inventory management

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.
 

What is an Inventory Planner and why is she SO important to your growing brand?

An inventory planner hard at work optimizing the supply chain of a growing brand

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

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

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

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

(1) Determine how much inventory they need to order. 

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

(2) Determine when the inventory needs to arrive.

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

(3) Aligning with sales and marketing. 

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

So, why are Inventory Planners important?

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

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

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

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. 

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.

Stop fumbling around in the dark with these 7 inventory management concepts

Stop fumbling around in the dark - use 7 inventory management definitions to guide your planning.

In our last post, we defined inventory planning and described why it’s important for your business. Since we’ve covered the “what” and “why”, we thought we’d create a mini-guide that starts to cover the “how”. Here are some of the basic concepts and definitions that you can apply to your business to get you started:

1. Sell-Through Rate

Total sales divided by inventory stock at the beginning of the period. Sell-through is typically calculated on a monthly basis. 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%. If you have a high sell-through rate (75%), you may have underbought and might need to re-stock. A low sell-through rate (5%), would indicate that you overbought and might want to markdown the product. Although it’s a very basic calculation, this metric can help you easily see how well certain styles are doing.

2. Weeks-of-Supply

In many ways, weeks of supply and sell-through rate are two sides of the same coin. 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 planners consider the forward looking approach to be best practice because historical metrics can be misleading. For example, if you’re going into a particularly busy selling season, looking at the prior month’s data won’t necessarily help you make a better buying decision. In Fuse, the calculation is done for you seamlessly - we connect your forecast to your existing inventory levels and provide you with a timely and accurate reorder recommendation based on your weeks-of-supply.

3. Buffer Stock (Safety Stock) and Service Level

No matter how accurately you predict demand, there is always some risk that you may have underestimated the inventory you need. For this purpose, companies keep some extra stock on hand. Some companies set a service level target which is the probability that all customer orders will be fulfilled. Younger companies might want to set this level quite high (99%) so as not to damage their brand. However, the flaw with service level is that it relies on relatively predictable demand. That’s why at Fuse, we set a weeks of supply target. So, if your target is to have five weeks of supply on hand at all times, we’ll prompt you to order more when you begin to dip below that threshold. 

4. Lead Time

Perhaps the most basic concept on the list, lead time is simply the number of weeks or months between when an order is placed with a vendor and when the finished good can be delivered. Lead time is often not only based on how long it takes to produce the good, but also how long it takes to transport the good from the factory to your warehouse. 

5. Reorder Point and Reorder Level

Closely tied to safety stock and lead time, the reorder point is the level of inventory at which a reorder is triggered. Typically, this minimum point is calculated as the forecast sales during the lead time plus safety stock. Although the reorder point can suggest when to reorder, it is difficult to know how much to reorder (the reorder level) without a robust demand forecast. Fuse seamlessly links the pieces together by providing a reorder recommendation based on the buffer you set, your lead time and the demand forecast you’ve created using our advanced algorithms.

6. Minimum Order Quantities

Depending on the size of your business, you might at times find yourself constrained by 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 optimal quantity you need to reorder, your vendors might completely throw that analysis out the window by insisting that you meet a minimum order quantity.

7. Open to Buy

An open to buy puts all of these elements together to help you re-order more easily. 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. For example, a retailer might need $100,000 of product next month to reach its sales targets. $75,000 may already be allocated to open POs, so the planner’s job is to optimize the allocation of the remaining budget ($25,000 in this case). In some instances, the planner may not have the budget that he or she needs to be able to meet the sales target. At this point, it often becomes an exercise in maximizing margin. The planner will evaluate not only which of the SKUs are the best sellers, but also which can generate the most profit given the limited budget available.  

At Fuse, we’re implementing 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.

Your company may be young, but you don't have to plan like it

Just because you're a young company, doesn't mean that you can't define and build out the planning function early on.

At Fuse, we define ourselves as an inventory planning tool for growing retailers. We work with many young start-ups who have a diverse set of experiences with the areas we touch like demand forecasting, supply chain and inventory management. Some have experienced planners who come from a background at big companies like Target, J.Crew or Gap. Others are general athletes who’ve had inventory planning and supply chain management thrust upon them. To level the playing field, we decided to answer some basic questions in this post.

What is inventory planning?

Given this disparate set of experiences, we thought we’d take a step back and answer, “What is inventory planning and why is it so critically important?” According to the Business Dictionary, inventory planning is, “The process of determining the optimal quantity and timing of inventory for the purpose of aligning it with sales and production capacity.” 

In our last post, we defined supply chain through a series of seven questions. The key questions answered by an inventory planner are questions two and three: "How much inventory will I sell? How much inventory do I need to order?"

We asked Jeffrey Awong, VP of Planning at BarkBox, with prior experience at both Jackthreads and Lord & Taylor for his input:

“Planning functions differ across companies, but at the core, it's really about ensuring that there is a perfect match with the supply of goods and the forecasted demand, with a heavy emphasis on efficiency. As a result, it sits right in the middle of Marketing (understanding demand levers), Finance (P&L and cash flow implications) and Merchandising (to understand the magic of what's being sold).”

Why is inventory planning important?

Cash management is critical for young companies, and planning well can help significantly mitigate inventory risk which can be especially fatal for young companies. It is a function that manages one of if not the biggest investment that a company will make. If a company buys too little of a specific product, then it can lead to stock-outs and lost revenue. If a company buys too much of a product, it can lead to too much cash tied up in working capital that could otherwise have been put to good use elsewhere. 

Skilled planners look not only at sales, but also at other metrics like profitability. In a given month, the company may have a certain budget to spend on inventory (typically called an “open to buy”). While you may want to buy $100,000 of product to meet your sales target, you may already have placed POs against that budget. As a small company, you might frequently find yourself in a situation in which you need more product than you can afford. An inexperienced planner might simply replenish the top selling SKUs, but an experienced planner will also look to see which SKUs are the most profitable. This is a critical question to answer, particularly if cash strapped. 

How can you improve?

From experience working with our customers, the two most common planning mistakes we’ve seen are:

  1. Focusing on revenue instead of margin. We see far too many companies re-ordering products that are high volume, but low value
  2. Investing in marketing without connecting that investment to inventory. Marketing can drive customers to the site, but that traffic can’t convert into revenue unless there is enough product there to support it. If you’re out of your top selling SKUs, all of the marketing spend in the world might not make a difference

For our young companies, we always recommend bringing on an experienced planning hire early on to save time and money. From day one, you don’t want to be placing your orders based on instinct. Once the planner is on board, Fuse is here to support him or her in crafting the critical pieces of the puzzle, marrying the demand forecast with the initial inventory buy and replenishment recommendation for each season. Our sophisticated algorithms help smooth out outliers and do the grunt work for the planner so that he or she can focus on the more interesting, strategic and analytical work. 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.

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.