   
   In this example, a 2PL of warehouse services would become a 3PL when services expand beyond offering just outsourced labor in forklift drivers to move product. Additional services that would make this example a 3PL is managing inventory, dictating to forklift drivers where to pick and load trucks, and optimizing a warehouse. In reality, almost all 2PLs in a given example offer some form of expanded services beyond a limited scope, which makes a majority of outsourced logistics providers to be 3PLs.

Benefits of Using a 3PL Provider for Logistics Management

The benefits of using a 3PL provider for logistics management are many, and include:

1. Cost savings: Outsourcing logistics to a 3PL provider can result in cost savings for businesses as they are optimized for scale, where as a 1PL takes on the burden of additional cost from having to pay a premium for low purchase quantities in the form of storage, trailers, or driver. 
2. Access to expertise: 3PL providers have extensive experience and knowledge of the logistics industry, which can be leveraged to optimize supply chain operations.
3. Scalability: 3PL providers can scale their operations up or down based on the needs of their clients, allowing businesses to be more flexible and responsive to changes in demand. This includes excess driver capacity or storage space for a fulfillment provider
4. Risk mitigation: 3PL providers can help mitigate risks associated with supply chain management, such as aging inventory, experts in hauling different types of freight, and managing volatile labor schedules.

What are the Different Types of 3PL Providers?

Third-Party Logistics (3PL) providers offer a wide range of services. Here are some of the different types of 3PLs:

• Transportation-based 3PLs: 3PLs can specialize in transportation services, including freight forwarding, carrier management, and shipment tracking. 
• 3PLs for Freight Brokerage Services: True freight brokers are asset-light and help by coordinating their large network of drivers. An example of a company in this space is Spot Freight.
• Warehouse-based 3PLs: 3PLs that offer warehousing services such as storage, inventory management, and order fulfillment. Depending on how big of a product you are needing moved will determine what 3PL you want to find. A company like Outbound Fulfillment, which focuses on small parcel fulfillment can be that provider. Larger full-pallet shipments a company like Buske Logistics can help with shipping. There are many factors as well including if it’s food grade, hazmat, or has lithium batteries.
• Freight Forwarders: Freight forwarders are 3PLs that specialize in arranging and coordinating the transportation of goods for businesses. They work with multiple carriers and modes of transportation to provide the most efficient and cost-effective shipping solutions. Steam Logistics is an excellent example of a Freight Forwarder.
• Customs Brokers: Customs can be an incredibly nuanced area of the supply chain that can have big ramifications for your business if not done right. Customs brokers can act as a 3PL by specializing in helping businesses navigate the complex regulations and paperwork involved in importing and exporting goods across international borders. They can help with everything from customs clearance to compliance with international trade laws.
• Inventory Management Providers: These 3PLs help businesses manage their inventory by providing real-time tracking and reporting of stock levels, as well as implementing automated systems to optimize inventory levels and reduce costs. This one is important. I’ve even seen situations (like during my time at PepsiCo) that required a 3PL to write off $1.2 million in lost inventory from bad inventory management practices. Typically, any warehousing 3PL that you work with should offer this as a part of their services.
• Order Fulfillment Providers: Order fulfillment providers specialize in picking, packing, and shipping products on behalf of businesses. They can manage the entire order fulfillment process, from receiving orders to managing returns and exchanges.
• Value-Added Services Providers: 3PLs offer additional services such as kitting, assembly, packaging, labeling, and other value-added services that can help businesses streamline their operations and reduce costs. Have you seen those cardboard pop-ups at the end of the grocery aisle from Starbucks, Gatorade, or a beer company? More than likely came from a 3PL offering this service if it was outsourced.
• E-commerce Fulfillment Providers: E-commerce fulfillment providers, like my company Outbound Fulfillment, specialize in handling the unique requirements of e-commerce businesses, such as managing online orders, integrating with e-commerce platforms, and providing specialized packaging and shipping options. 
• Reverse Logistics Providers: Reverse logistics providers specialize in managing the return of products from customers back to the manufacturer or retailer. They can handle everything from product testing and repair to recycling and disposal. Companies that can handle that include: Outbound Fulfillment, Renewal Logistics, or Boxzooka.
• Financial and Information 3PLs: These 3PLs offer financial and information management services, including freight payment and auditing, transportation management system (TMS) integration, and data analytics. During my time at PepsiCo, we had 3PLs proving transportation and payments considering the large amount of information that needed to be efficiently coordinated, which was not our expertise. A couple of examples of “informational” 3PLs are Cass, which handled driver detention when I worked with trucking carriers, as well as Tusk Logistics that has pre-negotiated parcel rates using a regional network of carriers vs. the higher cost options of going with UPS, FedEx, or USPS.
• Consulting and Customer Adapter 3PLs: 3PLs of consulting services provide logistics consulting and help businesses adapt their supply chain processes to meet changing market conditions and customer demands. In a previous life as an example, I acted as a 3PL consultant where we would design clients supply chains and determine where to place warehousing 3PLs. An example of 3Pl consulting include Riveron  which offers traditional supply chain consulting or Carton that provides consulting for packaging procurement
• Dedicated Contract Carriage Providers: These 3PLs offer dedicated transportation services to a single client, providing a fleet of vehicles and drivers dedicated to meeting that client’s transportation needs. An example I’ve managed in the past is a shuttle carrier moving corrugate and bottles from a vendor to a manufacturing plant. One example I have worked with in the past is Shamrock Cartage
• Asset-based 3PLs: Other 3PLs can own and operate their own fleet of vehicles and/or warehouse facilities, providing comprehensive transportation and warehousing services to clients.

6 Steps to Choose the Right 3PL Provider

Choosing the right 3PL provider can be a daunting task, but considering a few factors can help you make an informed decision that will benefit your business in the long run. Here are some factors to consider when choosing a 3PL provider:

1. Industry Experience and Expertise

Ensure that the 3PL provider has experience in handling logistics for your industry. Ask for case studies and references from previous clients in your industry. 

2. Technology Capabilities

Choose a 3PL provider that has invested in advanced technology to ensure seamless and efficient logistics operations. The provider should have a robust tracking and reporting system to keep you informed of your cargo’s status in real-time or product moving through a warehouse.

3. Service Level Agreements (SLAs)

A reliable 3PL provider should provide clear SLAs that define the services they will offer, delivery times, and quality metrics. Review the SLAs and ensure that they align with your business objectives and requirements.

4. Flexibility and Scalability

Your business needs may change over time, and the 3PL provider should be flexible enough to adapt to these changes. Ensure that the provider can scale up or down their services to accommodate your business’s changing needs, such as seasonality of business where they may need to hire temp labor to assist with the holiday season.

5. Pricing Structure and Transparency

Choose a 3PL provider that provides transparent pricing and does not have hidden fees. The provider should provide a breakdown of all the costs involved in their services to help you make an informed decision.

6. Reputation and Reviews from Previous Clients

Do your due diligence and research the 3PL provider’s reputation in the industry. Check online reviews and ask for references from previous clients.

So before signing a contract with a 3PL provider, ask the following questions:

1. What types of logistics services do you offer?
2. How do you ensure quality control and timely delivery?
3. What industries do you specialize in?
4. What technology do you use for tracking and reporting?
5. Can you provide references from previous clients?

It’s important to conduct due diligence when selecting a 3PL provider to ensure that you choose a reliable partner that will help you achieve your business objectives.

The market for e-commerce retailers requires that you do something to help your small business stand out. This can include using custom packaging. With product unboxing going viral, the packaging you use for your products can help you to build a better brand image and enhance your relationship with your customers.

What Is Custom Packaging?

An alternative to standard packaging, custom packaging can be used to create branded packaging that can incorporate your company’s logo, colors, or theme. Custom packaging can be a reflection of your business’s values as well. 

For example, if you are an eco-friendly company, using environmentally friendly customized packaging can show your customers that you take your mission seriously. Depending on your product, customized packaging can also ensure that it arrives to its delivery point safely and securely.

Custom packaging can include packing materials, shipping containers, filler, and printed inserts. Customers’ relationships with an e-commerce business are created through the initial contact (often the website). They can be further solidified through order fulfillment. Using custom packaging can enhance this relationship. 

Benefits of Custom Packaging

Custom packaging can give you an edge over your competition, helping your brand to stand out. A high-quality custom packing box is not merely a secure method of transporting your product. 

It can also help to make a better first impression, make your brand more memorable, increase the perception of the value of your product, make a statement about your brand, create better brand loyalty, and be more eco-friendly. Product packaging can be one of the most important factors influencing your customers’ purchase decisions.

Favorable First Impression

Aesthetics are a major factor in creating a good first impression, and using custom packaging can help you to make this first impression well. In a highly competitive marketplace, customers often make snap decisions about a business based on their first impression. With custom packaging, you can attract positive attention. 

Make Your Brand Memorable

A positive unboxing experience can help to make customers remember your brand better, creating a favorable impression that they are more likely to retain. This can be carried over onto social media as well in unboxing videos. Adding a hashtag to your custom packaging can also increase shares about your product and brand.

Increase the Perceived Value of Your Product

Using premium and custom packaging can make your product seem and feel more expensive. As a result, it can feel like it carries more value than it actually does. Premium packaging improves brand perception and can make customers more excited about your brand.

Make a Statement About Your Brand

With custom packaging, you can make a statement about what your business or brand stands for with messaging and the types of packaging used. This can be used to show and not just tell what your brand is about. This can help to create your brand’s personality and make it stand out against competitors.

Better Brand Loyalty

Repeat customers are a big part of your profit margin, with 65% of your business coming from existing customers, on average. With custom packaging, you can create better brand and customer loyalty, encouraging customers to continue to buy from you and to remember your brand when searching for new products.

Enhanced Product Protection

With custom packaging, you can create a solution that is designed specifically to protect your products in transit. This can mean using special inserts to secure your product and more durable boxes to send goods in. Custom packaging can fit your brand values and also be tailored to the needs of your product directly.

More Eco-Friendly Packaging

Customers are often looking for more eco-friendly options. Packaging that has less impact on the environment can be a way to align with your brand’s values while also making customers feel better about their purchases. Biodegradable and recyclable packaging can be customized for your brand.

Most Common Forms of Custom Packaging

There are a lot of different types of custom packaging to choose from. Your choice will depend on a variety of factors, from what type of product you are shipping to your budget for doing so. Custom packaging ranges from boxes to envelopes to mailers with some of the most common forms outlined here:

Corrugated Boxes

Also called regular slotted container boxes (RSC boxes), corrugated boxes are some of the most common types of shipping boxes used today. They are easy to construct and collapse. They are rugged and durable and can accommodate a variety of different product sizes.

Very little manufacturing waste is created in production. Corrugated boxes are economical with a uniformed finish.

Rigid Boxes 

These high-end boxes offer a high level of protection for luxury items as well as a positive unboxing experience for your customers. Rigid boxes will also often need a custom designed insert to keep your products in place, which can also enhance the unboxing experience and provide better brand recognition and loyalty.

Paperboard Boxes

These are lightweight boxes that are also strong and commonly made from recycled wastepaper. Paperboard boxes can be folded into boxes and cut into a range of shapes made to fit your product dimensions exactly.

Poly Bags

When shipping soft, non-fragile items, such as apparel, poly bags can offer an eco-friendly lightweight option. Poly bags are waterproof, tear and tamper resistant and the smooth exterior can easily be customized for your brand.

Paper Mailers

Another option for shipping apparel, as well as small products, paper mailers are an eco-friendly and lightweight option that can easily be customized in line with your brand’s aesthetics.

Plastic Mailers

Bio-based polyethylene plastic mailers are environmentally friendly and great for lightweight items. They are also waterproof, tear-resistant, and tamper-resistant.

Foil Sealed Bags 

Commonly used for food items, there are a variety of eco-friendly foil sealed bags that can be customized to fit your brand.

Dunnage Packages

Dunnage packaging is used when your product needs extra protection in transit. It can include a variety of products, including honeycomb craft paper and bubble wrap that are built into padded mailers. These products include an extra layer of padded cushioning that is sturdy enough to prevent bending. Dunnage packages are often made from recycled and biodegradable materials for an eco-friendly option.

Bottle & Cap Packages

When packaging liquids, bottle and cap packaging is typically ideal. Packing caps can include stoppers, corks, child-resistant caps, metal caps, and glass closures. Glass bottles offer an eco-friendly packaging option for liquids.

Jute Packages

For grains and dry foods, jute packages are an eco-friendly option. They are durable, offer natural ventilation, and help to prevent damage to packaged products.

How to Customize Your Packaging

Packaging can be customized from the inside out. For e-commerce businesses, the most common types of packaging are mailers and shippers. To customize your packaging, you can choose the following options:

• Printing on the exterior of the package: Digital printing is often used to imprint your brand’s logo, messaging, colors, or theme onto the outside of mailers and boxes. These can be created quickly and ordered in bulk.
• Filler: Tissue paper, filler, and custom inserts can be branded and printed with your desired coloring or information for custom packaging inside of the box.
• Promo materials: Insert cards and printed inserts can be used as promotional tools to promote your brand inside of your mailer or shipper.

Costs of Custom Packaging

Custom packaging can range in price from as low as 10 cents per box up to over $10 per box. Typically, the more items you buy at one time, the lower the price will be. Buying in bulk can save you money on custom packaging. 

Custom packaging can be an added expense that your business might not be ready to consider. Unbranded boxes and mailers can be less expensive when you are just starting out. 

Custom packaging has a lot of benefits when you are ready to go this route. The following factors can influence costs:

• Materials
• Size
• Ink coverage
• Tooling
• Quantity

What to Consider When Customizing Packaging

Aesthetics are not the only thing to consider when looking into custom packaging. You will also need to consider who your customers are, what types and shapes of products you are shipping, and how fragile the products are.

Your Customer Demographic

It is important to understand whom you are marketing and selling to when customizing packaging. The goal is to cater to your audience while fitting your brand’s purpose. 

Product Shape & Type

You will need to balance form with function when creating custom packaging to ensure that your items are properly and securely packaged. If you have oddly shaped items, it can take some trial and error to find the right packaging solution, for example. It’s worth the time investment to get this right.

Fragility of Your Product

It is incredibly important that your products arrive undamaged to your customers. This can mean that fragile items need additional protection and potentially custom inserts to keep them snug and protected in transit.

The size of the packaging and packing material should fit the item as well. Your cost will go up with larger packages, for example. Because of this, it is important to ensure that you are packing things in appropriately sized containers.

References

E-Commerce Sales Grew 50% to $870 Billion During the Pandemic. (February 2022). Forbes.

Effect of Product Packaging in Consumer Buying Decision. (December 2012). ResearchGate.

Customer Retention Statistics – The Ultimate Collection for Small Businesses. (January 2021). Small Business Trends. 

Demand forecasting is not going to be perfectly accurate all the time, but by using historical order data, you can better predict surges and lulls in your sales. This can help you determine how to best prepare your budget and develop a pricing strategy as well as plan and schedule your product production. 

One of the major benefits of demand forecasting is the optimization of your inventory management. Having too much on hand can cost you money with storage, while not having enough inventory can lose you sales. With demand forecasting, you can collect and analyze data and information to drive sales and increase profit margins.

What Is Demand Forecasting?

Demand forecasting uses historical data and predictive analysis to try and predict future trends and customer demands. With demand forecasting, you can look at patterns and trends in customer behaviors and order history to estimate future sales and revenue. This can help you to make more informed decisions related to inventory supply and budgeting. 

Demand forecasting can help you to understand customer needs and expectations. With this understanding, you can fulfill them accordingly to better manage your product supply chain.

Benefits of Demand Forecasting for Your Business

Demand forecasting can be used at any level based on your business growth plans. For example, one company can use demand forecasting to manage a conservative growth plan, while another may use it to diversify for a more aggressive growth plan. 

Demand is what the customer wants. In order to fulfill customer expectations, you need to know what they want and when they want it. With this knowledge, you can make more informed decisions on what to spend on marketing, production, staffing, and inventory storage. 

Demand forecasting can help you improve the following:

• Production lead times
• Operational efficiency
• New product launches
• Cost savings
• Customer experience

Demand forecasting is important for your business, as it can help you to better prepare your budget, plan and schedule product production, help you manage inventory storage, and develop an effective pricing strategy.

Aids With Budget Preparation

Demand forecasting can help you formulate strategic and operational plans for your business, including making sound financial decisions and mitigating risks. This impacts profit margins, operating costs, staffing, inventory accounting, and the overall money you spend to run your business.  

Helps With Planning & Scheduling Production

Your order fulfillment needs to be aligned with your pre-launch product marketing. By using demand forecasting, you can be sure to provide the customer with what they want when they want it. Demand forecasting can help you to ensure that you experience fewer stockouts and always have the right amount of inventory on hand.

Improves Inventory Management

The more inventory you have in stock at a time, the higher your inventory storage costs will be. With demand forecasting, not only can you be better prepared to fulfill customer orders, but you can also ensure that you are not carrying too much inventory at a time. This allows for better cost-efficiency.

Optimizes the Development of Pricing Strategy 

Not only do you need to be able to forecast demand, but you also need to be able to formulate competitive pricing based on the demand. For example, offering short-term promotional pricing can increase demand, while limited supply of a high-demand item can be billed as an exclusive offer with higher pricing. As supply increases or decreases and demand levels out, you will also need to adjust your pricing.

Types of Demand Forecasting

All demand forecasting uses data analytics over specific periods of time, but there are a variety of different types of demand forecasting, including macro-level, micro-level, short-term, and long-term demand forecasting.

Macro Demand Forecasting

Using macro-level demand forecasting, you look at general economic conditions to recognize shifts in the market, disruptions to commerce, and external forces. 

Micro Demand Forecasting

Micro-level demand forecasting is more specific and can be tailored to a certain customer demographic, business, or industry. 

Short-Term Demand Forecasting

Short-term demand forecasting is performed for a year or less, informing the day-to-day operations by looking at sales for under a year.

Long-Term Demand Forecasting

Demand forecasting done for more than a year is considered long term. It can be used to identify trends and plan for things such as annual patterns, seasonality, production capacity, and expansion. Long-term demand forecasting helps to develop a long-term business strategy.

What Factors Influence the Customer Demand Lifecycle?

Your supply chain, sales, and marketing strategy all need to work together for successful demand forecasting. There are several things that can play a role in the customer demand lifecycle, including the type of goods you are selling, where your customers are and where goods are manufactured and shipped from, your competition, and seasonality.

Types of Goods

Depending on what products or services you are selling, demand forecasting can differ. For example, if you are selling perishable goods that need to be moved quickly, your demand forecasting will be very different than if you sell monthly subscription boxes. 

You can use the following data to drive more recurring revenue and get a better idea how to bundle or group items:

• Total amount of purchases customers buy from you over time and across all of your sales channels (lifetime value of your customers)
• How much your customers spend each time (average order value)
• How one SKU can drive demand for another

Geography

Managing your retail supply chain includes optimizing fulfillment and distribution centers, which can often mean splitting inventory based on customers’ geographic locations. Inventory forecasting and the order fulfillment speed will depend on where your orders are manufactured and shipped from and how far the product has to travel to reach the customer. 

Competition

Competition directly impacts demand as the more options a customer has, the harder you will have to work to convince them to buy from your business. Up-and-coming competitors can also influence this demand, so it is important to stay ahead of trends as much as possible and work with an agile demand forecasting model so you can quickly adjust when needed.

Seasonality

When order volumes change at a specific time of year, this is called seasonality. It can be related to a big shopping day such as Black Friday, the holidays, certain events, or if your product is more popular in a certain month or time of year. 

Demand forecasting can help you to recognize peak seasons and when spikes in sales are likely to occur, so you can plan accordingly. You can then drop inventory during slow times and increase inventory during the peak season. 

Steps for Forecasting Demand

To accurately forecast demand, you will need a strategy that is agile and flexible but also able to provide you with a long-term approach for planning and supporting your business. The following steps can help:

1. Set your objectives.

You will need to decide what kind of demand forecasting will best suit your business needs and objectives. It needs to have a dedicated and clear purpose. 

You will need to choose what time period, general category, specific product, or set of people for which you are wanting to forecast demand. Demand forecasting can help you to predict what a customer will purchase, how much, and when they will buy it. 

Your demand forecasting will need to work for your product marketing team, financial planners, operations, and logistics teams equally. You will need to have clear goals for effective demand capacity planning that can help to influence the decision-making for your business processes.

2. Record and collect your data.

Data from multiple sources, including different sales channels and market conditions, will need to be collected and integrated to provide a clear picture of your product demand and therefore your sales forecasts. It is necessary to be able to see what products are being ordered when and from what sales channel to accurately forecast demand. 

You should also look closely at e-commerce return rates, which can add up. If specific items are being consistently returned, for example, it is time to reevaluate that product. Collecting and recording this data can help you to better forecast growth and match this up with production.

3. Measure and analyze the data.

Either using automation and predictive analytics or analyzing data manually, you will need something that is repeatable. You need to be able to check what you have forecast versus what your actual sales were to adjust future planning. 

As your company grows and evolves, you may need to track additional information to help reduce stockouts and ensure you have enough product in your inventory to keep up with demand.

4. Update your budget accordingly.

Once you have been through a round of demand forecasting (the time you set for the forecasting), you can then update your budget and set your next forecast. Demand forecasting can help you to allocate your budget funds based on your business and growth goals. 

Demand Forecasting FAQs

Demand forecasting can help you to budget more accurately, optimize your inventory management and supply chain, plan marketing strategies, and meet your customers’ expectations for an enhanced customer experience. 

What is demand forecasting?

Demand forecasting collects and analyzes order data from a specific period of time to predict sales and revenues for the future. Demand forecasting can help you to make more informed business decisions regarding inventory management and planning, targeted marketing, budgeting, and product sales.

Why do I need demand forecasting?

Demand forecasting is essential for managing staffing, production, marketing, and inventory management. With demand forecasting, you can improve your production lead time, save money, optimize operational efficiency, launch new products, and offer a positive customer experience.

What is the main purpose of demand forecasting?

The main purpose of demand forecasting is to predict future demand for a particular product or service.

How do I manage demand forecasting?

You can do demand forecasting in a variety of ways, from more general (macro-level) to more specific (micro-level) or for short-term or long-term time periods. All demand forecasting models analyze data over a specific period of time to support future business decisions.

Can a 3PL help with demand forecasting?

You can outsource your order fulfillment to a 3PL, which can use advanced technology and robust data analytics to help with inventory control and demand forecasting.

References

Predictive Big Data Analytics for Supply Chain Demand Forecasting: Methods, Applications, and Research Opportunities. (July 2020). Journal of Big Data.

Your supply chain needs to be as efficient as possible and not eat into your profit margins more than necessary. As an e-commerce business, you need to be able to measure data supply chain data effectively, which is where supply chain analytics comes in.

In order to optimize and efficiently manage your supply chain, you need to be able to clearly visualize where improvements can be made. There are a lot of tools and technological resources available to access advanced data and analytics, providing better visibility into your supply chain and helping you to make informed business decisions.

What Are Supply Chain Analytics?

A vital component of supply chain management (SCM), supply chain analytics includes the processes used to gain insight into logistics performance of a business, from procuring products to inventory management to order fulfillment. Supply chain analytics is the collection and visualization of large amounts of data with the intent of using this to optimize the supply chain.  

With supply chain analytics, you can collect a wide range of data in real time, using technology, tools, and additional resources to better manage your supply chain to cut costs, improve accuracy, and increase operational efficiency. Supply chain analytics collects data across a variety of platforms to show you information about all aspects of the supply chain, from the flow of inventory to your shipping performance and order fulfillment.

How Supply Chain Analytics Can Help Your Business

Supply chain analytics can be used for a variety of purposes, helping to provide you with end-to-end supply chain visibility and better information to support smart business decisions. There are a variety of benefits to supply chain analytics for your business, including helping to optimize and lower risks in your supply chain and aid with predicting future demand.

Optimize Your Supply Chain

Using data collected through supply chain analytics, you can optimize the processes in your supply chain and correct any potential inefficiencies. Your supply chain runs from produce procurement and warehouse receiving all the way through to shipping and order fulfillment. With better visibility into all of the processes involved, you can quickly make changes to improve your operations when needed. 

Lower Potential Risks in Your Supply Chain

Data analytics and visibility into how your supply chain is running can help you to reduce risks by spotting patterns and enabling more efficient supply chain planning. This can be used in a variety of ways throughout the supply chain. 

If you notice that production lead times have increased, for instance, this can impact the amount of time it takes to receive inventory and fulfill orders. Using supply chain analytics, you can spot shifts in production lead times and make necessary changes, such as switching suppliers or adjusting your lead times to compensate. 

Help With Demand Forecasting

With supply chain analytics, you can gather historical inventory and order data to help predict future trends. With demand forecasting, you can avoid stockouts or holding too much inventory in stock at a time — both of which can cost you money. 

Data analytics can allow you to track your inventory in real time. As a result, you will have a better understanding of what you have on hand and when it is time to scale up or down.

Supply Chain Analytics Solutions

Supply chain analytics solutions include supply chain software that can help to centralize and integrate data from various sources and steps in your supply chain, including third parties. Supply chain software can often offer customizable reporting tools and the ability to clearly visualize your data for interpretation in multiple ways, such as in a centralized single dashboard. 

With a supply chain analytics solution, you can gain insights into the following:

• Product allocation
• Inventory and demand forecasting
• Logistics costs
• Order accuracy rates
• Fulfillment performance

Types of Supply Chain Analytics

There are a variety of different types of supply chain analytics that can offer you accuracy and insight into data in real time. Some of the most common types of supply chain analytics for e-commerce businesses include predictive analytics, descriptive analytics, prescriptive analytics, diagnostic analytics, and cognitive analytics. 

Predictive Analytics

Predictive analytics allows for a more agile supply chain, using machine learning, statistical algorithms, and historical data to prepare for and predict trends. With predictive analytics, you are able to be more proactive through identifying potential disruptions or changes within your supply chain. 

Tools offering predictive analytics often allow you to set automatic reorder points or reminders to keep your inventory levels at the proper level.  Historical inventory data is analyzed to determine this pre-set reorder time, which is an example of predictive analytics.

Descriptive Analytics

Descriptive analytics explains what has happened. Using historical data to recognize patterns, descriptive analytics are statistical measures that help to spot trends and measure your return on investment (ROI). 

Descriptive analytics look closely at historical order data to pinpoint best-selling and slow-moving products, so you can make inventory adjustments. You may decide to discontinue a slow-moving product, for instance, and increase your on-hand inventory of products in high demand.

Prescriptive Analytics

With prescriptive analytics, you can get answers on what to do next. Prescriptive analytics takes vast amounts of data and uses the information to help you make informed and strategic business decisions. Using embedded decision logic or automated processes, prescriptive analytics can help you land on ideal decisions to best support your business. 

For example, with prescriptive analytics you can make more informed decisions on when to launch a new product, better shipping strategies, or when it might be ideal to outsource order fulfillment to a 3PL (third-party logistics) provider.

Diagnostic Analytics

Diagnostic analytics helps determine why things might not be working as they should or why something happened. Using diagnostic analytics, you can determine why issues like shipping delays or procurement disruptions are happening. 

Diagnostic analytics identifies why mistakes or delays are occurring and gives you the opportunity to correct them at the source.

Cognitive Analytics

Using machine learning and AI (artificial intelligence), cognitive analytics processes vast amounts of data to make human-like decisions, speeding up the decision-making process. This enables better integration and a higher level of visibility across networks, allowing e-commerce businesses the ability to streamline and expand the supply chain with more efficiency.

Data Used in Supply Chain Analytics

Any data that directly relates to inbound and outbound logistics performance at any point in the supply chain is used in supply chain analytics. Data and insights can be gathered from internal sources as well as external applications, such as third-party providers and their performance, and also data related to multiple sales channels and distribution centers. 

Data used in supply chain analytics can include the following:

• Rates of inventory turnover
• Warehouse receiving turnaround times
• Average fulfillment costs
• Order accuracy rates
• On-time shipments
• Supplier, carrier, and 3PL performance

Supply Chain Analytics Best Practices

To best benefit from supply chain analytics, there are several tips to consider. You will need to ensure that your technology stack integrates all of the data, for example, and uses the right tools to visualize the data. It is also important to effectively manage your inventory and forecast demand, gather data from social media, use location-specific insights, and use predictive route planning. 

Many ERP and SCM software solutions have some supply chain management tools built in. It can also be beneficial to outsource supply chain management to a third-party provider, freeing you up to focus on other aspects of your e-commerce business.

Connect Your Technology Stack

Supply chain analytics pulls data from a variety of sources, and it is important to be able to visualize your entire supply chain to get the full picture of how it is performing. Your data sources (which can include information from your manufacturers, warehouses, stores, inventory management software, fulfillment operations, and third-party providers) all need to be integrated.

Implement Tools to Visualize Your Data

It is important to be able to clearly visualize your supply chain data to best interpret the data. You will want to spend more time making necessary changes and improvements than you do analyzing data and easy-to-read tables and charts, often in a centralized single dashboard. 

Manage Inventory & Forecast Demand

Use supply chain analytics to better manage your inventory and forecast demand based on historical order data. You can set automatic reorder points and quantities as well as determine methods to optimize your inventory levels. 

Use Location-Specific Insights

Splitting your inventory across multiple fulfillment and distribution centers can allow you to provide faster and more cost-effective shipping options to your customers. Using insights on how particular locations are performing can help you to come up with specific solutions to potential geographical issues.

Gather Data from Social Media

Customer reviews, discussions, and comments on social media can provide you with qualitative and supplemental data that can help you find ways to optimize your supply chain and further strengthen your e-commerce strategy. This data can help you to predict when sales might increase due to a holiday or hot item, for example. 

Use Predictive Route Planning

You can speed up your processes, reduce shipping costs, and optimize order fulfillment using route planning software as part of your supply chain analytics and management solution. This allows you to account for and avoid potential shipping delays. 

Look Closely at What Your Enterprise Resource Planning (ERP) or SCM (Supply Chain Management) Software Offers

Both ERP and SCM software and technologies have supply chain analytics already built in. Be sure to check into what your current software has to offer before purchasing separate supply chain analytics solutions separately. You will need to decide if your ERP or SCM software offers the tools that you need for optimal visualization of your entire supply chain for ideal optimization.

Consider Outsourcing Fulfillment

Managing and analyzing your e-commerce supply chain can often be handled through outsourcing. An outsourced supply chain can leave order fulfillment and logistics in the hands of experts, such as 3PL providers. A 3PL provider can offer visibility into your operations while saving you time on inventory management and order fulfillment. 

References

Transforming the Supply Chain With Data Analytics and Intelligence. (March 2022). Forbes.