High level Takeaways:
- eCommerce is accelerating and even faster now that COVID has occurred
- Your competitors are thinking about how to sell to their customers where they buy
- Amazon is setting the standard for delivery times in the US – and it’s only getting faster
- When do you graduate from Excel to Inventory Management Software? When you have multiple sales channels and/or multiple warehouses and/or when you begin to sell internationally
- The Founder should probably be heavily involved in inventory management until they are at mid-market ($10M) – it’s such a strategic part of the business from a financial perspective but managing vendor relationships can be a significant source of gross margin
- Careful with platforms – overselling could put you in time out or kicked off the site
- Inventory Forecasting is hard – without software that has well-built rules
- Bundling is also complex – avoid simple mistakes by managing parent and children SKUs
Who is Ryan Thill and Why Should You Care?
Ryan Thill has spent his career working for fast scaling SaaS companies like Workday, Box, Procore and was most recently the Head of Sales for North America at Linnworks. Linnworks is an inventory and order management platform that enables companies to sell across multiple channels in an efficient manner. He left Linnworks to start his own entrepreneurial journey, but has offered to share the insights he gained while being an insider in eCommerce.
All The Products Going eCommerce – Why Not You?
Ryan: It is an incredible time to be in the eCommerce space. Companies that were already in eCommerce are doubling down and most Brick and Mortar businesses have no choice but to shift their strategy and make direct to consumer online sales a priority.
There are a lot of things to consider when starting in eCommerce, including your website, third party marketplaces, marketing, branding, etc. One thing that is sometimes overlooked when trying to launch quickly is inventory management and how you will process orders in an efficient manner. The more channels you sell through, whether it be online or in store, the more important accurate inventory becomes. I’ve been able to look at the guts of hundreds of eCommerce businesses and the ones that are world class and scale quickly are almost always effective at managing their inventory.
The Great eCommerce Acceleration- 3 Trends
Ryan: With COVID, we are seeing a lot of retail locations being shut down or having decreased throughput due to social distancing. This is forcing a lot of companies to take eCommerce more seriously. Companies that may have had a digital transformation on their roadmap “in the next few years” are all of a sudden saying, “It’s a top priority and it needs to happen this year.” As an example of this acceleration, In Nike’s most recent earnings call, they said that their direct to consumer goal for 2023 was 30% of revenue. They just hit that goal, 3 years early, and it is continuing to grow.
We are also seeing that brands used to be able to get away with selling their product to retailers and let them deal with it. Now, brands have to meet the consumer where the consumer prefers to shop. People expect to be able to buy where they shop, right from their phone, so brands need to wrap their heads around that now, regardless of category.
Finally, we see the opportunity in eCommerce accelerating the addition of new players into the market. Google Shopping and Facebook Marketplace are great examples of newer offerings that will be competing for the customers you want to attract. If you want to be in front of these customers, you will need to adopt a multichannel strategy and be ready to pivot again when the ecom landscape inevitably shifts again.
The Immovable Force and The Unstoppable Object – FB vs GOOGL vs AMZN
Ryan: Competition is always going to breed innovation. Amazon currently has some significant advantages. They have a massive catalog, competitive prices, Prime member benefits, and they set the standard for 2 day delivery. Now they even have one day delivery, and in some cities, as fast as 2 hour. The prime fulfillment piece is a big differentiator and makes it difficult for other marketplaces to compete against Amazon. If sellers struggle to get orders out the door and don’t want to go the FBA route, I would consider looking into a service like Deliverr.
When To Get Serious About Inventory Management As A Business
Ryan: I think there are several triggers for when to think about inventory more strategically. In the early days, eCommerce businesses tend not to have many products. You can track a limited number of SKU’s with a spreadsheet if you have an understanding of how to forecast running out and timing a restock.
Once you start adding multiple marketplaces, you begin to create inherent problems that you need a solution for. For example, if you sell on your own website, but also sell on Amazon and eBay, you need to be careful not to oversell your stock. You have to make sure that when you take orders, you can fulfill them. If you don’t fulfill, with platforms you don’t own, you risk being kicked off, getting a bad review, and losing your position in rankings. This applies to brick and mortar just as much as eCommerce. When you have multiple locations being served by a warehouse, or warehouses, you face the same challenges.
Adding to the complexity would be having multiple warehouse locations. I see a lot of businesses eventually move into a phase where they have a distribution center for each coast of the USA. Ideally, you want to make sure that orders on the East coast are being fulfilled by your East coast fulfillment center. But what if you run out at one and need to use stock from the other coast? Then you have to weigh the additional shipping cost against the consequences of a lost sale.
The real goal of sophisticated inventory management software is to automate these decisions and to create rules that will help you manage this process. This will allow you to scale and free up headcount costs or mental bandwidth.
The next level of complexity we see with businesses is selling internationally. You add challenges around importing and exporting, tax, converting listings into different languages, and how long it takes to do stock transfers to places like Europe and Asia.
Who Should Manage the Inventory Numbers?
Ryan: We generally see in the mid-market and below space that the founder is heavily involved with inventory management because it’s such a strategic part of the business. They get involved in not only stock forecasting but also re-ordering and merchant negotiations.
Vendor terms can also significantly affect the cash flows of a business, so they need to see their inventory numbers to be able to know what sort of leverage they have in conversations with vendors. We like to make sure the founders at these companies are involved in the implementation of the software so they understand the inputs and outputs. Eventually we see the role handed off to someone either managing the warehouse and fulfillment, or someone more marketing focused who is ensuring the product listings are high quality and up to date.
One interesting idea for sellers expanding their eCommerce presence is to try and integrate with your suppliers inventory systems via FTP, API, EDI, or what ever they will expose to you. Not all vendors are willing to do this, but the ones who are allow sellers to see what is available to order to help better forecast availability, and can unlock drop shipping functionality. This can potentially allow for the purchase order process to be done inside the same system. This can make forecasting payables and vendor rebates a lot easier.
What Do Inventory Levels Look Like Right Now – During a Pandemic?
Ryan: It depends on what your selling – luxury items are having a really tough time right now as sales have declined drastically. They are trying to figure out what to do with current stock and are not ordering more if they can avoid it. However, if you sell Home Goods or workout equipment, or disinfectant, you can’t keep up.
What is the Ideal Number of Channels To Sell Through – Is It “All The Channels?”
Ryan: More channels means more complexity. Generally, you are going to have a few channels that really crush it for you. Other channels will naturally be a lower percentage of total sales. Often, if you see a brand that sells on 6-8 channels, they have 2 or 3 that are doing 90% and the rest are tiny. You almost don’t know until you try. Again, you have to be where your customer likes to buy.
Deeper Dive On Issues With Selling On Platforms
Ryan: When selling across multiple marketplaces, you get your product in front of more customers but it can come at a cost. To start, you lose a bit of control over your brand and the customer experience. Using Amazon as an example, they view the customers as Amazon customers, not yours. This can result in rules that make it harder for you to build a relationship with that customer and sell to them again in the future.
Another big thing with selling on multiple marketplaces is that you are always at risk of over and under selling. You’re going to have some products with high sales velocity and some with low, and both are tricky. For the top selling items, you tend to have more predictable volume but that volume is higher, so if you have a delay in your supply chain you can run out quickly. You tend to make your money on these items, so the risk of underselling is a big deal. On the flip side, a lot of sellers have a large product catalog where say 80%of the items barely sell. These can be tricky too because you don’t want to over order and have them sitting in your warehouse, but you can also sell out in an instant. If you are not good at taking the listings down when they sell out, you run the risk of overselling and being kicked off a marketplace. Imagine if 80% of your sales come from 1 marketplace and then you get kicked off… it can be devastating for a business.
Another challenge is if you have a lot of unique SKU’s, like custom jewelry or any one of a kind item. You need to make sure that as soon as it sells, you’re taking the listing down or marking it out of stock across all channels. This can be done manually, or via software with built in rules, but it needs to be done.
Ryan: As a first punishment, they will usually lower you in the rankings. As a second or third punishment, they will eventually take you off the platform either temporarily or permanently.
With Amazon, you can lose your buy box for several different reasons. Being in the buy box is very valuable so losing that is not something you want.
Why Is Inventory Forecasting So Hard?
Ryan: It’s a combination of the marketing being somewhat unpredictable and a lack of visibility into data. Most businesses I have looked at don’t have the level of visibility necessary to really manage inventory effectively.
Physical counts are used as a way to get some reality back to the inventory levels but as soon as that inventory count is done, if you don’t have proper systems in place, it will be wrong again soon. And that reconciliation could take months or years before it happens again. So you could be operating with an incorrect balance sheet for a while.
We see people make super detailed excel files with dozens of sheets to track hundreds of SKU’s. The problem with this is it becomes a key person risk. What if that person that manages that leaves?
This is where software can help dig into the types of questions that you want to be able to ask of your inventory: What happens if our sales equal the last 90 days on average for the next three months? What if we add seasonality? What if there is a pandemic? For the average seller who isn’t creating their own super complex spreadsheets or algorithms, you can do so much more scenario planning with a dedicated software.
What Is the Effort Required To Implement Inventory Management Software?
Ryan: This depends heavily on the complexity of the business and how well organized and accessible their data is. There are a ton of decisions that need to be made on how the automation should work, how to connect to other systems, which system does what, etc. Some customers don’t have to touch inventory and order management software after its deployed because it’s mostly for order flow and inventory updates. But there are some that use it for purchase orders, warehouse management, receiving, reorder points and minimum levels, etc. Some people integrate their shipping couriers to print labels. Some people use inventory systems to generate bulk listings. The effort required really depends on what you are trying to build.
For someone completely new to eCommerce with low complexity, I would actually start with a cheap and simple shipping solution like Shipstation that can aggregate your orders from online platforms then grow into a more complex omni-channel inventory and order management platform as the need develops.
The Complexity of Kitting and Bundling – Family Matters
Ryan: We have seen the rise of bundling as a trend. It allows you to create unique offerings for customers and allows sellers to tack some high margin items onto products that have good sales velocity. The use of loss leaders and high margin tack on’s is pretty commonplace in eCommerce now. However, the inventory issues around this sort of stuff can be complex.
Often times, you want to be able to offer the individual SKU’s inside of a bundle as well as the bundle itself. You need to make sure that when one of the bundles sells, that you deduct the proper inventory from SKU’s inside the bundle SKU. We look at it as “parent” and “child” items.
Final Thoughts to eCommerce Business Owners
Ryan: I’d say to hang in there. It’s a tough game and there are so many good people in the space. The good news is that most of them are willing to help. Seek out other business owners in this space. Go to Shopify and BigCommerce and Amazon meetups. You can network and meet other sellers. I’ve seen a ton of great ideas get shared at these things. There is a Facebook group for people who have sold over 1M on Amazon that you can also check out. Those sorts of groups seem to be really helpful at getting to the next level.
Finally, I’d say, make it as easy as possible for your customers to buy. Is the information they need to make a decision readily available. Is it easy to tell if this is something they should purchase? Good luck!
You can find Ryan Thill on LinkedIn at: https://www.linkedin.com/in/ryan-thill-00b07369/