The Supply Chain and Inventory Planning Blog

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.

Marc Andreessen famously stated that “software is eating the world.” In e-commerce today, Amazon is certainly eating Whole Foods, but is it eating the world? While the full implications of the acquisition remain to be seen, there are a few things that we can infer from the acquisition and its impact on both food and e-commerce.

Standalone food start-ups will continue to struggle

Since the first tech bubble, standalone food start-ups have struggled to succeed. In the early 2000s, Webvan, a precursor to today’s Fresh Direct and Instacart went belly-up. There are several key factors that contributed to the start-ups failure, but the main one was a lack of scale. Today, despite being tremendously popular among Millennial audiences, food start-up Maple shut down last month. Others, like Munchery, continue to struggle and may not be long for this world. On the other side, the shining success in the industry has been Blue Apron, which announced its IPO. While some attribute Blue Apron’s success to marketing, we attribute it to a laser focus on implementing operational efficiencies and constantly improving with scale. 
 
In general, that will continue to be the theme. Food (and more broadly, inventory) waste has the potential to take a company down and creates notoriously tight margins. In many ways, Amazon, who has made its name operating on razor tight margins, is the perfect acquiror for a food business that tends to experience these issues to the extreme. 

The war between Amazon and Walmart is about to heat up

With a slew of acquisitions recently - Jet.com, Bonobos, Modcloth - Wal-Mart made it clear that it’s making it’s presence known in e-commerce. Amazon has countered with the Whole Foods acquisition and will start going after the bread and butter of Walmart’s business. Not only that, but given Amazon’s expertise in operating on low margins, it’s actually well positioned to decrease Whole Foods notoriously high prices. This will broaden Whole Foods’ reach and put it in more direct competition with Walmart Grocery shoppers. At the same time, Amazon can offer a slew of other attractive food related services online and in stores. 

But can brands still stand up to Amazon?

As we look to the broader ecosystem, what does this mean for brands and retailers? Is everyone else doomed? While this may be an unpopular opinion, we here at Fuse don’t think so. 
 
As the competition between Amazon and Wal-Mart heats up, the two will tend to converge into two very similar players with limited differentiation in the consumer’s eye. The number one differentiators will be price and convenience. In many ways, while Amazon’s success has put pressure on physical retail, it’s acquisition of Whole Foods actually validates that physical retail isn’t going away.
 
By 2020, Millennials will account for 20% of retail sales. Unlike prior generations, Millennials are looking for unique experiences and deeper connections to the brands they shop with. While Amazon and Walmart will always win on convenience, brands that work hard to facilitate unique experiences, value props and bespoke feeling (if not actually bespoke) products will continue to speak to Millennials. What’s more, creating these brands online is easier than ever today and there is so much more flexibility in what a brand’s physical presence needs to look like. It doesn’t have to be a fully stocked store, but rather, it can be a showroom or pop-up. 
 
In the early days of e-commerce, all brands were essentially competing on convenience. But, today, as e-commerce becomes more and more ubiquitous, it’s clear who’s poised to win on convenience. In many ways, this can be liberating for brands given that instead of competing on faster shipping, they can compete on delivering the brand experience Millennial consumers are searching for. 
 
In short, we don’t believe that the rest of retail is going away, but we do believe that retailers have to get smarter not only on brand, but also on the operations side. As tools like Fuse continue to grow, scale and become more ubiquitous, brands can help themselves compete against larger players who have vastly more resources. No matter what type of brand you’re building, Fuse is here to help you focus on your business, not your inventory.

When we first started Fuse, we had several key hypotheses as to how we could improve the way inventory planning is done by retailers today. First, we were convinced that it’s impossible to plan a growing business in Excel. As the volume of data and the number of SKUs grow, it’s easy to make errors in Excel and, in fact, impossible not to when you’ve linked several spreadsheets and Excel is crashing mid-save. Excel’s capabilities are limited, and thus planners must rely on backward-looking metrics like sell-thru and historical growth rates, which don’t accurately paint a picture of their growing business. Second, an algorithm can better detect anomalies and accurately estimate seasonality than a human whose attention is divided amongst the many other urgent priorities of the day.

After working with our early customers for some time, we’re proud to say that both our hypotheses were correct -- we’ve found that the ROI of using Fuse makes a meaningful, material difference on both the revenue and the cost side.

10% More Revenue

On the revenue side, we’ve found that Fuse helps our customers achieve 10% more revenue. We did a deep dive into our customers’ biggest quarter - Q4. First, we took a look at stockouts in Q4. We defined a stockout as zero sales with 95% confidence. This means that we excluded instances in which zero sales could have legitimately meant no demand for the product. Second, we assumed that our customer’s revenue target for Q4 was equal to actual Q4 sales. In reality, given the number of stock-outs our customers experienced (more on that below), the revenue target was likely most definitely higher than the sales figures actually achieved. Finally, at Fuse, we always encourage our customers to modify the forecast by including relevant details like product launch dates, products that are phasing out, as well as other information they might know about their business that an algorithm doesn’t. For purposes of our analysis, however, we excluded that information. 

Even assuming the above simplifications, we found that our customers could have made 10% more revenue and avoided 450 stock-outs (on average) during Q4 if they’d followed Fuse’s algorithm. In fact, one of our earliest customers who joined the platform in Q4 had zero stock-outs in Q1. 

What does this mean? Well, for one thing, it means that Excel is definitely not the right tool for growing businesses to plan inventory. In addition, it also means that even without additional input from our customers, Fuse’s initial predictions (based on seasonality) can achieve dramatically better results for our customers.

Reduce Overspend on Inventory by 3x

What we often find with the growing companies we work with is that a significant stock-out in the past, or paranoia about stocking out, leads to panic overbuying. This ties up precious capital and resources in inventory that could be deployed elsewhere. 

In Fuse, we use a forward-looking weeks of supply target to help customers maintain a lean inventory buffer. We often find that many of our customers are managing their buffer using sell-thru (which is backwards looking) or a historical weeks of supply target. For a growing business, these backward looking metrics don’t reflect current trends, and can lead to dangerous overbuying. However, with Fuse, it’s now possible to look forwards instead of backwards, thanks to our accurate forecast and real-time actualization of sales.

We took our customer’s forward-looking weeks of supply target (based on Fuse’s forecast) and applied it to create a recommended inventory buy and replenishment recommendation. What we found was that on average, our customers were overstocked in almost 200 products and spending 3x what they needed to on inventory. By following Fuse’s recommendations, our customers can dramatically reduce their inventory spend and more efficiently manage their working capital, freeing up cash for initiatives that will grow their business, like customer acquisition.

Conclusion

Our data shows that prior to Fuse, our customers were buying not enough of the right SKUs and too much of the wrong SKUs. With Fuse, our customers can switch this around and invest more capital on the right SKUs and less on the wrong SKUs. At Fuse, we’re here to help you focus on your business, not your inventory. 

This week’s post is on a definitively unsexy but very important topic, and it was actually inspired by one of our recent conversations with our customer, Snowe. Snowe is in the process of redoing their SKU system, an exercise that almost all of our customers go through as they grow. The main reason this happens is because when you start your business, you’re not quite sure exactly how it will grow and expand. What types of products will you be adding? Will you always stay in your chosen category? 

In the case of Snowe, their SKU renaming was prompted by several factors, according to Erica Peppers, Head of Product Development & Sourcing:

“We decided to overhaul our SKU system because the original structure we started with is no longer the right fit to scale with our business.  The two key components we considered were simplification and easy identification.  The system can be simplified, as our products don't need nearly the number of configurations as a product assortment that is narrow but deep.  Also, because we are not a seasonal or trend based company, our products are introduced with the intention of a long life span.  So rather than being just a series of letters and numbers, our SKU system should provide a reasonable degree of product identification at a glance. ”

While in some cases, renaming your SKUs is inevitable, there are several things you can do to make sure that your new system is successful and lasts you and your company for many years to come:

1. Don’t rely exclusively on marketing categories

In many cases, we see SKU systems that leverage the marketing category the company uses to communicate with customers about its products. From a marketing perspective, having a clear sense of categories of product and what they mean to the customer is critically important. But, these categories don’t always translate in a meaningful way to the operations side. For example, if you have a children’s clothing brand, you might have marketing categories along the lines of “play”, “sleep”, “celebrate”, and while these are useful to the consumer, the fact that the item is merchandised for play does not mean as much to the operations person as knowing that it is a red onesie at first glance.  

2. Keep it flat

It’s very easy to create a million categories and subcategories for each of your SKUs, but this causes additional confusion and complexity. Closely tied into the idea of avoiding using marketing categories for SKU naming, the more you can do with less, the better. Taking our baby products company again. We can have a red onesie with the SKU “ONS-RED-01” or “SLP-ONS-RED-01”. The more layers and depth you add, the more confusion and subjectivity you insert. For example, is our red onesie really for sleep, or is it for play? Instead of making it clear to all of your operations staff where the onesie belongs, you’ve now inserted subjectivity into the mix. With subjectivity comes room for disagreement and confusion. 

3. Make it mean something

While it is possible to use a sequence of letters and numbers that actually mean something, do it! If you can shorten colors to “BLU”, “GRN”, “YLW”, there’s no reason to create a numbering system that’s associated with every color. By creating SKUs that mean something, you can make it easy for anyone in the company, and especially members of the operations team, to take a look at the SKU at a glance and know exactly what it refers to. On the other hand, if each color has a specific number associated with it, there’s no way to sort through the data intuitively. Moreover, to create any kind of summary reports that mean something to someone who’s not fluent in the SKU system, you’ll need a complicated series of tables and excel formulas to translate the meaningless numbers and letters into something digestible. 

4. Make it your own

Finally, your suppliers will most certainly have their own SKU numbering system. The last thing you want to do is leverage their system and use it as your own. First, their SKU system is designed to do all of the above things we listed in items 1 - 3 but from the perspective of the supplier. Thus, what means something to them doesn’t necessarily mean something to you. Moreover, at some point, like you, they may find the need to redo their SKU system. If that happens, then the SKU system you’ve been relying on not only doesn’t exist, but it’s made your internal system completely meaningless. While it may seem like more work, having your own system is very worthwhile.

In general, we see this happen a lot with young companies - renaming SKUs is part of the journey and the growing pains. Regardless of where and how big your business is, we’re here to help you focus on your business, not your inventory.

In a previous post, we highlighted five reasons why e-commerce brands still need a physical presence, but we don’t think that that physical presence needs to be traditional store. Two new models, the showroom and the pop-up have emerged, and we think they can be just as effective if not more so than a traditional physical store.

According to Pop-Up Republic, pop-ups have driven $10 bn of sales annually and are continuing to grow. Even big brands like Nordstroms have created in-store pop-ups embracing the trend. Why are pop-ups so popular? And how can they be effective for growing brands over having their own retail store? And where do showrooms fit in?

Pop-ups provide flexibility

As a temporary location, a pop-up can provide ample flexibility for experimentation. As a brand, you can lease different size spaces in different locations at different times of year to figure out what works for your brand and resonates with your customers. The inherent transience of a pop-up allows you to A/B test different concepts, something that e-commerce brands are already doing all the time on their websites. Think of a pop-up as an opportunity to A/B test key variables like size, location, layout and assortment of your physical stores. In addition to these benefits, pop-ups are also a temporary expense thereby minimizing the risk of making a bad, long-term financial decision.

Pop-ups create a sense of urgency

The great thing about a pop-up is that it’s something new and temporary. These two elements can combine to encourage customers to buy now and to buy more than they otherwise would. Because they know your store won’t be there forever, customers are encouraged to make their purchase right when they see something they like rather than waiting until the next time they come back. While a physical lease runs 5 - 10 years, most pop-ups won’t be in a single location for more than three months.

Pop-ups can support your e-commerce business

For many emerging brands, the goal of their physical presence (whether wholesale or other), is ultimately to drive traffic to their higher margin direct to consumer business. Not only do pop-ups help you maintain your margin, but they accomplish a similar objective. If the customer was curious about your store, they’ll search for you online and be more likely to buy something than had they not walked by your pop-up. In a lot of ways, you can think of pop-ups as more like event marketing rather than a distribution channel.

Social media creates great marketing reach

In a world of social media, pop-ups become even more attractive because there’s an easy and convenient way to share the fact that you’re opening a pop-up with consumers. What’s more, it creates an opportunity for a conversation with your customers over social media in which you invite your loyal followers to come visit you in person. In the pre-social media days, it would have been very difficult to actually attract customers to your temporary location.

Showrooms are a natural extension of the pop-up

Most showrooms tend to be permanent and have been used successfully by brands like Warby Parker. While traditional stores hold inventory, pop-up shops often do not. Instead, they give the customer an opportunity to experience the product, decide what he or she likes and then place the order. Instead of walking out with the item, the customer gets the exact product they picked out delivered to their home. 

In a world in which physical retail stores are closing left and right, brands are searching for a great way to connect with customers and own the customer experience without taking on the liability that a physical retail store often comes with. The great thing about both pop ups and showrooms is that they derisk the financial investment required in creating your own physical space. In the case of the pop-up, the fact that it’s a temporary space limits the financial risk. In the case of a showroom, the fact that there’s little to no inventory investment is a different way to minimize that same financial risk. 

Regardless of whether you choose to keep your business e-commerce only or open a pop-up, we’re here to help you focus on your business, not your inventory.

A few months ago, we published a post on why we believe that digitally native brands can and will be successful. First, they are well positioned to completely own the customer experience. Second, it’s easier to find and target the brand’s ideal customer online. Finally, there are many storefronts (like Shopify and Big Commerce) to choose from that look great and don’t require a team of engineers.

How do consumers feel about luxury e-commerce?

But, can the same logic be applied to luxury items? According to Bain’s Spring 2016 Global Luxury outlook, growth of luxury goods has slowed to 1%. In the US, specifically, the luxury market is in decline due to limited domestic spending and no support from tourism. However, amidst this grim outlook, e-commerce is gaining ground on traditional channels and is expected to grow by 15% per year through 2020. 

We ran a survey to understand how consumers feel about purchasing luxury items online. An overwhelming majority (90%) of our respondents said that they would buy a luxury item online, which is great news for brands. But, many of them caveat that there are only certain kinds of luxury items that they feel comfortable purchasing. First, they prefer purchasing from brands they already know. Second, they prefer to have interacted with the brand first in store. Finally, if it’s an item with a very specific fit, they want to have tried it on in advance.

Customer experience is key to success in luxury

We asked two up and coming brands, Floravere and SENREVE, in two very different industries (wedding gowns and handbags, respectively) to share how they tackle these customer needs.

According to Emily Ambrose at Floravere, “There is nothing more luxurious than serving the customer on her terms.  We deliver wedding dresses directly to the customer, so she doesn't need to hunt down the one dress. Instead, she can try-on in the comfort of home with her loved ones and no pushy sales people. Going digitally native gives us the opportunity to offer unprecedented customer service in our space.” 

Julia Mehra at SENREVE shared a similar perspective: “Luxury purchasers are increasingly turning to online retailers to satisfy their wants and needs. Our SENREVE woman is very busy, so shopping online suits her lifestyle. We’re seeing shopping behavior on our site indicating that the online model fits well with the modern woman’s schedule. We serve these women by delivering a beautiful, timeless, elegant bag for the modern, successful, on-the-go woman.”

Interestingly, both brands defined luxury not simply based on the nature of the good, but also based on convenience of the experience. Recognizing that fit is important, Floravere creatively opted to ship samples in multiple sizes and supplements the experience with a personal stylist. 

And so is building your brand over time

We believe that digitally native brands can be successful in the luxury goods market, but to do so, they’ll need to recognize that the experience of luxury has changed. Retailers must deliver on a customized experience that sacrifices none of the quality and achieves all of the service. Like with anything that is new, it takes time. Time to change generations of retail experience. It takes good word of mouth. It takes a dedicated set of initial customers who are willing to try it out.  And, then, your brand, your product, your service has to speak for itself.

Whether you’re a luxury e-commerce brand or not, Fuse is here to help you focus on your business, not your inventory.