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A day in the life of a Merchandise Planner

11/27/19 3:00 PM / by Fuse Inventory posted in merchandise planning, inventory planning, demand forecasting, industry

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You may be wondering what exactly a planner does with their time, besides the obvious planning. Put simply, your main responsibility as a planner is to order the right amount of inventory, at the right time. But in order to do this, you must put in place and manage quarterly, monthly, weekly, and daily processes consisting of pre-season, in-season, and post-season planning and analysis. In other words, no two days are the same!

1. Check Your Emails

Pour yourself a large cup of coffee and get ready for the day ahead! Because your role as a planner is integral to the connectedness of the organization, it’s important to stay up to date on all relevant information from the teams you bridge. This means staying on top of what your Finance, Supply Chain, and Marketing teams are requesting or sharing with you.  

2. Know Your Sales

While you’re probably naturally curious and want to know how you’re performing, having a pulse on performance will also help you with the day’s decisions and ensure others you are well informed. Trust is a fundamental component of any Planner’s relationship with their team and knowing what your sales are is a key part of building it. Stay on top of performance highlights, wins and losses, and you’ll be sure to leave a good impression!

3. Manage Your Inventory

A big part of planning is having a good handle on where your inventory lives. This means staying on top of deliveries and any shifts in receipts, stock levels, and any other inventory records that may impact sales and performance. This time may be spent running and analyzing reports, asking and answering your own questions, and most importantly, taking note of anything that will impact product planning.

4. Forecast

Alas, you have the most up to date information to influence your planning strategy and projected sales. Now’s the time to put these learnings into effect. This is the part of your day spent in any systems and/or excel models used to forecast demand and inventory needs. While this may be among the most time consuming of the day’s activities, it is undeniably the most important.  

5. Submit Your Handoffs

Similar to how you start the day making sure you’re up to date on everything, you typically end the day ensuring anything that may impact others is shared in the appropriate manner. Once you’ve cleaned everything off your plate, spend some time planning the rest of your week and making sure all monthly and quarterly to-do’s are being taken care of as well. 

Enjoy the Ride

Being a planner truly is an exciting role. You get to work with every part of the business, buy products, and watch mathematically backed guesses unfold. Not only do you forecast inventory needs and performance, you’ll be on top of both short term and long term business planning as well. A great practice to make the ride as smooth as possible is ensuring information is up to date and accessible to others, asking questions, and staying curious! 

At this point, you may be wondering, “Are planners superheroes, too? How is all of this done in one day?” The short answer is, it won’t always be. That’s where Fuse comes in. Our goal is to help simplify the inventory planning process and make a Planner’s role easier. We take out the grunt work from these tasks so that you can focus on the big picture. Less day-to-day, more accomplishment-to-accomplishment. 

 

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What's the difference between a Buyer and a Planner?

11/27/19 1:00 PM / by Fuse Inventory posted in supply chain, merchandise planning, inventory planning, demand forecasting, order management, industry

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While the two go together like peanut butter and jelly, there are key differences between the role of a Buyer and that of a Planner. For instance: 

  • The Planner determines the right order quantity and order time whereas the Buyer determines the right selling quantity and selling time. 
  • In some cases, the Buyer is also responsible for making sure the business has the right product, in the right place, at the right price. 

In any case, it’s important to note that Buyers and Planners must work together, challenge each other, and ultimately align on what’s best for the business. 

So what exactly are the main differences? 

1. Working with Marketing

The main difference between a Buyer and Planner as they work with Marketing is that a Buyer provides information to Marketing whereas a Planner receives information. Since a Buyer’s responsibility is determining the selling quantity, their objective is to sell products as effectively as possible. This means providing the Marketing team with product strategy to optimize selling. Explaining who the products were purchased for and why can help inform the marketing strategy.

A Planner, on the other hand, is a recipient of this strategy. Their objective is to understand the outputs that will impact future demand so that the right order quantity can be determined for a later point in time.

2. Working with Supply Chain

Similar to the relationship mentioned above, Buyers are often providing information in the earlier part of the supply chain whereas Planners are often receiving information in the latter. A Buyer may work with the team on the development or procurement of goods, whereas the Planner is more involved from the stages of PO placement to receipt. 

Put simply, a Buyer is responsible for product records such as vendors and costs, whereas a Planner is responsible for inventory records such as receipts and timing of ownership. 

3. Analyzing the Business

While both will dive deeply into understanding the business, a Buyer will most often speak to top sellers and the result of marketing efforts on product sales, whereas a Planner will go further into category insights, comparison to forecasts, and monitoring inventory. 

This process is one where the two roles must work the closest together to best understand the business.

4. Using Data

While the data both Buyers and Planners read to understand performance may be similar, a key difference is that Buyers are more focused on data related to the future and upcoming trends whereas Planners are more focused on past demand and historical sales.

5. Organizational Structure 

Because their worlds overlap so much, you’ll often see a Buyer and Planner by each other’s side. However, they may technically sit under separate teams. A Buyer will often sit under a function that oversees revenue, such as Sales or Marketing. On the other hand, a Planner may sit on a team that oversees inventory and budgets, such as Finance. This separation helps ensure there are healthy challenges across interests, thus supporting what’s best for the overall business. 

Two Peas in a Pod

The synergy of Buyer and Planner is integral to the success of any organization. While the Buyer focuses on who, what, why and where in order to build a top down approach, the Planner focuses on how much and when to build a bottoms up logic to eventually align at the optimal level. 

Fuse helps align these two forecasting methodologies systematically so that less time is spent on the nitty gritty, and more time can be spent on building the best relationship and strategies for the business.   

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3 things eCommerce brands can learn from Amazon Prime Day

11/26/19 7:27 AM / by Fuse Inventory posted in supply chain, supply chain management, merchandise planning, inventory planning, supply chain optimization, demand forecasting, digitally native brands, ecommerce, inventory

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This year’s Amazon Prime Day was record breaking generating $1 bn in sales. Not only did Amazon beat it’s own Black Friday and Cyber Monday sales, but sales also increased 60% year over year relative to last year’s Prime Day. Amazon continues to dominate e-commerce and will continue to do so for the foreseeable future. But, as we said in our previous post, we definitely believe that there is room in the market for digitally native brands to succeed. They just need to compete on a different dimension rather than trying to beat Amazon at the game that it’s mastered - convenience.

As Amazon continues to grow and dominate, we think that Amazon Prime Day has valuable lessons for growing brands that they can apply to their own business models successfully.

1. The membership model works really really well if you’re fulfilling a real need

While subscriptions of one sort or another have long been in vogue for ecommerce companies, not all of these companies have been successful over the long-term. This year, a record number of customers signed up for Prime Day, demonstrating that the membership or subscription model can work really well, but it needs to have several key components. Namely that the benefits have to be unique, exclusive and drive significant value to the customer. 

The thing that makes Prime Day so special is that it is available to only Amazon Prime members. Most e-commerce subscription providers tend to provide a subscription for the sake of stabilizing their own revenue and cash flow and not necessarily because they offer something unique, exclusive and valuable to the customer. 

That being said, companies like Stitch Fix and Dia & Co. have been successful because they provide exactly that. In the case of a company like Dia, they’re meeting an untapped market need for plus size clothing and have a unique offering in a space where there’s a clear market gap. Literally the perfect use case for a membership model. 

2.  Don’t be afraid to run experiments

In a way, Prime Day is one big experiment for Amazon. The company has used it to test new product lines and releases or supply chain innovations with the focus shifting slightly each year. Once it becomes clear what worked and what didn’t, Amazon can use the plethora of data to improve throughout the remainder of the year. 

While most e-commerce brands do have a strong ethic of A/B testing whether it’s landing pages, marketing copy or other initiatives, it can be hard to run potentially game changing experiments and take big risks as a small company. But, that being said, what Amazon and other successful e-commerce players like Jet have taught us is that big bets can pay off. In an ecosystem where retail continues to be challenged, those who innovate successfully and take bold steps to reinvent their business models even when they seem to be working will be the ones who come out on top. 

3. Make sure your supply chain and logistics are in order before ramping up marketing

While in the past Amazon has had some technical snafus related to Prime Day, the company has certainly succeeded in making sure everything went smoothly this year. While Amazon has a particular strength in supply chain and logistics, the lessons from its past technical malfunctions can teach smaller brands a thing or two.

Similar to the Amazon example, you don’t want to spend a ton of time, effort and money driving traffic to your site when that traffic can’t convert due to a shopping cart glitch (back in 2016), or, on the supply chain side, when you’re out of the inventory you’re advertising. At Fuse, one of the most common problems we encounter is a lack of coordination between the marketing and the supply chain teams. 

While marketing may launch a meticulously planned, omni-channel campaign, too often we find that these campaigns don’t take into account critical questions like if the campaign has the desired impact, can the company actually fulfill the orders? Will there be enough inventory to satisfy demand? While it seems obvious in hindsight, it usually takes a crisis or two for e-commerce brands to streamline the coordination between functions. 

As your company grows and scales and focuses on putting these lessons into practice, Fuse is here to help you focus on your business, not your inventory.

 

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What is an inventory planner and why do you need one?

11/26/19 7:05 AM / by Fuse Inventory posted in merchandise planning, inventory planning, demand forecasting, inventory

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Are you an Inventory Planner? Have you ever tried to explain to your friends or coworkers what you do and had a hard time getting them to really get it?

Are you a business owner building a brand who’s been told that you should hire a planner? Have you wondered to yourself, ‘why?’ and ‘what would she help me with?’

If you fall into either of these two buckets, this post is for you! If you’re an underappreciated planner, we hope you can send this to your friends and coworkers so that they truly understand how much you contribute to your company. If you’re a business owner who’s new to ops but wants to scale, we hope we can persuade you to get an inventory planner before you run into a major operational crisis like stocking out of your top selling SKUs.

First, let’s start with some basic definitions. Inventory planners help companies:

1. Determine how much inventory they need to order. 

Just like Goldilocks, growing businesses need just the right amount of inventory to survive. Order too little and you risk stocking out, damaging your credibility with your customers and harming your brand. Order too much and you can wind up with hundreds of thousands or even millions of dollars of wasted inventory. The capital you invested may be permanently lost, crippling you from investing in other critical business initiatives like products that are selling well or marketing to attract new customers. Inventory planners do a complex optimization exercise every year, quarter, month and even week to make sure that just the right amount of inventory across all products has been ordered.

2. Determine when the inventory needs to arrive.

It’s not enough to simply order enough inventory, but the inventory planner’s role is also to make sure that it arrives when it’s needed. If a company has a three month lead time, discovering that more inventory is needed the week before isn’t helpful. Conversely, if the inventory will sell through eventually but is just sitting in the company’s warehouse for six months, that capital could certainly have been put to better use. Timing is a critical piece of the planning equation.

3. Aligning with sales and marketing. 

Marketing and sales are always trying to drive business. A critical input into planning are questions like “what promos are we running this month?” and “what big wholesale accounts do we expect to win next year?” Inventory planners work closely with marketing and sales to make sure that there is the right amount of product to support and prepare for the big wins expected to come from these initiatives. In prior blog posts, we’ve highlighted the importance of coordinating with operations if you’re in sales or marketing. 

So, why are Inventory Planners important?

Well, we hope that after reading our definitions, the picture all starts to come together. Yet, the unfortunate reality remains that inventory planning remains one of the most misunderstood and least appreciated functions at growing brands. 

So, here’s what we think. Inventory is either the #1 or #2 investment that companies make. If it’s #2, it’s second only to marketing. An investment this big, if not managed properly, can and has been the cause of failure. The less capital you have to play with, the more important it is to optimize that investment. While there is a lot to be done downstream in the supply chain, and we’ve highlighted this in our post on 7 supply chain questions you need to answer, the best optimization on the fulfilment side can’t help you if you’ve ordered the wrong amount of inventory. Because of this, the person who plans your inventory - makes sure you’re investing enough and makes sure it’s coming in on time - is one of the most important people in your company and one of the earliest roles all consumer brands should hire for early on. 

Whether you’re an inventory planner with decades of experience or a start-up founder who’s just coming to grips with the importance of operations and inventory, Fuse is here to help you focus on your business, not your inventory.

 

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Are you financing your inventory the wrong way?

11/26/19 6:59 AM / by Fuse Inventory posted in inventory management software, merchandise planning, inventory planning, demand forecasting, inventory

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Over the past year, we’ve learned that many young companies are financing their inventory completely the wrong way. What’s the wrong way to finance inventory? With venture capital funding. 

Why you don’t need VC funding for your brand

First and foremost, unless you have a completely new business model (like Dollar Shave Club or Birchbox when they were first starting out) or something else that’s extremely innovative about the brand you’re building, venture capital funding is probably not right for you. If you do take VC funding, it should be used exclusively to drive your business’ hiring and marketing needs. These are important investments in growth and worth selling a piece of your company for. But, given that there are many other ways to finance your inventory, selling a big chunk of your company to do so doesn’t make any sense. 

At this point, you might be asking yourself, well if I can’t use venture funding, what should I do? Here are three options:

1. Your Suppliers and Manufacturers

Our advisor, Lisa Hom, who’s starting a new brand called Kaleido Concepts and has been an executive at multiple $100 mm+ brands, plans to finance her inventory by, “...getting creative when working with manufactures and suppliers. It all comes down to cash flow. The strategy should be to pay your manufacturers for the goods after you sell them. I asked a manufacturer for terms of net 120 days, meaning that I didn't have to pay him for the goods until 120 days after he shipped the product.  So it gave me 90 days to sell it and not have to pay for the goods out of my cash.”

While it may take a bit of leverage to get that type of accommodation from a supplier, most founders don’t even know that they can ask. Many manufacturers feel that they are falling behind and are eager to partner with founders who can educate them on the world of e-commerce. When starting a new brand, you need to talk to suppliers from a place of strength, so getting creative about what your strengths are is super valuable. Moreover, we’ve seen several start-ups partner with their supplier by letting them take an equity stake in the company. Not only does it give you capital, but it also completely aligns your incentives.

2. A Letter of Credit

Now that you’re in business and actually have sales, you can go get a letter of credit from a bank. The letter of credit will demonstrate to your suppliers that you will be able to pay them. This letter of credit not only allows you to purchase more inventory than you otherwise could, but it also allows you to negotiate better payment terms with your suppliers. Now that you have more inventory, you can drive higher sales, increase the amount guaranteed by the bank, buy even more inventory and do it all over again. So long as the inventory is selling, you’ll continue to be able to use this approach to finance your business.

3. Inventory Factoring

Finally, although inventory factoring sometimes gets a bad name, there are great companies like Dwight Funding, who are revolutionizing the world of inventory factoring and taking a modern approach to working with young companies. Inventory factoring is when a company takes on debt to finance inventory against its future sales or accounts receivable. This can be especially effective when you work with large retailers like Sephora, Nordstrom and others that commit to purchasing large amounts of product for the upcoming season well in advance. These receivables can be leveraged to get a loan in order to be able to buy the inventory that will support these large contracts. 

What do you need to be successful?

If you pursue these strategies, you need to maintain trust with the third parties you work with by forecasting your demand and inventory needs accurately. If you’re unable to pay your supplier because you’ve vastly overestimated the sellthru rate of your inventory or your factoring partner can’t get a straight answer on what you expect this year, these partnerships won’t be successful. That’s where a tool like Fuse comes in to help you forecast demand and inventory more accurately. Planning inventory and getting it right is our bread and butter. As a scrappy start-up, our tool can help you gain leverage and continue to forecast easily and accurately as you grow your SKU count and monthly order volume without throwing more bodies at the problem. No matter how you choose to finance your inventory, Fuse is here to help you focus on your business, not your inventory.

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7 supply chain definitions every founder should know

11/21/19 11:00 PM / by Fuse Inventory posted in supply chain, supply chain management, merchandise planning, inventory planning

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We work with many young companies started by inspiring founders who often have incredible marketing and branding chops. But, when it comes to inventory, that expertise is hard to hone and hire for. Even if you’re not an expert, there are things you can do like follow our 7 step guide and get familiar with a few basic definitions: 

1. Lead Time 

This is the most basic concept on the list and probably something you’ve already heard from your suppliers. Lead time is simply the number of weeks or months between when an order is placed with a supplier and when the finished good can be delivered. Your fully baked lead time will be not only how long it takes your supplier to make your product, but also how long it will take them to ship it to you. 

2. Minimum Order Quantities (MOQus)

If you’re a small brand, you’ve probably already run into this concept with your suppliers. Minimum order quantity is the minimum quantity in units per SKU, units per category or dollars that your supplier will allow you to order. Although you might do a lot of sophisticated analysis to figure out the exact amount of inventory that you need, it might not matter if this amount is below the minimum order quantity defined by your supplier. While it might not be possible, you should definitely try to negotiate the MOQu down to give you flexibility and avoid holding more inventory than you need or can sell.

3. Buffer Stock (Safety Stock) and Service Level 

No matter how accurately you are, there is always risk that you may have underestimated the inventory you need. To avoid stockouts, companies keep extra stock on hand by setting a service level target which is the probability that all customer orders will be fulfilled. New brands might want to set a high (99%) so as not to damage the brand with stockouts. But, service level does rely on relatively predictable demand which many young brands don’t have. That’s why at Fuse, we rely on a weeks of supply target. 

4. Weeks-of-Supply

Weeks-of-supply is calculated as total inventory / weekly sales. Weeks of supply can be calculated based on historical results or as a forward looking metric based on your forecast. Many inventory professionals consider the forward looking approach to be best practice because seasonality can vary drastically throughout the year. In Fuse, we seamlessly calculate your weeks of supply target and build it into your inventory buffer. We’ll look to your expected seasonality and make sure that you’re always ordering enough for next season.

5. Sell-Through Rate 

Weeks of supply and sell-through, when used together, can help give you a complete picture of your inventory position. Sell-through is defined as total sales divided by inventory stock at the beginning of the period. So, if you sold 500 silk blouses in January but started with 1,000 silk blouses in inventory, your sell-through rate would be 50%. A high sell-through rate and a low weeks of supply number means that you need to restock while a low sell-through rate (5%) and a high weeks of supply number means that you’ve overbought and may need to mark down your inventory. One of the most relied upon concepts in inventory planning, sell through can give you a good benchmark for understanding the health of your inventory. 

6. Reorder Point and Reorder Level

The reorder point is the level of inventory at which a reorder is triggered. This point is calculated as the forecast sales during the lead time plus buffer stock. The reorder point tells you when you need to reorder, but not necessarily how much (the reorder level). Fuse can help you understand both metrics by seamlessly linking the pieces together. We provide a reorder recommendation based on the buffer you set, your lead time and the demand forecast you’ve created using our advanced algorithms.

7. Open to Buy 

An open to buy puts all of the concepts of inventory planning together in one report. It is a budget that highlights how much capital is available to spend in a given period, and how much already has open POs against it. In many instances, a planner may know exactly how much product she needs to order to support demand, but she may no longer have the budget to meet this demand. For example, she might need $150,000 of product next month to reach the brand’s sales targets, but $75,000 may already be allocated to open POs. In this type of example, the planner’s job is to optimize the allocation of the remaining budget to best serve the business. Usually, at this point, the best course of action is to determine how best to optimize margin. The planner will evaluate which SKUs can generate the most profit given the limited budget available rather than simply doubling down on best sellers.

At Fuse, we’ve implemented these concepts and best practices in our software to vastly simplify the analyses that planners have to do. We’re here to help you focus on your business, not your inventory.

Sources: 
https://www.thebalance.com/sell-through-rate-2890389
http://www.threebuckets.com/category/formula-cheat-sheet/
https://en.wikipedia.org/wiki/Service_level
https://www.thebalance.com/open-to-buy-planning-2890318
http://www.businessdictionary.com/definition/lead-time.html
https://en.wikipedia.org/wiki/Reorder_point
http://dictionary.cambridge.org/us/dictionary/english/minimum-order-quantity

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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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