inventory

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

Are You Financing Your Inventory the Wrong Way? Here are 3 Ways to do it Right.

Make sure to finance your inventory the right way!

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.
 

The 3 things ecommerce brands can learn from Amazon Prime Day

Here's what small ecommerce brands can learn from Amazon Prime Day's success

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 last 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. 

What's our ROI?

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. 

5 reasons you need a physical store and how to hack it if you can't afford one

Physical retail stores are still important in an e-commerce world

It seems like everywhere these days all you read about is doom and gloom for physical retail. Same store sales are declining, foot traffic is decreasing and brick and mortar is struggling as Amazon continues to take over the world. While we can’t deny the facts, we do think that there is a compelling case for new brands to create some sort of physical presence:

(1) It’s hard to be a big business without a physical presence

As evidenced by the recent troubles at JackThreads and Nasty Gal, e-commerce pure plays are very vulnerable. While each of these companies had their own unique problems, the attractiveness of the e-commerce model can only take a company so far. Compare JackThreads and Nasty Gal to Bonobos and Warby Parker. The latter two are both e-commerce darlings which have started focusing on creating physical showrooms. These showrooms don’t hold inventory, but they create a physical presence where customers can come in and experience the product. Warby Parker understood the importance of the physical experience from the beginning and created its home try-on program as a way to compensate for a lack of physical stores. JackThreads attempted to create a try-on program, but it was ultimately too little too late. Of course, there are some shining examples of success like Dollar Shave Club, but so far, these are the exception and not the rule.

(2) Most shopping is still done in person

We all know the stats. E-commerce is growing rapidly at a rate of 15-17% year over year. Yet, despite this incredible growth, e-commerce (excluding big ticket items like cars), still only represents 10% of retail sales. Of course, this is huge compared to just a few years ago and the growth rates speak for themselves. That being said, as a brand, you want to be where your customers are and at least 90% of their dollars are currently spent in store. It’s important to maintain your e-commerce business and prioritize it as the wave of the future, but completely ignoring the channel in which customers currently spend most of their dollars just isn’t smart business.

(3) As consumers shift spend from goods to experiences, a store can be a great way to create a compelling experience with your brand

If you think about some of the most successful retailers in the world, like Apple, the thing that makes them so successful is that the store is a unique experience that helps the customer connect with the brand. When you walk into Apple, you might not necessarily be looking to buy, but you certainly are looking to explore and discover new things.

Physical stores, by creating a branded experience, can have a similar impact for your business. They are a great place for customers to discover new products that they wouldn’t otherwise have seen or evaluate more expensive purchases, like jewelry. In many ways, the physical store can act like a marketing channel by putting your brand, products and the experience it stands for front and center with consumers.

(4) If you can’t afford your own stores or showrooms, take advantage of pop-ups

Several of our customers, including Aella, have been extremely successful with lower cost, temporary pop-up shops. The next one includes a partnership with several other brands and starts on March 1st. While pop-up shops are of course, temporary, they still create tremendous brand awareness in critical markets. The goal of these stores is ultimately to drive e-commerce traffic, so by being strategic about the location and timing, you can achieve that objective without committing to a full fledged store. 

Pop ups are great because in expensive markets like NYC, there are plenty of landlords who are receptive to the concept. Their rent is high, so finding a long-term tenant can be difficult. Thus, this leaves plenty of open space for your pop-up. 

(5) Being strategic about wholesale can have a similar impact as having your own showroom or pop up

Wholesale is a tough channel. Not only does it eat into margins, but it’s hard to control how your product is merchandised. That being said, picking a few strategic partners and specific locations that align with your brand can be tremendously helpful in reaching your ultimate objective: driving traffic back to your e-commerce site. 

However, the challenge really comes into play on the margin side. A lot of e-commerce companies have lower prices because they can - they can still have attractive margins by disintermediating the middle man. Many e-commerce companies pride themselves on replicating the Warby Parker model - finding inefficiencies in the supply chain which allow them to have lower prices than more established competitors. However, before setting your prices, brands need to keep in mind that price is an important indicator of quality to consumers. Further, if you want to maintain the flexibility to enter the wholesale channel, having slightly higher prices will create a bit of cushion for you on the margin side.

At Fuse, we're dedicated to supporting your business, whether it's an e-commerce pure play or a combination of e-commerce, retail and wholesale. We're here to help you focus on your business, not your inventory.

4 big inventory questions everyone is thinking about

Do you ever wonder, is anyone else thinking what I'm thinking?

Now that we’ve defined planning and provided some basic definitions to start with, it’s time to dig into the more difficult questions. We recently ran a product survey to ask our customers what questions were most important to you and have picked these four topics to expand on based on the results:

Data Anomalies

Data anomalies or outliers are non-recurring events like on-off promotions, PR pieces or stock-outs that may have impacted your sales history. Based on the results of our survey, this was by far and away the biggest concern for the majority of our customers with 40% of respondents citing this issue as their primary focus. 

The underlying reason for this is that data anomalies often go unnoticed in Excel spreadsheets, and when they are identified, their “weird” appearance relies on human memory to go back and analyze what happened. Was the dip in sales the result of a stock-out or poor performance? Was the spike in sales a result of a marketing promotion, or was it related to regular seasonality. Often, if the anomalies are identified, it requires a lot of digging through old emails to figure out exactly what happened in the data.

Fuse helps automate this process by scanning all of your data for anomalies (like big sales spikes or dips) so that none of these events go unaccounted for. Once we’ve identified anomalies, we smooth them out to create a more seamless forecast.

Marketing Data

We’ve written several times about the importance of making sure that marketing is closely aligned with the inventory planning team. Marketing directly impacts customer acquisition and revenue which in turn dictates the appropriate investment in inventory. 

In addition to ongoing marketing spend, promotions are important one-off events to note because they can drive significant spikes in demand, which, if not appropriately noted, can be confused with run of the mill seasonality. A big obstacle to noting these types of events is often a lack of information sharing between marketing and operations. While the marketing calendar might give marketing visibility, it’s sometimes not shared with or not checked by operations. In Fuse, you’ll soon be able to note marketing events like promos proactively in order to take these important initiatives into account in your forecast.

Cannibalization

Cannibalization is defined as the negative impact of a new product on the sales of existing products. While this is a concern for companies of all sizes, it can be particularly challenging for smaller companies that have a limited reach and audience. It can be unclear if launching a new product will expand the brand’s reach, encourage repeat purchasers or simply eat into existing products. Without sophisticated software, the cannibalization question can be hard to answer.

One simple starting point is attribute tagging which involves associating descriptive characteristics with each product. Attributes don’t have to be super complex - they can be things as basic as color. Although tedious to keep track of, if done properly, attribute tagging can allow the user compare how products with the same or similar attributes perform. More importantly, keeping a disciplined system of tags can help abstract away from the subjective elements of a product. 

Interestingly, at times, some of our customers have found that products that are seemingly in completely different categories cannibalize each other. However, when you take a closer look, there are often unexpected similarities on the underlying attribute level.

Procurement

Another big pain point (once the forecast is complete) is managing POs with suppliers so that the raw materials arrive in time for production. For any company that manufactures its own products, making sure that you don’t drop the ball on ordering all of the parts and components is critical. Between varying lead times, reliability, minimum order quantities and case pack sizes across suppliers, it can become a very painful and confusing optimization exercise. 

One way to mitigate the issues that can arise is to hire an industry veteran early on in your company’s history who has great relationships with the suppliers you need. As painful as this scheduling and optimization exercise can be, it’s even more painful if there are production disruptions caused by a company that’s much bigger than yours jumping ahead of you in line. The only real way to prevent this is to grow to become a bigger company (easier said than done), to have the right internal skills to diligence your suppliers appropriately or to have great relationships with your suppliers from prior experiences with them.

As we grow Fuse, we hope to be the primary resource that helps you solve these problems and more. We’re here to help you focus on your business, not your inventory.

7 supply chain questions you NEED to answer and the tools that can help

Seven supply chain questions critical to managing and planning inventory

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.

Staying sane

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.

How to revisit seasonality this holiday season

Young companies face many forecasting and supply chain challenges, including forecasting seasonality. The best way to forecast might be to instead focus on shortening your lead time.

Forecasting seasonality is tough for young companies

One of the key inputs into any demand forecast is seasonality. For mature businesses, seasonality trends are well established, but growing business have a notoriously hard time assessing seasonality. Although it’s widely known that many businesses experience a spike in sales during the holiday season, sizing that spike is extremely difficult when you’re just starting out. If your business is growing, the trend might be obscured entirely. What’s more, gaps in the data, like stock-outs, can make it even harder to understand last year’s trend.

So, how does one solve this extremely difficult problem? The bad news is that as a general rule, if your company has less than two years of sales data, it’s going to be extremely difficult. For this reason, Fuse’s inventory management system supplements young companies’ data with trends that we’re seeing in our portfolio. We also note anomalies in the data (like stock-outs) and smooth out the seasonality curve by excluding these outliers. This helps us create a normalized seasonality curve, even for very young companies.

Forecasting and lead times are two sides of the same coin

Another way to solve this problem is to start your business with a focus on crafting a supply chain advantage. Accurate forecasting and shorter lead times are two sides of the same coin. The shorter your lead time, the faster you can react to observed changes in consumer demand. You can order a small amount of product and then watch and learn. If you have a short lead time, you’ll be able to quickly restock SKUs that are running out based on your observations. On the other hand, the longer your lead time, the more accurate your forecast needs to be because you can’t react quickly.

These days, investors are often tempted to look at e-commerce companies as the “Warby Parker” of shoes, hats, scarves, you name it. But what’s often forgotten is that a big factor that led to Warby Parker’s success was streamlining the supply chain, building deep relationships with vendors and vertical integration. If your company depends on a supplier that has given you a three month lead time and might bump you back in the production cycle if an order from a bigger competitor comes in, it’s going to be much harder to be successful competing against the big guys.

Reducing inventory cost by outsourcing has hidden costs

Most growing e-commerce companies outsource to suppliers abroad to lower their costs, but there are many hidden costs to outsourcing, longer lead times being one of them. It is almost impossible to be responsive with an extended supply chain. You might think that shipping from 12 time zones away takes a couple of weeks, but you need to decide on your order quantities and assortment many weeks before the goods are produced and shipped.  

Suzanne deTreville, a professor in Operations Management, has spent her career researching procurement optimization and shared some of her key insights on the hidden costs of outsourcing your supply chain:

“Managers often have no idea how much it costs them to have to decide order quantities before they have any insight into what demand is going to be. A distant supplier that requires a decision about what to produce several months in advance might seem to represent an irresistible bargain in offering the product at 20% less than a local supplier. But, all of those apparent cost savings will be wiped out when it becomes clear that you’ve ordered the wrong products. Going with a local supplier allows the production decision to be postponed until the company has more visibility into demand. 

The value of having a nimble supply chain depends on several factors. Companies get into trouble when they make simplistic assumptions. We use models to determine the value of responsiveness and to create portfolios that maximize profit and keep more space for innovation. It is typical to lose 25% or more of sales due to mismanaging supply-chain costs, so these models can add a lot to the bottom line.”

Build a supply chain advantage by hiring the right team

In addition to using sophisticated inventory management software like Fuse, companies can also solve the supply chain problem by hiring the right experts early. While not every founder with a great idea will have pre-existing supplier relationships, bringing on folks who have these relationships and the corresponding expertise can make the critical difference between success or failure.

Regardless of where your company is in the supply chain optimization process, Fuse is here to help you focus on your business, not your inventory.

Can luxury go digitally native?

Can digitally native luxury brands succeed? We think so, but e-commerce brands will need to work hard to exceed the traditional luxury experience.

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.

Generation athleisure – what’s next for retail’s fastest growing categories?

Athleisure is one of the fastest growing categories in inventory and e-commerce, but can this trend last?

As we survey the retail ecosystem, we, like the rest of women in America, are thrilled by the boom in athleisure. Vogue published an article earlier this year highlighting the many ways that one can wear and style athletic wear, even giving us permission to wear athletic clothes all day. If Anna Wintour says it’s OK, who are we to argue?

What caused the athleisure boom?

Out of a combination of curiosity, a passion for retail and of course, self-interest, we asked ourselves, “Is athleisure here to stay?” But before we look to the future, let’s first attempt to diagnose where the trend started. We credit Lululemon (which was started almost 20 years ago) with driving the trend forward by showing us not only how comfortable we can be, but also how good we can look in their yoga pants. The Juicy Couture tracksuit took the trend to a new level over a decade ago by demonstrating how athletic wear can not only be comfortable, but that it can also be a symbol of style and status. As the clothing got more stylish - think cool wrap sweaters and criss-crossed tops - it became even more acceptable to wear athletic wear outside of the yoga studio and a proliferation of brands (like Alo Yoga, Rhone and others) flourished. 

Athleisure will evolve as a category

But can this really last forever? Our answer is yes and no. On the one hand, we don’t think that Athleisure in the way it’s known today - primarily intended as athletic wear but loosely interpreted as work and casual wear - will continue. Instead, as fabric technology improves, we think that athletic wear will slowly make its way back into the gym while new brands rise to take its place. 

We’re talking about brands that take the best of athleisure - comfort, ease of care, durability, functionality - and translate it into more stylish ensembles that are actually intended to be worn to work. Two great examples are Pivotte and Aella. Aella’s clothes are stylishly tailored, machine washable and the fabric makes the clothes feel like something you could wear to the gym with an important difference - it looks like something you should distinctly be wearing to the office. 

Comfort isn't just for the gym anymore

We sat down with Eunice Cho, the CEO of Aella, to ask her what inspired her to start the brand. When she first started working on Aella, “...there weren’t brands like ADAY, or other athleisure concepts that bridged the gap between activewear and ready-to-wear. Fashionable activewear started pushing the envelope, but everything still very much had a gym aesthetic. However, brands were popping up in menswear that were focused on comfort and versatility. Finally, the activewear sector was just growing and growing. I knew it was just a matter of time that this trend would bleed into other categories. We see Aella as the workhorse of the modern woman’s wardrobe: it’s the trusty essential that you can go back to, again and again.”

We’ve also seen this desire for comfort seep into other areas of women’s fashion, namely, lingerie. Several up and coming brands like AdoreMe and True & Co strive to disrupt Victoria’s Secret by providing a comfortable alternative that allows women to look and feel great. 

All in all, we think there is a lot to look forward to. While we might miss wearing our Lululemon pants everywhere, we’re excited to have a more stylish and equally functional alternative. Most importantly, we’re here to support all types of businesses, whether you’re an athleisure brand or not. At Fuse, we want to help you focus on your business, not your inventory. 

Inventory - tackling your biggest investment

Companies with the best supply chain management practices thing about inventory as an investment, not a cost.

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.

Why we believe in the success of online first brands

We believe that digitally native online first brands will be the future of all commerce, not just e-commerce.

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 Casper, Dollar 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 by Michelle 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.

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

What are the current systems that customers are using to manage their inventory? The vast majority are using Excel, Google Sheets or have built a custom system.

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.