This in-depth 10 minute video explores the critical fundamentals of inventory management. Stephen helps viewers breakdown these fundamentals and analyze if managing your own inventory is the most strategic decision or not. Read the full transcript below.
Why Companies Struggle with Inventory Management
I think the first thing that came to my mind, and I will tell you from … again, one of the great vantage points we have is we get to see so many different brands that we deal with. And we’re very, very focused in the health and wellness area. So there’s a lot of overlap. But I will tell you, this is the area that I see a lot of companies struggle with. And the reason is, to manage inventory really, really well and your entire supply chain for that matter, it’s very difficult to do it well. Right? You can do it haphazardly. You can go run around and find product and you know, buy things sporadically and chase down inventory every week when you run out. But are you dedicated to being great at this, right? Is this something that you can commit to? Because to build a really good quality supply chain management team in any sort of respectable revenue of $10 million plus, it’s gonna cost you maybe a million dollars to get a good quality team. And I mean a team that knows what they’re doing to manage supply chain, it is not easy to do. So I think the first part of inventory management is just trying to determine, first and foremost, do you actually want to be good at it? Right? I mean, is it a core competency that you think you can be the best in the world at? Or are you the best in the world at marketing, right? Are you the best in the world at product formulation, or the best in the world at building, you know, converting pages, you know, higher than anyone else? It’s really making that determination, first and foremost, to say, do I want to be good at this? Because supply chain management is painful.
One of the expressions we always have in supply chain management is, every time you place an order for any new product or any product that is already existing in your product suite. There are 1000 things that can go wrong between the time you place an order and the time you received it, and one or several of them will go wrong and you have no idea which ones are going to go wrong, right. The supply chain management is extremely inefficient and clunky in nature in of itself, especially with nutritional supplements, and subscription box too. There are so many things that can go wrong. Raw materials get held up the customs. What do you do? You know, I mean, your cap didn’t come in and it came in ribbed instead of smooth, but your brand says you have to have a smooth cap, what do you do? So you have to build a team that understands how to be flexible enough to understand and accommodate for those nuances that can happen in supply chain management.
In 25 years of building different brands, inventory … I used to always look at pallets in a warehouse as cash, instead of products on a pallet, so think of it as cash on the pallet, right? How do I turn that back? How do I get that cash back out of that pallet as fast as I can, right? And that’s always the balance of inventory management.
When you are unable to manage your inventory well
And I will say though, I’ve seen more times than not, and even in my own instances, where the inability to manage inventory well can be the one thing that can turn your company upside down. Like really fast when your balance sheet has a large amount of inventory that becomes slow moving, obsolete. You got really aggressive with marketing saying, man, we’re going to sell a bunch of these. So you ordered a lot and then the page doesn’t convert quite as well. Or do you have a delay in getting the launch and just sitting on an inventory, right. And we all know that when you’re scaling and you’re growing, growth eats cash for breakfast, lunch, and dinner, and dessert. And you wake up one day, and you’re staring at your balance sheet, and it just has a pile of money sitting on that inventory line, right? And you think what the hell do I do? It’s detrimental to your success.
Using your data for effective inventory management
And so, when you think about inventory management, you have to think about it in terms of a continuous fluid supply chain that starts from your data. Going back to pulling data and knowing what to look for. Again, one of the vantage points we have and when we oftentimes can forecast rather than our clients trying to forecast for themselves. We joke about it, but in all seriousness, it’s because we have the data and we know how to use it, right? We look at the data and we look at trailing in one, two, four, eight weeks, and we say, what is this skew doing? You know what philosophy is it moving, right? And from there, we look at, you know, and you what you would look at is just from a marketing perspective, what am I going to do any differently over the next 48 weeks? Am I going to bring on some more new affiliates? Am I gonna bring on a new channel? Am I gonna launch a new page? You know, are my conversion starting to get a little better? So you’ve got to be able to look at that velocity of that trailing data, and then connect that to what do you think is going to happen in the future and that’s always just a crystal ball, but you have to do your best to try to connect those two, to give you some sort of a projection, right?
And then from there, you’re basically linking in, whatever your … if you’re working with a supplier, there’s always a lead time, right? And we always underestimate demand during lead time. We always underestimate the time it takes to get a product, right? So that’s where I’ve seen a lot of companies get hung up in terms of … for my supplier, he said it’s four weeks to get the product. Well, but how often is that actually happening? Go back and look at the data, review it. Go back in … one, you got to hold your suppliers accountable, but two just test it against what’s really happening. Right? So it might take them five weeks or six weeks to get the product together. And then you’ve got transit time, right? And then you’ve got time to get it to ensure that you know you’re doing all the FDA and GMP compliance. Are you doing retains? Are you looking at the micro and metal testing? Are you quarantining it while you’re getting third party testing before you release it? Then you got to get received and you got to get ready to ship and it might need to be kitted, put into a box, retail box or something before you ship it. Building a reasonable demand during lead time that is actually achievable, and gives you, you know, some buffer is critical. That is one area that I see under estimating all the time. Right?
Building a safety stock measure for effective inventory management
And then you’ve got to build in a safety stock measure, right. And this is a lot of this is kind of one on one, inventory management. But I see some of these things overlooked so often, right? It’s just sell and order, and sell and order and sell and order and that is a horrible way to manage inventory. Right. So you got to look at safety stock. You got to say how often as a percentage of my days and sales, do I want to risk being out of stock? If it’s zero, well, then you’re gonna have a lot more inventory. If it’s 10%, you can live with that, you can manage those calls in the potential refunds or charge back, you have to be able to say, what am I willing to tolerate and build in that safety stock, right, percentage.
Supply chain management is messy and clunky and ugly by nature. And so and I’ve been there, as a CEO of a brand, it’s the one area, you just kind of go and just figure it out. Just make sure I have inventory to sell, right? But the reality is you got to get in there, and you got to look at it, and you got to be involved. And you got to make sure that that there’s a cadence to how you’re looking at that data, whether it’s daily, whether it’s weekly, that there has to be a discipline to looking at that data, because as you know, that data can move very quickly, right? You bring on a new affiliate, and all of a sudden, they’re on a rush and they’re scaling and it’s how do you respond, right? How do you respond? You have to get in front of that as quickly as possible. And the only way you do it is through the data and through trying to understand what is going to happen in the future, knowing that you’re going to be wrong to some degree, the question is by how much. You have to get in front of that as quickly as possible. And the only way you do it is through the data. And through trying to understand what is gonna happen in the future, knowing that you’re going to be wrong to some degree, the question is, how by much.
So a lot of it is, I’d say 90% science and 10% art, of really trying to understand the data, not just looking at the spreadsheet and saying, let that make the decision for you, right, but stepping back and saying, okay, what’s causing this data, what’s happening here?
To learn more about inventory management or learn how QuickBox and optimize your supply chain, contact QuickBox Fulfillment today.