Supply chain management 101

Hey everyone, 

Thanks for coming back for another bite to chew on. 

Today we’re going to focus on something that is rarely talked about, but always relevant. 

Your supply chain.

It’s the last thing most founders think about when they first dream of building a brand. 

But it’s one of the first things that can damage your company or put you out of business once you start gaining traction. 

There’s lots and lots of content out there about marketing strategy and tactics.

But it won’t matter how dialed in your ads are if you don’t any products sell.  

 On the menu: 

• First - The challenges

• Second - Get the fundamentals down

• Third - Up your spreadsheet game

The challenges

“Make stuff, load it on a truck or boat, put it in a warehouse, ship it to the customer.”

That sounds simple, doesn’t it? 

That’s why most first-time founders and early-stage startups underestimate the difficulty that awaits them when it comes to supply chain management. 

While the concept of “make stuff, store stuff, ship stuff” IS simple, it doesn’t mean it’s easy to execute.

Because as you scale up, there are dozens of little things at each stage of the chain that can go wrong. 

At the pre-product market fit stage, this is all handled with napkin math and brute force. 

Founders are probably packing stuff in their apartments or on a friend’s kitchen table while paying invoices with a credit card and a prayer.  

Once you start selling more than you can pack and ship yourself, though, your supply chain issues multiply rapidly → 

• Warehousing becomes a whole new cost center. 

• An army of people who don’t really know you or care about your business will have a hand in moving your product from point A to B.

• A significant portion of your cash will be tied up in inventory. 

• More suppliers and 3PLs = more variability in your COGS.

Keep in mind, that a problem or screw-up at any point in the chain can cascade down to everything that happens after it. 

That means costs don’t just multiply as you scale across these factors - they are also amplified by poor systems and execution. 

Let’s get into some of the things you can do to manage your supply chain properly.

Tool of the week - Aftersell Network Offers

“There’s no such thing as free money.”

What if we told you there is?

You’re skeptical, of course. 

We were too. We first added Aftersell to our Shopify store for upsell and cross-sell functionality. 

But then they told us about Network offers. Incremental revenue, no COGS attached, for serving tailored ads from big brands to our customers. 

Seems suspect. Too good to be true. 

We dug deeper before taking the plunge. 

Free money aside, we were worried about spamming our customers during the post-purchase flow. Money matters, but so does customer experience and brand perception. 

“Not to worry,” Aftersell told us. Their system doesn’t just blast people with random ads. 

Here’s what they told us → 

• Machine learning model trained on 200 million annual transactions understands how to personalize offers to the shopper

• Their network features offers from over 400 major brands

• Their ads average a 16% engagement rate, way above typical click-based advertising

• Customers are 7X more likely to engage with confirmation page offers than banner ads

So we decided to take the plunge. 

Here are our results → 

• Super easy setup (about 5 mins)

• Around $0.50 in incremental profit per transaction (That’s +$50k per 100,000 orders)

• 0% impact on retention (no negative customer perception)

Consider us believers. 

5 figures added to our bottom line this year. All it cost us was 5 minutes worth of setup. 

Interested in free money? Talk to Aftersell about Network offers here.

Get the fundamentals down

Accuracy and transparency. 

When it comes to your inventory, you need to know where, what, and for how long. 

When it comes to your inputs and outputs, you need a clear picture of who, what, when, and why.

And if you achieve a sufficient level of accuracy and transparency, then you need to tie everything together so it all ladders up to your finances and forecasting. 😬

Some basics to consider:

• Initially, you’ll need to boil your warehousing, freight, and supplier COGS down to an average number, even if they vary. Take your 12-month P&L and determine their percentage of revenue. 

• Always review and audit invoices from your 3PLs and freight/shipping companies. Don’t just take line items at face value. Follow up with anything that looks suspicious because it’s easy to be double charged (or phantom charged). 

• Develop a relationship with your suppliers. Visit them in person if possible. Get to know their operation, and speak with all of your points of contact personally. There are times when 💩 will hit the fan, so being on a first-name basis can help. 

• Take time to understand the nitty-gritty aspects of your supply chain. What is the cycle time for a production run of product X? How many packs can you safely put on a pallet? How do you wrap, pack, and ship bulk freight without damaging anything?   

• Develop clear SOPs around kitting, packaging, and palletizing. Encourage transparency by asking for pictures from suppliers and warehousing partners when shipping bulk. 

• Don’t assume any middleman you hire, from trucking companies to warehouses, will just know how to handle and ship your product. 

• Find capable freight and shipping vendors. Leave time to negotiate and shop for rates whenever possible. But keep in mind - sometimes you get what you pay for. 

You don’t need to become a fully-fledged logistics and warehousing specialist (unless you vertically integrate), but you DO need to have a feel for what things tend to cost, how long they take to do, and how/where they can go wrong. 

Up your spreadsheet game 

Inventory management and planning is a must. 

And you can’t just leave it up to your 3PL’s dashboard or Shopify reporting. The stakes are too high. 

If you order too much inventory, you’ll be cash-poor and face additional costs like long-term storage fees, spoilage, or seasonal markdowns (depending on your product).

If you order too little inventory, you’ll face stockouts and lost sales. There are also additional consequences to running out of inventory on a marketplace like Amazon as well. 

If you don’t have a clear picture of how much inventory you have at any one time, then you risk either ordering too much or too little by mistake. 

All of this is moderated by your sales rate and velocity. 

Here’s what we focus on at Obvi → 

• Hero SKUs in terms of inventory and velocity

• New product launches

• Retail expansion

These 3 factors tend to be the most important when it comes to inventory management for us. 

For hero SKUs, we set up formulas in Google Sheets to calculate 14-day, 30-day, 60-day, and 90-day sales velocities. 

This gives us both a long-term and short-term sense of how quickly they are selling and a range for projecting future inventory needs. 

We then look at how much inventory we have on hand and deduct our daily velocity from what we have available. 

This becomes our “days on hand” for that product. 

We look at this number twice a week and then determine when/how much we will need to order. It is vital to know your inventory lag from PO to shipment (including a buffer) in order to get this right. 

As for new products and retail expansion, you’re not going to have as much information to work off of. 

Inventory planning for these factors will involve more intuition/gut feel, and being in tune with your manufacturers. 

Your starting assumptions about a new retail location or product launch are always going to be wrong in one direction or the other, no matter how educated they might be. 

So having strong communication with your suppliers and a sense of what they have on their plate in case you need to pivot will help course correct in a pinch. 

One last thing…

Obviously, big events like Black Friday are going to have a major impact on both velocity and inventory planning, so you need to take those into account - 

Both when looking back in the past and projecting into the future. 

You certainly wouldn’t want to look at your 14-day hero SKU velocity a week after a major sale and conclude that’s the “new normal” for the product, for instance. 

Sum it up

This is just the tip of the iceberg. 

We could write 10 deep dives on supply chain management (and we probably will), but for now, consider some of these fundamentals. 

Supply chain stuff isn’t as sexy as marketing, but it can make or break your business. 

A smooth, accurate, and transparent supply chain will save you money, time, and headaches. It will also substantially lower your risks and can even improve your cash flow.

On the other hand, there are a thousand different ways a shoddy supply chain or poor inventory management can hurt you. 

If you’re an ambitious or high-growth brand, your supply chain management can become the main thing that stands between you and triple-digit growth.

All the best,

Ron and Ash