Subscription box inventory management is the biggest challenge to starting, running & scaling a successful subscription box business model. Read on to learn about the different sub-box models, forecasting, fulfillment, and more.
It so often happens that those people who benefit from regular delivery of subscription purchases start thinking of how they too can establish a similar operation for a niche they are passionate about. Well, the thought process and even the setup could appear easy, but the greatest hurdle is subscription box inventory management. Too little inventory means that a business will be incapable of servicing its customers, while too much means that the business will not meet its profit goals. By aligning the business model to accurate forecasting and level of customization, it is possible for any business to simplify the process of subscription box inventory management.
The Subscription Box Business Model
There are various subscription box models each with multiple subtypes but the curated model offers the most flexibility in terms of differentiation. According to a report published by McKinsey in 2018, 55% of all subscription boxes operate under the curated model.
- Standard Curated Box Model: each customer will receive a uniform set of items every month. This is the simplest of all models because a business has an easy time not only managing inventory but also in fulfillment.
- Customized Box Model: each customer has a unique set of choices which makes the fulfillment process quite intricate. An apparel subscription box might involve selection of color, size, fabric and even style. Inventory management for such a model is quite challenging and business must find ways to balance between delivering on time and having too much inventory held up waiting for the customer.
- Sequential Box Model: all customers receive the same items every month only that that the sequence differs from one person to another. The perfect examples for this model are online courses and pregnancy guides.
The second most popular subscription box model is the Replenishment Model which boasts of 32% market share, according to the 2018 McKinsey report. A razor replacement business fits perfectly into this model.
Subscription Box Inventory Management Forecasting
The place of accurate forecasting cannot be downplayed since many businesses tend to order for inventory months in advance. Depending on the business model, some businesses have an easier time fulfilling their orders as compared to others. The use of technology simplifies the entire process because automated tools are able to draw a clear picture of current inventory and future projections.
What happens when customers cancel their subscription after order for inventory has been made?
The highest cancellation rates are experienced with the curated model compared to the replenishment model.
A good way to mitigate such drastic changes is for businesses to have a waiting list for their subscription. This way, they can allow customers into the current subscription list in an ordered manner that guarantees them regular business. Being on a waiting list increases anticipation among customers and this fuels demand.
Subscription Box Inventory Management Stock Outs vs Dealing With Left Overs
Most business leaders will tell you that it is better to be out of stock for a month than to be finding ways to deal with left over stock. As long as a business has a reputation of delivering on subscriptions, even out of stock orders can be used to gauge inventory requirements. If you find that you have excess inventory at any given time, make a plan of how to get rid of it as quickly as possible.
Here are some solutions that are common;
- Offer the inventory at a discounted price on an e-commerce platform. There has to be a balance though, as this may cause customers to ignore subscription in the hope of getting what they need at a lower cost.
- Give the inventory away as free gifts. This is popular with traders who deal in perishables or who are looking to get rid of inventory in small quantities.
- Get into an agreement with the vendor to take back what remains of your inventory in exchange for credit. The inventory could always be sold to another business that needs it and you can gain credit with which to acquire what you need in the future.
Subscription Box Fulfillment vs eCommerce Fulfillment
A single warehouse can fulfill orders for subscription boxes as well as for e-commerce sales. An e-commerce fulfillment operation requires extra shelving space and additional stations for packing. The larger a customer kit is on a subscription box fulfillment operation, the longer the assembly line will be. Warehouse storage for subscription box services is typically by pallet or boxes. The packing line in an e-commerce operation does not stop because customers make orders on an ongoing basis. While it is possible to sign up for a subscription any day of the month or week, customers can only receive it once over certain duration of time. To this end, e-commerce fulfillment is deliver-time based while subscription boxes are bound by the date of delivery.
Choosing the Right Partner for Subscription Box Inventory Management and Fulfillment
When starting out, most subscription box inventory management and fulfillment in achievable in house. As the service grows in popularity it can be challenging to keep the business operating smoothly. When business owners find themselves in this predicament, it may be time to start looking at partnering with a third-party fulfillment center that is familiar to the subscription box model. What to pay attention to you ask? What are their quality assurance procedures? You have one chance to get it right, on a monthly basis- you want to trust that the boxes will be kitted accurately. What are their postage rates? It is important to be getting the best rates for your buck when doing bulk shipments. What makes them unique? Find out what services set them apart from the other sub box fulfillment providers.