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The Inventory Planning Dictionary

10/13/19 11:28 AM / by Fuse Inventory

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A guide to the terms an inventory planner must know.

3PL

Acronym for third-party logistics, which is an organization's use of an alternate business to outsource parts of its distribution, warehousing, and fulfillment services. Also known as TPL.

80/20 rule

Implies that 80% of effects are the result of 20% of causes. In planning, this is often referred to as the top 20% of SKUs that drive 80% of a business’ sales. Also known as the Pareto Principle.

Air ship

A mode of transportation of saleable goods. Due to its high costs, air ship is often used in the case of speeding up a product’s lead time for an earlier receipt.

Allocation

Used to describe how demand is spread across an entire portfolio or subset of products. Allocation can be used to describe sizing (size allocation) of a style or demand of all products in a category either by style or color.

Anticipated stock out

A calculation of when an item will go out of stock. It is calculated as: today’s date + (DSI / 365). See DSI.

AOV

Stands for average order value. AOV is a metric used to track how much a customer spends on average per order. It is also referred to as “basket size” or “cart value”. It is calculated as: revenue / # of orders.

API

Stands for application programming interface. APIs allow computer applications to communicate with each other.

ATS

Stands for available to sell. ATS is a term used to describe the units of a product allocated for sale. By default, it excludes units that are pending shipment or are allocated to existing orders or any units committed on backorders.

AUC

Stands for average unit cost. AUC is a metric used to track the per unit cost value of inventory sold, held, or in transit. It is calculated as: total cost of goods / total units.

AUR

Stands for average unit retail. AUR is a metric used to track the per unit retail value of inventory sold, held, or in transit. It is calculated as: total retail value of goods / total units.

Available stock

Similar to ATS, available stock is the total amount of an item available for use or sale. It is calculated as: total stock on hand - allocated stock.

Average inventory

Measures the value of goods during two or more specific time periods. Average inventory is typically used in calculating turnover. Average inventory is calculated as: (period 1 inventory + period 2 inventory) / # of periods

Backorder

An order for goods that cannot be fulfilled at the current time due to a lack of available stock. Backorder implies that a product’s demand outweighs its supply.

Barcode

A method of representing a product in a unique, machine-readable form. It can be used to describe the visual pattern scannable at a POS, or a unique string of numbers specific to an individual SKU.

BOH

Stands for beginning on hand. BOH is used to value total inventory at the start of a period typically a month, week, or year. Other metrics alternatively used are: BOP (beginning of period), BOM (beginning of month), and BOS (beginning of season). BOH is typically referred to at cost value, but it can also be shown at retail value to represent the value of revenue on hand. Inventory is typically represented as the total value owned, including that which may not be sitting at a warehouse.

BOM

Stands for bill of materials. A BOM lists the materials required to produce an item. A BOM may be tied to a production order, upon which it will generate reservations on the components in stock, and a request for order for those that are not.

Bottom-up forecasting

A forecasting approach that focuses on the analysis or performance of an individual product and de-emphasizes the impact of macro factors such as a business’ sales plan or the performance of other products. While it is the opposite of top-down forecasting, the two are often used together to optimize forecasts.

Breadth

Relates to the number of product lines a company carries. Breadth is used in conjugation with depth which is the variety within each of the product lines.

Build

A term used to describe performance over two consecutive periods of time. It is calculated as period 2 sales / period 1 sales. For example, if a SKU sells $80 in January and $90 in February, it would have a 1.125x build or a 12.5% build. Conversely, if performance of period 2 is lower than period one, or the build is less than one, it would be known as a de-build.

Bundles

Also known as kits. Bundles are the combination of multiple SKUs selling as one.

Campaign

A marketing or advertising campaign is the promotion of product through different media channels. Specified to a specific time period, the intent of campaigns is to increase sales of a product or subset of products.

Cannibalization

Refers to the reduction in sales of one product due to the presence of another product in the assortment.

Capacity

Refers to the maximum output of products that can be produced in a given period. Capacity can be referenced in design, production, or fulfillment of goods.

Carrying costs

The costs associated with having specific quantities of inventory. It is calculated as: cost of inventory on hand + storage cost of inventory on hand. Carrying costs are typically used in calculating EOQ.

Carton quantity

Refers to the number of products that can fit in a box. This is typically used in conjunction with MOQ to determine the most cost effective production of goods.

Channel

Also known as vertical. Refers to the method of selling products. A channel can be defined as a retail store, eCommerce platform, or alternative third party selling. The common term multi-channel refers to utilizing two or more channels for the selling of products.

COGS

Stands for cost of goods sold. This is a term used to describe the total value or cost of products sold during a specific time period.

Committed stock

Used to describe product not available for sale due to it being reserved typically for a sales or purchase order.

Comp styles

This is jargon used to describe comparable styles of product that may provide an indicator of sales in the case of uncertainty.

Consumption

Refers to the amount of raw materials used for production of goods.

Cost of capital

The cost associated with having money tied up in inventory.

Current period

Abbreviated as CP, current period refers to a specific current time period. It is oftentimes used with TY (this year) and LY (last year)

Cycle count

A process of verifying inventory quantity data by regularly counting portions of inventory.

Dashboard

A visible summary of key data to understand overall performance.

Demand

The need for a specific item in a specific quantity. This is different from sales as demand is an indicator unaffected by inventory availability.

Discount

Refers to the savings a customer receives from a coupon or a wholesaler receives in order for them to make a profit on the sale of that good.

Distribution center

Abbreviated as DC, a distribution center is a warehouse or other location with stocks product for sale to retailers, wholesalers, or customers.

Dropship

A method of moving goods to the end user without going through the typical distribution channel. It can be used in retail as a method of fulfilling stock not held in store to the customer from a warehouse. It can also be used when inventory ships directly from the factory to a customer avoiding a warehouse location.

DSI

Stands for days sales of inventory. DSI is a metric used to determine the average time in days it will take to turn inventory into sales. It is also known as the average age of inventory. It is calculated as: (average inventory / COGS) x 365

EDI

Stands for electronic data interchange. EDI is the transfer of data from one computer system to another.

EOH

Stands for ending on hand. EOH is used to value total inventory at the end of a period typically a month, week, or year. Other metrics alternatively used are: EOP (end of period), EOM (end of month), and EOS (end of season). EOH is typically referred to at cost value, but it can also be shown at retail value to represent the value of revenue on hand. Inventory is typically represented as the total value owned, including that which may not be sitting at a warehouse.

EOQ

Stands for economic order quantity. EOQ determines the most cost effective quantity to order by finding the point at which the order cost and carrying cost is the least.

ERP

Stands for enterprise resource planning. ERP is business process management software that integrates multiple applications to manage the business and automate functions.

Excess inventory

Inventory greater than what is deemed the “right” amount of inventory. Typically businesses will use a set period of time based on it’s turn goals to determine how long an inventory position should be. Any value of inventory greater than this period would be referred to as excess inventory.

FIFO

Stands for first in, first out. FIFO is a method of valuing inventory which assumes that the first items placed in inventory are the first sold. Therefore, the valuation of inventory at the end of a sale period will be heavily weighted towards the value of goods most recently received.

Fill rate

A metric that shows the number of items sold compared to the number of items purchased. It is calculated as: items sold / items purchased. If this number exceeds 100%, it means that goods are being backordered due to stockouts.

Finished goods

Dependent on its location in the supply chain, a finished good is either inventory that is in a saleable or shippable form.

FOB

Stands for free or freight on board. FOB means that the seller or factory pays for the transportation of the goods to the port for shipment as well as loading costs but the buyer pays for the remaining costs to get the goods to an ending location or warehouse. FOB cost is referred to as the production cost of inventory. It differs from the landed (direct or standard) cost of inventory.

Forecast

An estimate of future demand. Many companies use the terms forecast, budget, and plan interchangeably. It’s important to note the difference between which terminology refers to what is “original” versus what can be adjusted as sales actualize and trends are identified. At Fuse, forecast refers to the original and projected sales refer to the adjustments made to demand.

Forecast period

The time span for which a forecast is applicable.

GMROI

Also known as GMROII. stands for gross margin return on (inventory) investment. GMROI is an inventory profitability ratio that shows your margin relative to your inventory investment. It is calculated as: gross margin / average inventory cost.

Gross Margin

The difference between cost and sale price. It can also refer to a business’ total sales less it’s COGS. It is calculated as: sale price (or total sales) - cost (or COGS)

GM%

Stands for gross margin percentage. GM% shows gross margin as a function of sale price or total sales. It is calculated as: gross margin / sale price (or total sales)

Gross sales

A metric for the overall sales of a company. It excludes the costs of generating those sales as well as any discounts or returns. It is the sum of all sales invoices. When forecasting, it is calculated as the sum of all unit sales times their selling price.

Handover

Refers to when goods finish production and begin transportation to their final destination or warehouse. Companies may value inventory owned upon handover.

Hindsight

The act of analyzing and recapping product performance in a specific forecast period.

Historical sales

Sales attached to prior periods of time.

IMS

Stands for in market sales. IMS refers to the sale of a company’s products after they’ve sold as product sales to the original customer. For example, if a wholesaler purchases inventory, it is recognized as a product sale to the wholesaler. Once that wholesaler sells the goods to an end customer, that is referred to as an IMS.

IMS

Also stands for inventory management system. An IMS is technology (both hardware and software) that tracks inventory levels, orders, sales, and deliveries. It can also be used in manufacturing to issue work orders, BOM, and other production documents. The main goal of an IMS is to avoid overstock and stockouts of product.

IMU

Stands for initial (or item) markup. IMU is the amount of money expressed as a percentage a retailer adds to the cost of a good to determine the selling price.

In-Season

Refers to a current planning period. Activities that take place in-season include: analysis of product and category performance, markdowns and promotions, reforecasting, and the ongoing management of replenishment or evergreen inventory.

In-stock rate

Refers to the amount of an assortment that is in stock. It is calculated as: SKUs in stock / total available SKUs. In stock rate can also be measured on a door/item/SKU level for retailers. For example, if a retailer has 100 doors, and carries 10 SKUs per door, a measure of 95% in stock rate means that 950 out of 1000 door/SKU combinations have at least 1 unit in stock.

In transit

Refers to goods between the time of handover and the time of receipt. Businesses may value inventory both in transit as well as in a physical location.

Inventory turnover

Also known as turn. is a measure of the velocity of inventory. It is calculated as: average inventory / annual COGS. Businesses typically set turn goals as a measure of how long they wish to hold inventory. A turn goal of 4x means 3 months of inventory are owned at any given point in time.

Landed costs

Also known as standard or direct costs. are the costs attached to the production and receipt of saleable goods to a storage location. The value of a product’s landed cost typically includes the FOB cost and is therefore used to value one unit of inventory.

Last-period demand

A forecasting method that used demand from a previous period as the forecast for a subsequent period

Lead-time

Abbreviated as LT, lead time refers to the amount of time it takes for a purchased item to be delivered after it is ordered.

Lead-time demand

Demand that is accounted for during a product’s lead-time. For example, if your forecasted demand is 5 units per day, and your lead time is 10 days, your lead-time demand would be 50 units.

LIFO

Stands for last in, first out. LIFO is a method of valuing inventory which assumes that the last items placed in inventory are the first sold. Therefore, the valuation of inventory at the end of a sale period will be heavily weighted towards the value of goods received earlier.

Line plan

Also referred to as a slot plan or assortment plan. A line plan defines the products that are going to be added to the assortment, how many pieces to expect, and when the products will be available.

Liquidate

To convert inventory that is often stale or in excess into cash by selling to a third party often times a liquidator or off-price wholesaler.

Lot size

Also known as order quantity. Lot size refers to the quantity of an item you order for delivery on a specific date. In production or manufacturing, it can also mean the amount made in a single production run.

Made-to-order

Also known as make-to-order or procure-to-order. Refers to goods produced to supply a special or individual demand. Ordering or manufacturing of the item does not begin until after a sales order is received from the customer.

MAP

Stands for minimum advertised price. MAP is the minimum amount resellers agree not to advertise a product’s price below.

Markdown

The lowering of a product’s selling price, typically by a set percentage. Markdowns are a method of moving through stale or slow moving inventory faster. A markdown is different from a promotion as it is considered permanent until the product sells out.

MOH

Stands for months on hand. MOH is a metric used to value the life of inventory on hand in months or how many months it will take for an item to sell out based on current on hand inventory. It is an alternative time span for valuing inventory compared to WOH and DSI and can be applied to a specific product, category, or total business. It is calculated as: current inventory value / an average month’s sales

MOQ

Stands for minimum order quantity. MOQ refers to the minimum amount that can be ordered from a supplier in a single order. It may be used in conjunction with carton size to optimize inventory ordering.

MRP

Stands for materials requirement planning. MRP is a system used for production planning, scheduling, and inventory control in the manufacturing process. The goal of a MRP software is to efficiently manage all the resources necessary to meet manufacturing demand while maintaining lean inventory levels.

MSRP

Stands for manufacturers suggested retail price. This is also known as the sticker price or selling price or an item. In forecasting, this is multiplied by a product’s unit projection to yield gross sales.

Multi-channel

Refers to a business’ many channels of selling. This is slightly different from the term omni-channel which refers to all of a business’ channels of selling. Omni-channel unifies sales and marketing while multi-channel is less integrated.

Net sales

The result of gross sales less discounts, returns, and allowances. Net sales are a factor in profit but do not include the cost of goods sold or the cost of selling those goods.

OMS

Stands for order management system or software. OMS is used for order entry and processing.

On-hand inventory

Refers to the value of inventory available at a given time. Inventory can be valued as total owned in a physical location or total owned as assets regardless of location.

On order

A record of goods requested but not yet received.

OOS rate

Stands for out of stock rate. This is the inverse of an in-stock rate. OOS refers to the amount of an assortment that is not in stock. It is calculated as: SKUs not in stock / total available SKUs.

Open PO

Stands for open purchase order. This refers to a purchase order for which goods are not delivered or only partially delivered. A purchase order is considered closed once goods are fully received.

OTB

Stands for open-to-buy. OTB is the difference between how much inventory is needed and how much is available. It can also be referred to as the purchasing budget for future inventory orders.

Overstock

Also known as excess inventory. Inventory or supply in excess of what is needed based on demand.

Penetration

Similar to allocation, penetration refers to the impact a product’s or category’s sales has to the overall business. If a product or category makes up 5% of total sales, it would be said that it has a penetration of 5%.

Phase off

Also known as sell-off. refers to the intentional depletion of inventory.

PI

Stands for physical inventory. PI is the process of counting all inventory in a warehouse or location in a single time period, typically once per year. It is different from cycle count in that PI verifies all inventory levels. Data received from a PI may be used as a resetting of an inventory record for a given point in time.

Plan

Reflects the optimal timing and quantity of a product assortment.

PLM

Stands for product lifecycle management. PLM is a software that tracks a product as it moves through the typical stages of its life such as development, launch, growth, maturity, and decline. The goal of PLM is to provide a backbone for product information.

PO

Stands for purchase order. A PO is a contract document used to request or authorize, track, and process items purchased from a supplier. It may also include terms of the sale including payment terms and handover or receipt dates.

POS

Stands for point-of-sale (also known as point-of-purchase or POP). A POS refers to the time and place a retail transaction is completed.

Post-mortem

Jargon used to describe the analysis of a product, category, or business after a sale or forecast period. This is similar to hindsighting. The goal is to understand what worked and what didn’t work in order to inform future strategies.

Post-season

Refers to the time period following in-season where a post-mortem may take place and insights from performance will drive future decisions.

Pre-season

Refers to the time period before a product’s sale period or in-season period. Pre-season activities include the analysis of historical sales data in order to inform purchasing decisions. Competitive data may also be evaluated at this time to further support strategies.

Product life cycle

The period of time in which an item is considered an active saleable item. Product life cycle may also refer to the development time for a product.

Production time

The amount of time it takes to manufacture a product. This can differ from lead-time as it does not include development or transit time.

Profitability

The degree to which a business or product yields profit or financial gain. It is often measured by a price to earnings ratio. Both GMROI and GM% are measures of profitability.

Promotion

The act of increasing marketing activities or reducing selling price to support the sale of a product or assortment of products. A temporary sale for a set period of time is the most common form of a promotion.

Raw materials

Also known as unfinished goods or components. Inventory used in the production process of goods.

Reorder point

The inventory level set to trigger an order of an individual product. It is calculated as: lead time demand + safety stock

Receipts

The finished goods associated with the receiving process. Goods on order transfer to receipts once they are in the receiving process and then may be classified as inventory.

Receiving process

The act of placing finished goods into inventory

Recency

Refers to the sales prior to and closest to the forecast period. Recency is attributable to trend which can change a projection.

Relevant history

Data recorded under similar enough conditions to current and future time periods such that it can be used to forecast future demand. For example, data recorded in Q1 of this year may be considered relevant history for a projection of Q1 of the following year.

Replenishment

Refers to the physical re-stocking of products. In a product assortment, it can refer to the evergreen products or those with less volatile demand that are more accurately purchased due to their constant demand.

RFID

Stands for radio frequency identification. RFID is a technology where digital data is encrypted and aids the physical tracking of inventory.

ROI

Stands for return on investment. ROI is a measure to evaluate the efficiency of an investment.

Safety stock

Also known as buffer stock. This is the quantity of inventory reserved to allow for variation in demand. Safety stock may be deemed by a set quantity or WOS target.

Sales order

A document used to approve, track, and process outbound customer orders or shipments.

Sales per square foot

Calculates the return on investment of a physical selling location. It can be used as an estimate of sales based on store size. It is calculated as: sales / square feet of selling space

Sales velocity

A measurement of how fast a business is making money or how quickly a product is sold.

Seasonality

Fluctuations in demand that repeat the same pattern over like time periods. In other words, products that follow the same sales pattern each year for a particular span of weeks, months, or quarters.

Sell-off

Also known as phase-off. This is the act of intentionally depleting a product’s inventory. This typically happens as a sale at a lower selling price.

Sell-through rate

A measure of the amount of inventory owned compared to the amount sold. For a specific time period, it is calculated as: units sold / units owned

Service level

Used to describe a desired fill-rate and on-time-delivery rate

Setup costs

Costs associated with initiating a production run. Examples include a plate or tooling fee or machine set up. This may be absorbed by a business into the product cost.

Short-ship

Also known as short-shipment. This refers to goods requested on a PO but not fulfilled by the supplier. In other words, when the quantity received is less than the quantity ordered or listed on the PO.

Short-stock

Also known as a shortage. This is when there isn’t enough supply to meet demand, thus resulting in a stockout.

Shrink

Also known as shrinkage. When a business has fewer items in stock that what is recorded on an inventory list as a result of error, damage, or stolen goods. In inventory planning, it’s helpful to keep a set amount for the businesses’ shrink rate to avoid being short-stocked.

SKU

Stands for stock keeping unit. This refers to a specific item in a specific unit of measure, typically each. It can also be used interchangeably with item number.

Smoothing

Removing variation from demand. It may also be used interchangeably with normalizing demand.

Stale inventory

Inventory that has exceeded it’s shelf life, or in the case of non-perishable goods, it is inventory that has aged and may be slow selling due to a variety of reasons.

Standard deviation

Used to describe the spread of variation in a distribution of data.

Stock-to-sales

A monthly ratio that measures the ability of inventory on hand to meet demand. It is calculated as: beginning of month unit inventory / unit sales for the month.

Stockout

When inventory levels are not enough to meet demand.

Stockout date

Similar to anticipated stockout, this is a measure of when an item will run out of stock.

Storage cost

The costs associated with the physical storage of inventory. This can include the cost of space in a storage location, as well as any fees incurred with storage. This is used in conjunction with inventory value to determine carrying costs.

Top-down forecasting

An alternative method to bottom-up forecasting, top-down forecasting is a method that quantifies macro or external impacts on a business to understand overall sales forecasts. Trends are then applied to subsets of the business to work down to an individual SKU level.

Transit time

The length of time it takes a finished good to reach it’s receiving location from it’s handover location.

Trend

A gradual increase or decrease in demand over time.

Units

Individual pieces of physical inventory.

UOM

Stands for unit of measure. This describes how the quantity of an item is tracked in inventory. The most common is “eaches”, but products can also be measured in cases, pallets, ounces, pairs, and much more.

UPC

Stands for universal product code. This is a unique string of 12 numeric digits assigned to each product. This, along with the barcode, are used in identifying and tracking a finished good.

UPT

Stands for units per transaction. UPT is a sales metric used to measure the average number of items a customer is purchasing in an order in any given time period. It is calculated as: units sold / # of orders

Variability

Describes data that diverges from the average or norm as well as the extent to which this data differs.

Variants

Unique attributes tied to a specific product. Variants can include sizes of a style, or characteristics of a SKU such as color, fabric, category, etc.

Virtual warehouse

Also known as a data warehouse. A virtual warehouse collects and displays business data for any moment in time. They are sometimes used to allocate and reserve physical inventory for use in different channels.

Volatility

Tendency to change rapidly and unpredictably.

WMS

Stands for warehouse management system or software. The goal of WMS is to support and optimize warehouse functionality and distribution center management via the effective movement and storing of inventory or materials.

WOH

Stands for weeks on hand. WOH is a metric used to value the life of inventory on hand in weeks or how many weeks it will take for an item to sell out based on current on hand inventory and current average weekly sales. It differs from WOS which looks forward to projected weekly sales instead of current actuals. WOH is calculated as: inventory on hand / average weekly sales (or future average weekly sales for WOS)

WOS

Stands for weeks of supply. WOS is a metric used to value the life of inventory on hand in weeks or how many weeks it will take for an item to sell out based on current on hand inventory and future projected weekly sales. WOS is calculated as: inventory on hand / future average weekly sales

Yield

Refers to the amount of goods created from raw materials. It is the opposite of consumption. For example, if a product’s consumption is 5 yards of fabric, one would say that 5 yards of fabric yields one finished unit.

YoY

Stands for year-over-year. YoY is used in describing data relative to a prior year period. For example, when comparing TY vs LY, one would refer to it as YoY performance. It can also be used for a future year period compared to its subsequent year period.

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How to tackle your biggest business investment: your inventory

9/22/19 5:19 PM / by Fuse Inventory posted in supply chain, supply chain management, merchandise planning, inventory planning, supply chain optimization, demand forecasting, order management, industry

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After conducting almost 200 customer interviews, we’ve gained some insight into what separates the great from the good when it comes to inventory.

We started by asking our advisor, Oseyi Ikuenobe, the Senior Product Manager of @WalmartLabs’ Smart Forecasting product for his thoughts. At @WalmartLabs, Oseyi and a team of data scientists and engineers plans the inventory for Walmart’s $13 bn e-commerce business. 

Inventory management should have ROI benchmarks

According to Oseyi, "The best inventory strategy is one that allows you to buy the 'right amounts of the right inventory' to maximize revenue, profitability and growth. Instead of trying to simply control costs, it is better to think of inventory decisions the way we think of marketing spend - in terms of ROI. Once you have that mindset, you quickly realize that the ultimate smart inventory solution is one that can synthesize the collective wisdom of the organization and deploy it to drive decision making."

We’ve gleaned two insights from Oseyi’s thoughts:

  1. Best-in-class retailers think about inventory as an investment, not a cost center
  2. Collaboration between key functional areas is key to successful inventory planning

Reframing inventory as an investment

We work mostly with start-ups and all too often we see them allocating a fixed budget to inventory. But, inventory is an investment, much like marketing. The investment that a company makes in its inventory supports the company’s sales target. We’d propose that companies go through a series of questions to set their inventory budget:

  1. What is our marketing budget?
  2. Based on our marketing spend and our organic reach, what is our revenue target?
  3. How much product do we need to sell to support our revenue target?

This third question is the start of the planning process. Once the revenue target is established, a planner can go through and make a determination regarding the product mix and volume of product needed. 

Collaboration improves inventory planning

The process described above only works if there is tight collaboration between all of the functional areas that impact sales like finance, marketing, merchandising and operations. 

Unfortunately, we have seen a lot of avoidable crises caused because one functional area forgot to tell operations about planned changes. Things like changing the discount amount on a promo or A/B tests planned on the site. While these lapses might seem small, they can have a big impact if there isn’t enough product in stock to support these initiatives.

So What?

We want to encourage our customers to reframe the way you think about inventory: it’s not your biggest cost center, it’s your biggest investment. At Fuse, we’re designing a tool to help automate the grunt work of planning so that you can focus on important, strategic decisions. 

We’re here to help you focus on your business, not your inventory.

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Why we believe in online-first brands

9/22/19 5:07 PM / by Fuse Inventory posted in digitally native brands, ecommerce, industry

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At Fuse, we are excited about the wave of online first brands that we’ve seen succeed over the past decade. In a recent post by Andy Dunn, he called these brands “digitally native vertical brands” and later, “v-commerce”.

Will digitally native e-commerce brands succeed?

We asked Matt Heiman, a consumer investor at Greylock to share his perspective: “My view is that vertically focused direct to consumer online brands are better positioned than pure 3rd party e-commerce concepts over the next few years. Particularly as Amazon approaches 40% of US e-commerce, competing with them is extremely difficult, so the idea of creating a new brand and owning your own customer experience is a better position. Some examples of brands I think have done this well are CasperDollar Shave Club and Warby Parker.”

We agree with Matt, and we think that the sale of Dollar Shave Club to Unilever earlier this year for $1 bn has convinced others that it’s possible to build a valuable brand that caters to a different kind of consumer online. Dollar Shave Club’s true value is in the company’s fantastic brand and it’s ability to appeal to and engage with Millennial consumers in an authentic way over social media and other digital marketing channels (1).

E-commerce platforms make it easy to build a brand

We’re seeing this trend first hand at Fuse. Our target customers are fast growing companies with at least 25 employees and anywhere from $10 - $100 million of revenue who are excelling at building their own online first brands. One company, Ipsy, knows all about brand building. Ipsy was started byMichelle Phan, who built her own personal brand as a make-up guru on YouTube. As the company has evolved, the brand which originally appealed to Michelle’s followers and the make-up obsessed, has started to reach more casual consumers looking to expand their horizons.

The good news for many of our customers is that it’s much easier to build a strong brand online today than it was five years ago. Due to the proliferation of front-end e-commerce platforms like Shopify,BigCommerce and Squarespace, it’s much easier to build a great brand with minimal upfront investment. With the emergence of Shopify Plus as an enterprise e-commerce platform for companies looking to scale, we expect this trend to continue.

Inventory management systems haven't kept up (until now)

Although this is good news for many aspiring brand builders, the unfortunate reality is that back-end tools and platforms haven’t necessarily kept up with the front-end. Shopify has done a great job building an ecosystem around its API, but there are still a lot of gaps on the back-end. That’s where we at Fuse come in. Our goal is to help simplify the inventory planning process to help companies answer the key question related to their biggest investment: “How much should I order?” We’re really excited about the growth of online first brands in the market, and are just as excited to be able to help those brands focus on their business, not their inventory.

 

(1) Source: Bloomberg

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Struggling to forecast your inventory in Excel? Don't worry, you're not alone.

9/22/19 4:58 PM / by Fuse Inventory posted in supply chain, inventory management software, merchandise planning, inventory planning, demand forecasting, order management

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At Fuse, we have the privilege of helping our customers enjoy their work more by providing an easy to use, beautifully designed inventory planning tool. As we’ve gotten to know our customers, we’ve been deeply impressed by how thoughtful, sharp and hard-working you are.

We’ve compiled data from over 150 customer interviews to send you one message: you’re not alone. In every single interview, our customers inevitably ask, “Are we the only ones using Excel and Google sheets?” 

The answer is no, you are absolutely not. You’re not alone. That’s exactly why we at Fuse decided to tackle the challenge of inventory planning and management head-on.

90% of customers manage inventory in Excel

Almost 90% of our customers manage their inventory in a combination of Excel and Google Sheets, while just under 10% have moved on to build a custom system -- a costly and lengthy process. Typically, companies start thinking about a custom system at the 100 SKU mark when they’ve pushed their existing Excel models to a breaking point. Excel is crashing on a daily basis and procurement is nearly impossible to track in Google Sheets. 

We asked Karan, Director of Ops at Boxed, a company bringing bulk wholesale shopping to mobile, why they built a custom system: “At Boxed, we needed backend inventory forecasting systems that were customized for our business model and flexible. We searched for a solution on the market and didn’t find anything that met our needs. This is why we chose to design something in-house.”

Custom inventory management systems have drawbacks

Of the companies we spoke to that have built a custom system, the top three reasons for building something in-house were not being able to find a system that meets their needs, not being able to afford existing systems and not wanting to spend a long time implementing an external solution.

Unfortunately, custom systems come with their own challenges. Most require at least one full-time engineer to maintain them, taking away valuable engineering talent from important product initiatives that could grow the business. This is exactly why most companies don’t devote a full-time engineer to maintaining their system. Inevitably, it fails to keep up with the growing organization’s needs and ultimately needs to be overhauled. 

Building a custom system is expensive. The companies we’ve spoken to have spent anywhere from $200,000 to over $1,000,000 just to build it, excluding the cost of ongoing maintenance. 

Fuse's mission is to change the frustrating status quo. Our favorite part of our job is talking to customers and improving your quality of life. Working at a fast-growing company is exciting and fun. We want to help you spend more time focusing on your business, not your inventory.

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7 Easy Steps to Set Up Your Supply Chain Correctly

9/22/19 12:19 PM / by Fuse Inventory posted in supply chain, inventory management software, supply chain management, merchandise planning, inventory planning, supply chain optimization, demand forecasting, order management

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Supply chain is incredibly daunting, especially if you’re new to it. While it might seem confusing and complicated at first, you can tackle this complex field by breaking it down into a series of simple steps. 

1.       Choose Your Inventory Assortment

This is where your genius as a founder comes in. You know your customers best and you can use your judgement and qualitative insights to hone in on that next best thing. Of course, if there’s any data you can use to supplement your intuition (like what’s sold well in the past), we encourage you to do so!

We always recommend that young companies start with a simple assortment of SKUs. You can always add more as you grow, but it’s incredibly hard to manage a wide product assortment right out of the gate.

2.       Forecast Demand

This step is critical because you need to have an understanding of what sales of each product (down to the size and color level) will be. Without this analysis, you could wind up vastly over or under buying inventory. When you’re just starting out, it’s completely OK to use an Excel model. Hopefully, you’ve taken our advice and kept your product assortment simple, which will make it easier for you to forecast demand.

However, as you scale, there aren’t really any sophisticated tools out there to help you that don’t cost a small fortune. That’s why we created Fuse - to help algorithmically forecast demand at a price point that doesn’t break the bank.

3.       Size Your Inventory Buys

Once you’ve completed your demand forecast, you need to translate this data into an inventory buy and replenishment plan to make sure that you have enough inventory to fulfill expected demand. As a young company, you can’t afford to stock out - it disappoints customers and damages your brand.

To avoid stockouts, you want to link your demand forecast to the inventory you have on hand and the inventory you expect to receive from suppliers in the coming months. You need to order enough to make up for the gap between what you have on hand, what you expect to receive and how much you plan to sell. You’ll also need a bit of buffer just in case.

Many companies do this work in Excel, but Fuse can automate the whole process of translating your forecast to an order recommendation that’s consistent with your buying cycle.

4.       Track Your Purchase Orders

Now that you’ve placed your orders with your suppliers, you’ll need some sort of tracking system to track these POs. If there are delays or something arrives to the factory damaged, you’ll want to make sure to stay on top of it or else you may stock out.

Many companies use Google Sheets, but with Fuse’s PO module, Fuse has a simple way for you to seamlessly track your purchase orders. Unlike a google sheet, once the PO change is logged, we can seamlessly link it back to your current inventory position and demand forecast in order to give you a clear picture of what this means for your business.

5.       Track Your Inventory

Now you know that your inventory is somewhere between your supplier and your warehouse, but the question is, where? Is it on the boat, is it at the dock, is it in the warehouse? Flexport can help you track where your goods are. This type of tracking is critical because there may be delays at customs or in other parts of that shipping process that neither you nor your vendor can anticipate. Having visibility can help you make adjustments and communicate with your customers.

6.       Understand Your Inventory Position

Your inventory has arrived. Now, it’s critical to understand exactly how much of it you have and where it is. There are two possibilities - you can do it yourself at your own warehouse or you can work with a third party logistics provider (3PL). Most young companies choose to work with a 3PL rather than managing their own warehouse. With a 3PL provider like Quiet Logistics, you can completely outsource both the tracking and fulfillment piece of inventory management. While this might seem expensive, unless your core competency as a business or a founder is warehouse management, you may be better off outsourcing.

If you do choose to run and manage your own warehouse, you’ll need a warehouse management system like Fishbowl to help your employees in the warehouse know what’s where and also track goods as they come in. 

7.       Fulfill Your Orders

Finally, your products are in your warehouse and you’re ready to get products into the hands of customers. This is one of the most critical questions in the supply chain. There are two parts to this process - order management part and shipping and logistics.

On the order management side, there are many great systems out there like Stitch Labs that can help you make sure you’ve allocated the right amount of inventory to your e-commerce site, your retail store and your wholesale business. When you process an order from a customer on your website, you want to make sure that you have enough inventory to fulfill that order. You might have a lot of inventory on hand, but perhaps all of it is already allocated to your wholesale channel. These systems can also notify you when you’re running low. As your company grows, you may want to expand into more robust ERP systems like NetSuite. These types of systems are typically what people think of when they refer to an “inventory management system.”

Finally, the shipping and logistics piece is a whole separate beast. Smaller companies aren’t well resourced to do this, which is why a 3PL system can be extremely useful. Not only can they take care of your inbound goods, but they can also pack and ship goods to your customers. There are also new software providers like Shiphawk that can help you and your customers track where the shipment is. This piece is critically important because it’s how your customers will interact with you and your brand, so you want the experience - from packaging, to shipping, to tracking, to delivery - to be flawless. 

Staying sane

As a growing company, to stay sane, you need to take it one step at a time. There are some basic things you can do when you’re starting out to make life easier and help you succeed. First, find a 3PL provider you trust and rely on them to do the blocking and tackling. Second, while going into wholesale can seem attractive, you need to be careful about doing this early on. Working with retailers that are 1000x your size can be extremely challenging and time consuming, so you want to make sure to pick the right partner. Lastly, be thoughtful about how much inventory you buy and how you finance it. Making big mistakes early on can literally take down your company. 

We created Fuse to help companies transition from managing their demand forecasting and inventory planning process in Excel and Google Sheets to using sophisticated software. Start with Excel, but don’t stay there too long. As your business becomes more complex, mistakes become even more risky and costly. Make sure to invest in inventory planning software like Fuse to avoid drastically over or understocking. We’re here to help you focus on your business, not your inventory.

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