Supply chain is a complex field, but we’ve taken a stab at simplifying it for you by breaking it down into a series of simple questions:
1. What assortment of inventory do I want?
There’s a vast array of products that you can offer your customers – a single product can come in one color or ten. Often times, this is a question of judgement based on what has sold well in the past, trends in the market, or consumer preferences.
Thankfully, tools are emerging to help companies gather data and make better decisions. Trendalytics is a company that helps centralize social media data, like what’s trending on Instagram, into actionable insights. Makersights helps businesses gain insights into what their customers are looking for. Companies can use this knowledge to make better decisions about their product mix.
Although you might be tempted to offer many products in every color of the rainbow, as a young company, it’s better to start with a few core products and colors and expand slowly.
2. How much inventory will I sell?
Once you’ve decided on your product mix, you need to make a demand forecast to determine what sales of each product will be. These analyses are quite granular, down to the color and size level.
Most companies start out using Excel, but they quickly outgrow it as their product assortment increases. Beyond Excel, there aren’t many sophisticated tools in a price range that young companies can afford.
We created Fuse to help answer this exact question as seamlessly as possible. We automate the majority of your forecast, and our sophisticated algorithms catch and smooth out outliers. You can always tweak our recommendations as needed.
3. How much inventory do I need to order?
Once your forecast is done, you need to translate the forecast into an order recommendation. For each SKU, you’ll want to examine three key inputs:
- Your projected demand (based off of your forecast)
- How much inventory you have on hand
- How much inventory you expect to receive in the coming months
You want to make sure 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 in case your forecast isn’t 100% accurate.
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. Where will I order my inventory?
Finally, you need to decide on the suppliers you’re going to use. Our post from a few weeks ago highlights key factors in making this decision.
Once you’ve placed your POs, you’ll need some sort of tracking system. Most companies use Google Sheets, but with the launch of our procurement module, Fuse now has a simple way for you to seamlessly track your purchase orders in our system.
5. Where is my 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?This type of tracking is useful because there may be delays that neither you nor your vendor can anticipate, so having visibility can help you make adjustments and communicate with your customers.
6. How much inventory do I have?
Some companies choose to run and manage their own warehouse, in which case, you’ll need a warehouse management system like Fish Bowl to help your employees in the warehouse know what’s where and also mark goods as they come in. Once inventory is received, your warehouse manager can send you a weekly CSV so that you can close out open POs.
Other companies choose to outsource their warehouse completely to a 3PL provider like Quiet Logistics. Although this can seem like a more expensive option at first, having your own warehouse and hiring people to manage it is usually not cost efficient unless you reach massive scale.
7. How do I get my inventory to my customer?
This question can be broken down into two key parts. The order management piece and the shipping and logistics piece.
The order management side helps you manage multichannel selling (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. Order management systems like Stitch Labs (for smaller companies) and Tradegecko (for larger companies) can help you stay organized. They 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. Companies like Amazon have mastered what’s known as last mile fulfillment which allows them to deliver goods to the customer as quickly as possible. 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.
Especially right after the hectic holiday season, supply chain can seem daunting. For growing companies, we’d recommend taking it one step at a time:
1. Find a 3PL provider you trust and rely on them to do the blocking and tackling.
2. Be thoughtful about multichannel selling. While wholesale orders provide a steady stream of revenue, they are much lower margin. Make sure you’re working with retailers who will enhance your brand and help your direct to consumer business gain traction.
3. Be thoughtful about your forecast and how much inventory you buy – making big mistakes early on in your supply chain will be the costly.
We created Fuse to help companies transition from managing their forecasting and ordering process in Excel and Google Sheets to using sophisticated software. We’re here to help you focus on your business, not your inventory.