Retail

7 Supply Chain Definitions Every Founder Should Know

Closet full of colorful clothes

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

Who are we and why are we doing this?

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

Whenever we speak to a new customer, the question of who we are and how we got into the business of building inventory software always comes up. Given how frequently you ask, we thought we’d share our founding story with all of you.

Listening to you

When Anna was getting her MBA at Stanford, she pursued her passion for e-commerce and retail between her 1st and 2nd year. She set out asking companies, “What’s your biggest problem?” and was shocked to find that universally, almost every company said “inventory”. 

Upon returning to school, Anna decided to investigate the need more deeply. She started with a small user study that has since expanded to 150 user interviews. She interviewed planners, merchants, buyers, warehouse managers, logistics, managers, operations managers, COOs, CEOs, and anyone else who could possible touch or care about inventory. 

Her key takeaways were:

  1. Supply chain is needlessly fragmented with many handoffs between systems and an inordinate amount of time spent compiling data
  2. There was a big gap in planning - while people complained about their order management systems, their warehouse management systems or their 3PL, at least there was a system. However, when trying to answer the critical question of “how much inventory should I order?” all they had were Excel and Google Sheets

Anna knew that there must be a way to help the businesses she loved be more successful. This is where the idea for Fuse was born.

Personal experience

At that point, Anna sought out a partner who had deep expertise in supply chain and computer science expertise. Through the Stanford alumni network, she met Rachel. Rachel has a CS degree from Stanford, and after working as a software developer, transitioned to overseeing supply chain given her love for process oriented work and physical products. 

At Kiwi Crate and Parasol Co, Rachel dealt with the trials and tribulations of managing supply chain in Excel, even building out custom python scripts to streamline the process. At Parasol, Rachel was so dissatisfied with existing systems in the market that she ended up commissioning a custom system which cost her over $200k just to build, let alone to maintain.

When Anna approached her to seek her input on the gap she’d observed in the market, Rachel was immediately on board. It made so much sense, and she felt passionate about building the product she would have wanted to use. 

Solving a hard problem

When Anna and Rachel decided to add a CTO for the team, Rachel knew that there was only one person she wanted to work with. Having worked with Bridget in CS classes at Stanford, Rachel knew that Bridget would be the perfect partner. Not only was she an amazing technical talent with a CS Masters from Stanford, but she also had worked on new products within Google like Waze. This gave her the perfect balance of big company and small company experience.

When Rachel and Anna approached Bridget, she was excited by the sheer challenge of the problem. What could be harder than predicting the future? Not only that, but it was a real, visceral pain point for so many companies. And finally, given the advancements in technology, like machine learning, Bridget was excited to be able to take full advantage of her technical background to create the best algorithms for Fuse’s customers. 

Why we’re here

Coming together to build Fuse has been one of the most fulfilling experiences of our lives. As customers rely on Fuse and leverage the technology to streamline and increases the accuracy of their planning processes, we’re privileged to continue helping you focus on your business, not your inventory. 

Our 5 question guide to choosing the right e-commerce platform

Our 5 question guide to choosing the right e-commerce platform for your business

Your e-commerce platform will probably be one of the most critical pieces of software you select for your business. In recent months, we’ve observed that a lot of companies end up switching platforms. This is extremely painful and costly - you have to divert your team's energy away from running your business to switching. We’ve boiled it down to the five key questions you need to ask yourself to help you avoid this expense and choose the right platform for you:

1. How big do I expect my business to be?

If you think that you’re starting a really big business, this might be the only time it’s worthwhile to invest in a custom or highly customizable platform, like Spree. If you’re a large brand, you’ll inevitably want to fully control the customer experience and come up with innovative offerings for your customer base. This will be hard to achieve without investing tech resources. On the other hand, if you think your brand might stay relatively small, you can probably get away with using a basic, user friendly tool like Shopify or BigCommerce. They don’t enable a lot of customization, but you can create a really beautiful e-commerce site in a short time. That being said, ShopifyPlus does cater towards larger brands. 

2. How unique is my business model?

If you’re selling a product a la carte to an end consumer without a ton of complexity, a simple platform like Shopify could serve you really well. However, if you’re starting a business with a rent-to-own model or a subscription model, you’ll definitely want something more customizable like Spree or Magento. Both platforms are open source, so you can hire a development team to help you craft the nuances you need. We always encourage new businesses to keep it simple and avoid inserting needless complexity into their model. To start, keep your SKU count low and your model straightforward. 

3. How tech savvy am I?

You have to be really honest with yourself. Can you actually build a website? It’s OK if you can’t, but if that’s the case, even with a do-it-yourself platform like Shopify, you’ll probably need some tech support. If you’re pretty tech savvy; however, you can get yourself up and running quickly. If you’re not tech savvy and wind up choosing a more customized platform that requires heavy development investment, you might really struggle to supervise a dev team without someone technical on your team. 

4. How quickly do I need to be up and running?

In some cases, time may be the biggest constraint. If it’s extremely urgent for you to start your business, then you definitely want a platform like Shopify or BigCommerce that requires relatively few development resources and can get you to market quickly. On the other hand, if you have time to diligence, onboard a dev team and spec out the product, then spending the time to create something that really represents your brand and is unique to your business might be worthwhile.

5. Do I have capital to invest in tech resources?

Shopify and BigCommerce will be more cost effective than any tools that require development like Magento, Spree or a custom platform. That being said, what companies don’t often anticipate is that once you’ve built out your website, the investment has just begun. Anytime you want to make a change, you’ll need to spend capital on your development team. Further, as you build out your business and incorporate additional tools and systems like an accounting system, an ERP system or an inventory management system like Fuse, you’ll find that with customized platforms, you'll need at least some dev resources for these integrations. The more customization you’ve done, the more development work will be required on your side to make the platform work. These costs are often unanticipated. Shopify is at an advantage on this dimension because it has the most robust app marketplace with tons of vendors to choose from

To help you make this critical decision or to help you switch if you need to, we’ve created a pro and con cheat sheet:

 

Pros

Cons

 
  • Easy to use
  • Increasingly nicer and nicer templates
  • Robust 3rd party marketplace
  • Possibility of Shopify Plus upgrade
  • Cheap
  • Core product does not support multiple currencies
  • Not very customizable
     

  • Open source
  • Highly customizable
  • Solid 3rd party marketplace
  • Somewhat old school
  • Requires a lot of development resources

  • Open source
  • Highly customizable
  • Commonly used by e-commerce start-ups
  • Great for subscriptions
  • No 3rd party marketplace
  • Requires a lot of customization and development resources
     

 
  • Integrates e-commerce store with 3PL
  • Omnichannel focus with some inventory management capabilities
  • 3PL is not very good
  • Does require custom dev work

 
  • Easy to use
  • Slightly slower load times vs. Shopify
  • Great how to content
  • Cheap
  • Small third party ecosystem relative to Shopify

 
  • Generally lower quality design than Shopify and BigCommerce
  • Customization can be costly and require dev work
  • Easy to use
  • Wordpress plugin
  • Free

No matter which platform you end up choosing (or switching to), Fuse is here to help you focus on your business, not your inventory.