Mitigating Business Risks in ECommerce

When clicks don’t click…..

ECommerce business ideas glitter with the potential to cater to the big markets in many Middle East countries like the UAE, Qatar, and Saudi Arabia. However, behind the curtains lie many pitfalls and not addressing them can make businesses fall into slumber as easily as not clicking a mouse. These risks are not insurmountable but understanding these business risks comes first. This blog is an attempt to understand some prominent business risks in eCommerce with ideal solutions to mitigate them.

Cyber Security Risks

Sound cybersecurity is a crucial requirement for any kind of digital trade and transaction. An extensive range of personal and organisational information is collected, stored, processed, and exchanged by eCommerce companies. Loopholes in technological solutions and cyber security policies and practices create vulnerabilities which can be misused by criminal entities for nefarious purposes. Some common cyber attacks that emanate from poor cyber security management are:

Data Breach: Hackers gain access to the personal data of consumers shared with eCommerce companies, banks, insurance companies, or hospitals for availing their services. This data falling into the wrong hands can be used for forging identities, committing financial irregularities, etc. Data breaches cause significant damage to brand reputation.

Ransomware: Sometimes the purpose of hacking into the digital devices of individuals and organisations is to obtain money in exchange. Hackers lock access to devices and device owners are asked ransom money to regain access to their own devices. People in high positions in organisations are vulnerable to becoming targets of ransomware attacks.

Phishing Attacks: In a phishing attack, users are tricked into believing that emails or text messages are from legitimate sources (whereas those communications are from hackers) to make users share personal information.

Distributed Denial-of-Service (DDoS) Attacks: In a DDoS attack, the host device or network is flooded with unnatural volumes of traffic from multiple sources causing the servers to slow down or crash altogether. In the event of a DDoS attack, companies may not be able to provide services to clients and customers.

Solution

ECommerce companies can take up a host of measures to level up their cyber security management. Also, cyber security is a perpetual activity because the nature of cyber-attacks does not remain the same. A good security measure 2 years back may not be regarded as a good one today. Here are some effective solutions to mitigate cyber risks.

Technology plays a major role in developing and maintaining a strong and updated cybersecurity framework in place. Organisations should have a dedicated leadership and team for IT management with cyber security as a major role component. This helps to keep organisations implementing the best solutions and remain updated with the developments in the field. For example, a cyber security professional would be able to recommend the latest and best-fit network security solutions for an organisation.

Having effective cybersecurity policies and practices will help ensure that the necessary standards and protocols for maintaining cyber safety are known and followed by all in an organisation.

Training will help to impart the necessary awareness of cyber security and actions to be taken in the event of a cyber attack.

SOPs are essential to maintain strict adherence to cyber security standards and practices. For example, appropriate SOPs will decrease the chances of employees falling victim to social engineering.

Logistics and Supply Chain Risks

In eCommerce, the quality of supply chain and logistics management determines the ability of businesses to make goods available at the right places at the right time and fulfil orders on time. Any deviations or disruptions in the supply chain or in its management can cause to slow down the flow of goods – eventually, affecting delivery to customers on promised dates. A few highly probable supply chain and logistical risks in eCommerce are highlighted below.

Customer complaints of receiving damaged products are common in eCommerce. Such damages are often caused during handling and transportation. Sometimes packages are also lost in transit or get returned because of human negligence or technical errors. Delayed deliveries are also common especially when 3PL entities are involved.

Changes in fuel prices, tax regimes, and regulatory conditions can affect logistical costs and cause businesses to make adjustments in their SCM and logistical strategies. These changes hamper the routine order fulfilment until things are back to normal.

Union strikes and labour shortages can also slow down the supply chain and logistical operations causing delayed deliveries and scores of cancelled orders. Rough geopolitics, trade disputes and sanctions and political instability also adversely affect supply chain and logistics at industry levels.

Natural events like floods, earthquakes, landslides, and snowfall affect logistical traffic in areas where these events are common. Roads and other infrastructure can come to a complete halt for days or even weeks. Nothing much could be done about them except prior preparations in the form of backup.

Solution

To cover any potential internal operational risk, the best approach is to develop robust processes and eCommerce SOPs. It allows the opportunity to sit and identify the risks and plan operations in ways that those identified risks are duly addressed. For example, human mistakes in handling packages can be minimised by issuing instructions on handling procedures.

Tying up with reliable 3PL partners is highly recommended to minimise risks that lie beyond the ambit of an enterprise. A majority of eCommerce brands or the online channels of retail brands hire the services of external entities for many of their supply chain and logistical functions. It becomes important to ensure that these entities are reliable and can consistently adhere to the business requirements of their clients.

To deal with weather-related risks, it is advisable to go for scalable logistical and warehousing strategies and solutions. Goods could be stocked in fulfilment centres before the onset of the seasons of rain or snowfall.

Being a part of industry and business associations is also helpful to smoothly accommodate big new changes or negotiate their implementation. Maintaining conducive relationships with unions and associations helps businesses buy time to fulfil their demands and requirements.

Inventory-Related Risks

Inventory management is a function in eCommerce that calls for far more meticulous planning and decision-making on a day-to-day basis than any other business. The reason is the speed at which goods must travel from source to destination. What makes things more complicated are the ambitions to achieve quicker timelines of delivery because of competitive pressure. The common risks and pitfalls in eCommerce inventory management are highlighted next.

Unpredictable demand patterns often make achieving accuracy in demand forecasting a complex task in eCommerce. Businesses often find themselves ending up with excess or scarce stock levels in terms of both quantity and variety. This does not apply to fast-moving or popular goods but the problem is that it makes businesses play safe which is not good from the perspective of customers. Customers prefer to have a wide range of options. Overstocking leads to excess investments into inventory and under-stocking is bad for customer experience. Unsold products lying in warehouses can also become obsolete leading to the creation of dead stock and financial losses.

The inability and inconsistencies of suppliers to provide goods on time is another risk in eCommerce. The reasons could be internal or external but the ultimate effect of this is a slowdown of order fulfilment processes. Some suppliers also may not be able to fulfil demands on short notice or fulfil bigger orders. MOQ (Minimum Order Quantity) conditions by big suppliers can put small players in difficult situations if they are not able to generate the required sales levels.

Faulty or defective products entering the value chain is not something unusual in eCommerce. Lapses in quality control can happen at any stage in the supply chain. Such products are returned or replaced which escalates the cost. Refunds are worse from a commercial perspective. It affects brand reputation and creates negative reviews. Genuine negative reviews further discourage customers from buying such products.

Inventory shrinkage is a reality and no business is immune from it. Hundreds or even thousands of goods might be processed every day by an eCommerce company. Even with technology, keeping track of and reconciling physical and digital records is a monumental task. Shrinkages are more common than enhancements in the quantum of inventory. If considered over a longer period, these shrinkages accumulate to significant figures.

Solution

To overcome the risk of overstocking and under-stocking, it is highly recommended that businesses make use of advanced analytics tools for eCommerce market research and eCommerce demand forecasting. This is not to say human judgement is not required but with analytics, more informed decisions could be made on merchandising and stocking. Smart tactics like repeat-subscription-based purchases also help businesses manage inventory risk in online retail and bring some certainty on demand. Products should be listed on online platforms and made visible to customers only when they are available in the designated warehouses and fulfilment centres.

Identified early in eCommerce business model development, suppliers are important value chain partners. If their performance is not up to the mark, it will affect the performance of their clients as well. Businesses should exercise due diligence in the selection of suppliers. Before that, they must very well understand and establish their strategic and operational requirements. As experienced eCommerce consultants, we always maintain that having mechanisms to keep an eye on the performance of all relevant KPIs and KRAs of suppliers is also important so that corrective adjustments can be made. Having SLAs and open communication helps value chain partners forge strong professional relationships.

Adequate QA and QC measures in place significantly reduce the chances of faulty or sub-standard products entering the system. The place for QA and QC filters is the gates. Robust SOPs, technology, and a qualified and trained team are essential in quality management. These three requirements may vary in degree depending on the product category in question.

Record-keeping, reporting, and automation help in controlling inventory shrinkages. Measuring inventory is easier in smaller lots or batches. It requires that entries are made with every passing batch. Proper record maintenance at every juncture ensures that reconciliation and tracking are possible moving backwards in the process. Having automation makes making entries significantly easier. Records are digitally saved and remain shareable for reporting and monitoring purposes.

Technological Risks

Technology is what makes eCommerce possible. So, if anything is out of place with the technology framework, business operations will be affected and intended strategic goals might not be achieved. Some of the common technology-related risk exposures are discussed below.

ECommerce apps and websites are highly likely to face downtime. There are several reasons for this. Network and server issues are the most common which include excess traffic, coding flaws, software crashes, hardware failures, poor internet, cyber-attacks, etc. Sometimes human errors like improper configuration or faulty coding also cause platforms to work abnormally.

Downtimes affect businesses financially, in terms of operations, and marketing-wise. For example, disruption in payment processing adversely affects customer experience and revenue generation. Frequent downtimes can also negatively impact a website’s SERP performance and rankings. Inconsistency in the availability of an eCommerce app or website undermines the image of that brand. Business data might be exposed to risk during downtime potentially leading to data breaches.

In eCommerce, UX risks are the usability and design issues that can adversely impact the experience of customers when using a website/app. Poor UX often leads to lost sales, customer dissatisfaction, and damage to the brand. For example, a website loaded with excess elements, erratic menus, or unclear navigation makes it tough for customers to use that website. Search functionality or filtering is a perfect example here and except for a few, everyone is doing it wrong. In the same context, it is also important to maintain a standardised list for product descriptions. Ignoring these subtle factors gives rise to UX risks.

Maintaining data security at all stages of data handling is an essential requirement in any digital system including eCommerce. In eCommerce, data handling takes place at all the possible levels – collection, processing, storage, and transmission. This makes cybersecurity an even more complicated task in eCommerce. The risk of compromising on valuable customer and organisational data is always present. In the event of any data breach, it can put an organisation in all sorts of trouble.

Other technological risks are implementing misfit IT solutions, poor SOP-IT integration, lack of necessary automation, etc.

Solution

ECommerce businesses should invest in building a robust IT platform or go for a reliable and strategic platform service provider. The reputation and track record of service providers should be carefully checked. Cybersecurity measures and the ability to handle traffic are important considerations in choosing hosting services. Regular backup of data (as permissible by applicable laws) is recommended for recovery in the event of any data loss due to technological malfunction. Frequent monitoring helps to identify existing and potential issues and resolve them early. Having a response or recovery plan makes it possible to restore back to normalcy in a planned and systematic manner.

Coming to mitigating UX risks, the foremost requirement is to gain an insightful perspective of user requirements and expectations. User research and testing will help to achieve this. It will also help to understand the pain points of users. Assessment of competitors’ apps and websites could also provide many useful ideas. The prevailing industry standards and practices should not be ignored. Getting feedback from customers, using analytics and testing new ideas help in identifying improvisations.

For cybersecurity, it is best to hire or rely on professionals. They can recommend the best solutions in terms of software, devices and network security solutions. Certain standards and practices like regular software updates, implementing high-level encryption, enforcing 2FA, and periodical audit and control measures are highly recommended. Adopting relevant network security solutions helps to detect and prevent hacking attempts. Employee training and cybersecurity policies for employees are necessary because even minor behavioural mistakes can crack open vulnerabilities in network security. Businesses should also check and comply with the applicable regulatory laws for data protection and cybersecurity (e.g. adhering to GDPR checklist for eCommerce websites).

Recap

Behind the razzle-dazzle of eCommerce shopping lies a bunch of risks which if left unaddressed can adversely affect brands. It is a good idea to stay prepared with the right eCommerce business solutions to mitigate these risks.

Loopholes in technology frameworks and cyber security measures give rise to vulnerabilities which can be abused by criminal entities for ulterior and nefarious purposes. Having the right technological solutions is crucial for creating and maintaining a robust and updated cybersecurity framework. For this, it is best to hire or rely on professionals. Besides that, organisations should also have dedicated and qualified leadership with a team for IT management encompassing cybersecurity.

The ability to fulfil orders on time calls not just for a robust order fulfilment process but also requires strong supply chain and logistics management. Risks that emerge by not doing so include damage to products during handling and transit, defective goods entering the value chain, lack of supply chain agility, etc. Having well-defined processes, eCommerce SOPs, and backup plans significantly help mitigate the risks in supply chains and logistics. Partnering with reliable 3PL associates is highly recommended in eCommerce business model development. Scalable logistical and warehousing solutions help businesses adjust their inventory levels if and when situations call for like bad weather or low demand.

What makes inventory management more complicated in eCommerce are the ambitions to achieve competitive timelines of delivery. Optimising eCommerce supply chain for on-time deliveries often exposes businesses to certain risk factors. One such risk is ending up with situations of overstocking or understocking. To overcome this risk, it is advisable that advanced analytics is used to conduct eCommerce market research and in making eCommerce demand forecasting.Some of the common technology-related risk exposures are downtimes, failing UX, lapses in cybersecurity, misfit IT products, poor SOP-IT integration, lack of automation, etc. To mitigate technological risks, it is best to rely on experts and professionals.