inventory planning

7 Easy Steps to Set Up Your Supply Chain Correctly

Learn how to set up your supply chain and manage your inventory correctly from the start

Supply chain is incredibly daunting, especially if you’re new to it. While it might seem confusing and complicated at first, you can tackle this complex field by breaking it down into a series of simple steps. 

1.       Choose Your Inventory Assortment

This is where your genius as a founder comes in. You know your customers best and you can use your judgement and qualitative insights to hone in on that next best thing. Of course, if there’s any data you can use to supplement your intuition (like what’s sold well in the past), we encourage you to do so!

We always recommend that young companies start with a simple assortment of SKUs. You can always add more as you grow, but it’s incredibly hard to manage a wide product assortment right out of the gate.

2.       Forecast Demand

This step is critical because you need to have an understanding of what sales of each product (down to the size and color level) will be. Without this analysis, you could wind up vastly over or under buying inventory. When you’re just starting out, it’s completely OK to use an Excel model. Hopefully, you’ve taken our advice and kept your product assortment simple, which will make it easier for you to forecast demand.

However, as you scale, there aren’t really any sophisticated tools out there to help you that don’t cost a small fortune. That’s why we created Fuse - to help algorithmically forecast demand at a price point that doesn’t break the bank.

3.       Size Your Inventory Buys

Once you’ve completed your demand forecast, you need to translate this data into an inventory buy and replenishment plan to make sure that you have enough inventory to fulfill expected demand. As a young company, you can’t afford to stock out - it disappoints customers and damages your brand.

To avoid stockouts, you want to link your demand forecast to the inventory you have on hand and the inventory you expect to receive from suppliers in the coming months. You need to order enough to make up for the gap between what you have on hand, what you expect to receive and how much you plan to sell. You’ll also need a bit of buffer just in case.

Many companies do this work in Excel, but Fuse can automate the whole process of translating your forecast to an order recommendation that’s consistent with your buying cycle.

4.       Track Your Purchase Orders

Now that you’ve placed your orders with your suppliers, you’ll need some sort of tracking system to track these POs. If there are delays or something arrives to the factory damaged, you’ll want to make sure to stay on top of it or else you may stock out.

Many companies use Google Sheets, but with Fuse’s PO module, Fuse has a simple way for you to seamlessly track your purchase orders. Unlike a google sheet, once the PO change is logged, we can seamlessly link it back to your current inventory position and demand forecast in order to give you a clear picture of what this means for your business.

5.       Track Your Inventory

Now you know that your inventory is somewhere between your supplier and your warehouse, but the question is, where? Is it on the boat, is it at the dock, is it in the warehouse? Flexport can help you track where your goods are. This type of tracking is critical because there may be delays at customs or in other parts of that shipping process that neither you nor your vendor can anticipate. Having visibility can help you make adjustments and communicate with your customers.

6.       Understand Your Inventory Position

Your inventory has arrived. Now, it’s critical to understand exactly how much of it you have and where it is. There are two possibilities - you can do it yourself at your own warehouse or you can work with a third party logistics provider (3PL). Most young companies choose to work with a 3PL rather than managing their own warehouse. With a 3PL provider like Quiet Logistics, you can completely outsource both the tracking and fulfillment piece of inventory management. While this might seem expensive, unless your core competency as a business or a founder is warehouse management, you may be better off outsourcing.

If you do choose to run and manage your own warehouse, you’ll need a warehouse management system like Fishbowl to help your employees in the warehouse know what’s where and also track goods as they come in. 

7.       Fulfill Your Orders

Finally, your products are in your warehouse and you’re ready to get products into the hands of customers. This is one of the most critical questions in the supply chain. There are two parts to this process - order management part and shipping and logistics.

On the order management side, there are many great systems out there like Stitch Labs that can help you make sure you’ve allocated the right amount of inventory to your e-commerce site, your retail store and your wholesale business. When you process an order from a customer on your website, you want to make sure that you have enough inventory to fulfill that order. You might have a lot of inventory on hand, but perhaps all of it is already allocated to your wholesale channel. These systems can also notify you when you’re running low. As your company grows, you may want to expand into more robust ERP systems like NetSuite. These types of systems are typically what people think of when they refer to an “inventory management system.”

Finally, the shipping and logistics piece is a whole separate beast. Smaller companies aren’t well resourced to do this, which is why a 3PL system can be extremely useful. Not only can they take care of your inbound goods, but they can also pack and ship goods to your customers. There are also new software providers like Shiphawk that can help you and your customers track where the shipment is. This piece is critically important because it’s how your customers will interact with you and your brand, so you want the experience - from packaging, to shipping, to tracking, to delivery - to be flawless. 

Staying sane

As a growing company, to stay sane, you need to take it one step at a time. There are some basic things you can do when you’re starting out to make life easier and help you succeed. First, find a 3PL provider you trust and rely on them to do the blocking and tackling. Second, while going into wholesale can seem attractive, you need to be careful about doing this early on. Working with retailers that are 1000x your size can be extremely challenging and time consuming, so you want to make sure to pick the right partner. Lastly, be thoughtful about how much inventory you buy and how you finance it. Making big mistakes early on can literally take down your company. 

We created Fuse to help companies transition from managing their demand forecasting and inventory planning process in Excel and Google Sheets to using sophisticated software. Start with Excel, but don’t stay there too long. As your business becomes more complex, mistakes become even more risky and costly. Make sure to invest in inventory planning software like Fuse to avoid drastically over or understocking. We’re here to help you focus on your business, not your inventory.

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. 

4 simple rules for streamlining your SKU system

Great idea for inventory

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

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

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

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

(1) Don’t rely exclusively on marketing categories

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

(2) Keep it flat

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

(3) Make it mean something

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

(4) Make it your own

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

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