merchandise 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.

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.

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.