Tracking your Inventory: A Deep Dive| #046 | 39:43
In a past episode we took a shallow dive into tracking your inventory. This week we're joined by Jill Liliedahl from Inventory Planner. We'll be digging into why forecasting is important, how forecasting customer demand works, and some tips and tricks for forecasting as we move into seasonal events for 2021.
Jill Liliedahl started her first business, PopArt, in 2012, creating gourmet, artisanal popsicles. Two years later, she took over as CEO of SitStay.com, a 20-year old eCommerce brand selling dog supplies.
In 2018, SitStay was acquired. Jill now uses her experience gained from both starting a new venture and rebuilding an existing brand as part of her role at Inventory Planner.
As a former user and now lead of business development for Inventory Planner, Jill works with merchants to be more efficient and make smart inventory purchasing decisions.
Mesa is an easy way to integrate any Shopify store with any eCommerce app or service. Mesa is the only automation platform designed exclusively for Shopify and Shopify Plus merchants. By creating workflows that carry out repetitive tasks automatically, merchants can focus on their business and create new customer experiences at scale.
Mesa has a no-code workflow builder for any action your customer takes, such as a new order or product return. Leverage Mesa's built-in features to extend your connected apps. Set up email notifications, receive forms, schedule tasks, delay workflows, or even work with files to sync data with your back-office systems. Developers love Mesa too, since they can lift the hood on any automation to customize them for total control.
Even if you're unsure where to start, Mesa's library of workflow templates helps you get set up quickly with popular tasks common to growing businesses. Or contact their team of automation experts here to support you every step of the way, 24/7.
Win back valuable lost time for your support team. Gorgias has machine learning functionality that takes pressure off small support teams and gives them the tools to manage a large number of inquiries at scale. Gorgias combines all your different communication channels (email, SMS, social media, livechat, phone, etc.) into one platform and gives you an organized view of all customer inquiries.
Their powerful functionality can save your support team hours per day and makes managing customer orders a breeze. They have allowed online merchants to close tickets faster than ever, with the help of pre-written responses integrated with customer data to increase the overall efficiency of customer support.
Their built-in automation also frees up time for support agents to give better answers to complex, product-related questions, providing next level which helps increase sales, brand loyalty, and recognition.
Malomo helps ecommerce brands generate more revenue by turning their shipment tracking experience into a marketing channel. Customers are most excited after they buy so they check tracking 3.1 times.
If you’re shipping 10,000 packages that’s 30,000 brand impressions. Most brands are sending that traffic to UPS or Fedex, handing it off to a third party and disrupting the customer's branded experience.
It's never been more difficult to get and retain customer attention, so every touchpoint with a customer matters. Malomo gives you the control to turn the typically stale and confusing experience of shipping into an opportunity to drive customer engagement while the customer is most receptive to your brand
- [03:03] Meet Jill
- [03:41] What is Inventory Planner?
- [05:27] How to forecast customer demand
- [06:24] Running out of stuff sucks
- [09:20] How to forecast after 2020
- [14:01] What is a forecasting period?
- [17:02] Prime Day!
- [19:52] Forecasting seasonal products
- [22:46] Forecasting for different locations
- [24:16] Kitting
- [28:16] What is a SKU and why do I care?
- [32:12] Supply Chain management
- [35:42] Open-to-buy planning and fashion
In a past episode, we took a shallow dive into tracking your inventory. This week, we're joined by Jill Liliedahl from Inventory Planner. We'll be digging into why forecasting is important, how forecasting customer demand works and some tips and tricks for forecasting as we move into seasonal events for 2021. Let's dig in. Welcome to Commerce Tea, a Podcast to help you succeed on Shopify. I'm Rhian.
And I'm Kelly. Grab a mug and join us, as we talk about all things commerce.
Buying online is fun, but you know what isn't? Waiting days for your package to arrive. Once a purchase is made customers track their shipment four to five times per order, that means they're visiting order tracking pages a lot. Why not use that time with excited customers to drive sales and build your brand? How? With a tool like Malomo. Malomo helps you turn shipping from a cost center into a profitable marketing channel by using branded shipment emails and order tracking pages to drive additional purchases by showing new products, upcoming sales, subscription options, and other engaging content. Plus it cuts support tickets down by 50% by proactively managing delivery communications with customers. The best part is it really works. Malomo merchants at two to 3% repeat purchase rate from customers while they're waiting for their current order to arrive post-purchase experiences are the new frontier in marketing. What are you doing to tap in? Hey Kelly, let's say I can't write code, but I want to create workflows that carry out repetitive tasks automatically. So that way I can focus on my business and create great customer experiences. What would I use?
I recommend Mesa a no-code workflow builder for any action your customer takes, you can use Mesa's built-in features to extend your connected apps. Set up email notifications, receive forms, schedule tasks, delay workflows and much more. Developers like me also love Mesa because we can load the hood on any automation to customize for total control.
Okay. I'm in. How do I start?
Go to getmesa.com. That's G-E-T-M-E-S-A.com and their team of automation experts will support you on your journey 24/7.
Hello. Hello. Today is a fun day because Jill has joined us. Hello, Jill.
Hey, so glad to join you.
We are so excited to have you on here. I'm going to ask you a really tough question to start things off. Are you ready? Its real tough.
Okay. I'm prepared. I'm sitting down. I'm braced. I'm ready.
Okay. It's actually a two-part question.
It's getting harder already.
A and B. Two points here.
A, who are you? And b, What do you do?
Okay, so I am an inventory nerd. I love talking about inventory. I handle business development with Inventory Planner. We're a Shopify app that helps merchants to figure out how much are customers going to want of each product and then makes recommendations on how much more inventory to order in. So we help to optimize inventory, make recommendations. And then we also nerd out a little bit on reporting.
So you're an inventory planning nerd. What is Inventory Planner?
Okay. So Inventory Planner takes sales data. So where customers have already spent their money applies some forecasting methods. So do you have seasonal items? Do you have non seasonal items? Are they super trendy? And then makes recommendations for how much more stock you're going to need. So what we're really trying to do is make sure you have inventory so that you're not missing out on revenue. If you don't have products to sell, people will not just donate their dollars. You need inventory so that they can spend their money in your store. That's really what we're trying to do here.
Here, have some money. I would maybe like something in return. It's up to you though. It usually how e-commerce works.
That's definitely how this works. Yeah. Definitely.
I mean, I posted that, I want coffee on the internet and people send me money. So everyone's like that right?
So sometimes it does work, but for the rest of us, we need-
I was an influencer once. Here's what happened, I posted about the Bearaby blanket and then three people who followed me on Twitter bought it. So I feel Bearaby should give me something, like a blanket.
I think so too.
Now I felt... I was like, "That's a really power..." I was like, "Oh, I didn't know I was that influential." This is rad.
I think you're demonstrating better results than quite a few influencers out there. So I'd buy it.
You convinced me to buy one.
Yeah. I'm an evangelist for that brand. Okay. So speaking of being a customer evangelist or a product evangelist, and then therefore making a boom in terms of product, how does one go about forecasting customer demand?
Okay. So for each item in the store, we're looking at how much have customers purchased in the past. So people who are doing this manually might look at an average sales rate per month. Something like this, in Inventory Planner, what we're looking at is another layer of it. When have you been in stock? When have you been out of stock? So how much can you sell when you have enough stock? That's really important because, think about if you sell 30 units of something over a month, it looks like you've sold one unit per month. And that's what you're using for projecting what you'll sell in the future. What if you were actually out of stock for half the month though, that just doubled your sales rate. So if you're not taking into consideration, when you've been in stock and out of stock in the past, you could just fall in the cycle of under forecasting, under projecting how much demand is going to be in the future.
And then you run out again and then you're out of stock again. And you're just in this vicious cycle. So part of it is figuring out truly how much do people buy when it's available. Then we apply that to the future. So like I said, we're looking at are items seasonal or non seasonal. I don't want to continue having a lot of winter jackets now that we're entering summer, then I'm just spending money on things that aren't going to move. So we're thinking about, okay, how do these perform? And thinking ahead to how long does it take to get these items from my vendor? That's an important consideration, especially now that those times are longer and it's more difficult to get items reliably. And so the forecasting just takes into consideration both what's happened in the past, and then how do we apply that in the future seasonality being the most important consideration, but there could also be promotions that you're making for different holidays or just different site-wide sales that you're making, you want to ramp up for those and be prepared for them.
Okay. So we're going to go... We're going to be digging into some specific examples, like seasonal things in a little bit, but before we get there, I want to do a deeper dive into why forecasting is important. One, it's nice to have the products you need when you need them. And it's nice to not have too much product when you don't need that much, but I'm sure there's more to it. So why is forecasting important?
Cashflow. So I used to be a merchant, a Shopify merchant. I was an Inventory Planner customer. The thing that kept me up at night, all of the time was cashflow. It is the source of other problems, right? Are we going to meet payroll? Do we have enough to invest in some more advertising? It is about cashflow, right? And so what we're doing with forecasting is a couple of things.
Yes. We want to make sure we don't run out of stock so that we're getting revenue in. We don't want to spend on items that we're not going to sell. Because you can think about it as little stacks of cash in your warehouse that aren't going to pay salaries. Aren't going to pay the rent. They're not doing anything for you, right? Other than sitting in your warehouse. So we want to get it just right. We're not running out. We're not overstocked. We also want to think about what's the return on our investment. So if I put in $5 worth of inventory, am I getting $6 in revenue back? That's not going to cut it.
So I'm thinking about, how do I capitalize on that investment and inventory? Am I getting 15? Am I getting $50 back? That's telling me my margins that helps to fund the rest of the business, right? We need to think about return on investment, how quickly we're getting that return on investment. And all of that comes back to managing your cashflow. So for me, that's really what it comes down to. If you run out of cash, you go out of business. So we got to pay attention to [crosstalk 00:09:21] what the cash flows. Exactly. Yes.
So after last year, as in 2020, things were obviously different things remain different. That being said, there's now... We now have a data set that is probably [incorrect 00:09:40], right? In terms of trending for inventory this year. So how do you forecast after this past year in regards to e-commerce?
Yes. So it is a moving target. And if we were talking a year ago, we would know even less about it. So at least we do have some data and this can really be business by business at this point. So you want to think about using some business intelligence and applying to this as well. So if we were selling luggage, it's been a really bad year for us, but things might start to look up. So we're always thinking about in the past, what's the most relevant period of customer sales that we can refer to when we're calculating what customer demand is. So do we look back on just the last month's worth of things? Do we look back on same time in 2019. Thinking about for my business, what's the good time... What's the most appropriate time to refer to when calculating what that demand is going to be?
So I think for a lot of merchants right now, it can be a combination of things. So particularly if you have seasonal items, we want to think about the different peaks and valleys throughout the year. But we also want to think about year over year growth. So obviously over the last year for e-commerce in general, we saw a huge boom to what that year over year growth was. We're probably not going to see the same percentage growth for the next year. So we're going to want to buffer that a little bit and bring that back down to earth. It doesn't mean that sales are reverting to 2019 levels, but we just want to say, "Okay, we're not going to grow by a 100% again for the next several years. We're just going to put a ceiling on that as well."
So like I said, it really depends on what products you're selling. If you're selling super trendy items, you're always just referring to the last few days or weeks. And so you're fine to keep referring to just a very short amount of time. Seasonally, I would definitely put a cap on what that year over year growth is. And then also that consideration of what does this mean for the particular items that I'm selling? Do I have special considerations that I should apply and think about what's the relevant period in the past that we're using for our data set to calculate what demand will be.
I have a related question to last year. A lot of new businesses started in 2020 who had never sold before. So all they have to go by is data from 2020. Is it even possible to forecast anything at that point?
Yeah, I think it is. As we enter the next phase, I don't know what this next phase is called, where we start to get out in the world a little bit more. Like I said, you're going to want to think about, okay, if we saw some really rapid growth and really riding the wave of e-commerce just growing in general over the last year, I would say probably tempering some of those expectations for continued growth at that pace. That's a function, both of things... The growth rates slowing down just a little bit, but also as a company matures at some point that plateaus a little bit too. So you want to think about that.
I would say, even with a year's worth of data, we really see March, April last of 2020 as an inflection point. So we were about a year after that. I think you have a pretty good amount of data, at least in the short term to be forecasting. If you're forecasting out a long ways, I would even think of a long ways as six months, definitely 12 months is a long time in terms of forecasting. I would temper that quite a bit. Think about your cashflow considerations, how much can you invest in inventory and tie up based on projections that are a year out. It's just so far that I would be very cautious about planning that far out, unless you really have to.
If one year is a long time, what's pretty typical?
A typical timeframe for planning depends, I think a lot on your suppliers. So if we're sourcing domestically something I can get pretty quickly, I might just be looking at, say a week or two to get more inventory. And then I might plan out, let's say 30 days. So we're looking at a six week planning period total.
If I'm sourcing from overseas, if I'm getting things from China, it's very normal that my lead time. So how long it takes to get products could be 90 days or more. So you're already looking at a quarters worth of planning just to get items in. Merchants can handle that in a bunch of different ways. So sometimes I get this question of, okay, I've got a 90 day lead time. Now how much stock do I want to have on hand? Do I want to get in also 90 days worth of stock when that new purchase order arrives, when that new shipment arrives?
Not necessarily. So you can be more flexible and say, okay, I only want to have 30 days worth of stock on hand, when I get a new shipment in. Cashflow wise that's going to be better. It allows you to be more responsive to changing trends. You don't have so much money tied up in inventory. It also means that you have two to three shipments in transit at any time. So you're staggering what our forecasts are, how we're putting that into action and getting that stock in at that point. So that can be a really good way to be a little bit more flexible, especially as things are changing.
I feel obligated to say, the flip side of that, it's not always the best strategy, particularly if you have high shipping costs per shipment, in which case it can be economically better to just get everything on the boat that you can at one time and ship that in. Sometimes that's better. So think about, okay, we're benefiting in terms of cashflow by placing smaller orders more frequently, but what are you offsetting there? It could be shipping costs are higher. So just think about the pros and cons of that. But there are a couple different ways to manage that.
Hey Rhian, what can I do to help my support team be more efficient?
I recommend Gorgias. Gorgias combines all your communications channels, including email, SMS, social media, live chat, and phone into one platform that gives you an organized view of all help requests. This saves your support team hours per day. It makes managing customer orders a breeze.
Sounds great. What else can it do?
With Gorgias you can pre-write and save responses to your most frequently asked questions. You even have access to the customer's order information. So you can personalize responses with things like an order or tracking number. This then frees up your time. So your support team can focus on complex questions.
This sounds like a great way to also increase sales and brand loyalty. Where can I learn more?
To request a demo, visit commercetea.com/gorgias that's commercetea.com/G-O-R-G-I-A-S. So here's a day that is big. And I'm not talking about singles day. Although I have questions about singles day as well. I'm talking about Prime Day, which we assume is going to be in June this year.
It's our best guess. Yeah.
How should we be forecasting around that? That's our best guess. I love how much of our industry... Kelly and I talk about this all the time. It just is... It depends is the answer is just perpetually depending. So assuming that Prime Day is in June, how should our listeners be forecasting for it?
Okay, so this is a really interesting one because not only is it in June this year, it was in October last year. And then before that, it used to be in July. So we're just taking a very straightforward, seasonal approach, no idea, right? We obviously have to apply some thought and some intention to how to forecast this. So what I would propose to forecast what's going to happen in June is to look... I would look at both at 2020 and 2019. If you have the data for that. So for 2020 Prime Day was in October, look at the sales for January through September and compare them to October. What we're trying to get is, what was that bump that we saw in October compared to normal sales? So we're getting a sense of, what kind of a bump might we see.
Now I would also do the same for 2019, because October in particular is really tricky timing. Did it eat into Black Friday, Cyber Monday sales where people waiting for Black Friday, Cyber Monday, they're so close that you got to think that they were affecting one another and people weren't just opening up their wallet and spending like they normally would both times.
So I would say also look at 2019 when Prime Day was in July and say, okay, compared to the months around it, what kind of a bump did we see in July? Thanks to Prime Day. So that will give you a sense of, okay. Maybe so far in 2021 we're forecasting, what's going to happen so far. So we're several months into the year now. Now we have an idea of a percentage increase that we can apply for June. And I think that that will short of having your crystal ball get you fairly close to an idea of what you would need for stock to handle Prime Day.
So I have a follow on question. That's not really a following question at all. It's a pivot, but here's where we are. All right. So you mentioned-
Oh. We're here.
We're here. Yes. You mentioned briefly, you don't want to sell winter jackets now that we're moving into summertime. It's a two-part question. How do you forecast seasonal products and how do you forecast seasonal products when you're shipping to different places that regionally the weather shifts at a different time, like Florida can be purchasing summer attire for most of the year versus let's say New York. So how do you handle that?
Yeah, definitely. Okay. So let's tackle little seasonal forecasting. First. There's two parts of this. One is we're trying to figure out what are the peaks and valleys for sales trends. So we're going to see spikes maybe starting in September, October that runs through February, let's say, and then trickles off after that. And then we know we don't really have to have a supply during the summer, so we have a general idea of what that trendline is, but that's not enough because we don't want to just apply last year's numbers to this year.
That's not very nuanced, hopefully things are going in an upward trajectory. So you also want to look at year over year trends. And in that case, what you're going to do is look at the last 12 months and compare that to the prior 12 months. So did we see a 25% increase for this style year over year? So that's something to apply again, thinking about what is that ceiling or what does that buffer year over year? Are we going to see really aggressive growth rates again this year? Probably not, but it could happen in some cases, but probably not. So you want to think about, okay, we don't want to over project because we don't want to tie up our money in inventory we don't need. So with seasonal forecasting, those are the two parts we're getting the general trend line.
And we're applying year over year growth rates. When you have different demands in different parts of the country, this also applies to if you have different sales channels. So how do things sell on my Shopify store versus if I'm selling on Amazon as well. This also applies if you have a brick-and-mortar store and you're selling online, each of these scenarios, they have their own personality, they sell in different ways. And so you need to forecast for each one of these separately. So we typically think about them as different warehouses. So we might have a New York warehouse. We might have a Florida warehouse, or East Coast, West Coast, something like that, where they're going to have different demands. And so we can forecast separately for those because we have different fulfillment history. We have different sales history for each of those. So we can use that demand in the past to forecast, what's going to be needed in that location.
This is really something that I found when I was a merchant. So we primarily sold online, but we did open a brick-and-mortar store for awhile. And I mean, that brought a whole bunch of surprises and lots to learn. But one of the things that we learned there was if you took a ranking of what types of products sold well online, highest to lowest, then when it came to our brick-and-mortar store, just turn that upside down. It was the opposite things that barely sold online were definitely far and away, more popular in-person I don't know... So I was selling dog supplies. I don't know if it's because people could touch things, they could bring their dog in and the dog led the shopping experience. I don't... It was just so surprising that it was such a different experience. So really think about, do my different sales channels, have different personalities? Do my different locations, have different personalities. How am I selling that's going to affect my forecasting? And think about these scenarios separately.
So this is a lot, this is a lot. So we just talked about different locations, correct?
Let's talk about bundles and kitting and all of that.
This sounds like a nightmare to forecast.
Mm-hmm (affirmative). It's such a rabbit hole of information. It can be-
She's like, "Great. Yeah. Let's talk about this."
It's such a rabbit hole of information. It can be very complex because if you're thinking about kitting, you're thinking about bundles and ordering from your supplier. You don't order kits. You don't order them as bundles. You're ordering enough components of all of those so that you can sell all of your kits. And sometimes you're also selling those components individually too. So you're thinking about the sales rates of all of this together. So this is something that can be done with a spreadsheet. This is something that Inventory Planner does for you as well is you... Maybe are using a bundling app and say, okay, here are all the relationships. Here are my kits. Here's what's in them. Here's how many of those components are in, all of the kits too. Great. So now we can basically read your sales demand and say, okay, if you sold one kit, that means you sold five of these, one of these, two of these. We know what the demand is on a individual component level.
And then we can forecast and say, okay, in order to cover everything, we need to cover kits. Maybe it's going into an assembly as manufactured into something else as well. We need to take these different considerations in what's the total demand. So I'm placing one purchase order with my supplier and covering everything that I need to all at once. So it can be complicated to make sure you're taking everything into consideration, but you're definitely going to run into problems if you're not adequately addressing that and thinking about, okay, what's the demand in all of these different ways that we're selling it individually bundles, maybe as an assembly as well.
So in other words, yes, it is a nightmare.
Mm-hmm (affirmative). Yeah, it's so interesting because... I mean, I think probably a lot of apps are like this, where people are solving things with spreadsheets right? Before they up their game on technology. So I talked to a lot of people who are handling pretty complicated things with their spreadsheets, but it's taking so much of their time or it's just gotten so complex, that one little thing going wrong can just break the whole system. So that's a signaling point for them to say, "I could either reconstruct my masterpiece of a spreadsheet or I could look for some other technology that will solve my problem here." But yes, it can be quite complicated.
I was actually just going to ask on that same topic at what point in a business's growth essentially, do you see something like Inventory Planner being useful for them?
Typically we think about it for annual revenue. There's somewhere between half a million and a million in number of variants or number of SKUs. We think about typically if they're getting to a 100 SKUs, it's just complex enough, it's taking enough of their time that something like Inventory Planner can save enough of their time. If you think about the value of your own time, either if you're the owner or the CEO of a store, you're a small operation. So you're running that. If you're paying somebody to do the planning. I've talked to people who say, "Okay, I've got one person spending a week, a month on this. And now we can just cut that down. They can spend their time in other ways so that we can just continue to grow." So I think operationally, we see that inflection point, roughly at a million annual revenue, roughly at a 100 SKUs, that's when they need to level up from spreadsheets to something like Inventory Planner.
I'm feeling overwhelmed. So let's just add to it. Why don't we talk about SKUs? Yeah. Let's just keep going here. What is the SKU and then why are they important?
Okay. So SKU S-K-U stands for Stock Keeping Units. Public service announcement friends. Please assign a unique SKU to every variant. That's what Shopify calls it, variants, in your store. Okay. So maybe you have one style of dress, but then you have small, medium, large, you've got the red dress, the green dress. Each of those individual items needs its own unique SKU. Don't duplicate, the style doesn't get a SKU. Each variant gets a SKU. You can also think about when you're setting this up, what your approach will be to assigning a SKU. So for example, you could come up with a system where the first letter is your product type. So in my case, we were selling dog toys. All right. Let's just put a T there dash and then maybe I have the vendor... A shortcut for the vendor.
So if it was planet dog PD, then I'm putting in what the name of the product is. If it was an Orbee-Tuff ball, ORB, then dash and we'll have okay. If it's a smaller, the large. Okay. So pretty soon you can actually just read the SKU and know what that product is. I know what category it is. I know who it comes from and what the brand is. I know which product. And then is it the small, the large, the green, the blue, what is it going to be? Okay. And then you just have a logic that anybody on your team can apply. It doesn't need a secret decoder ring in order to figure out what's going on. You're not going to duplicate it either, right? Because each item is separate. So SKUs are really important. Think through what your approach to this will be. And by all means, please don't duplicate so important.
Guys, I think if there's a key takeaway from this right now, merchants, if you don't have SKUs, go set them up. And if you do have SKUs, make sure they're good.
Make sure they're good.
If you can assign the same SKU on different sales channels. Okay. So don't come up with a separate SKU for different sales channels. You're inviting so many headaches later when you try to consolidate your information and say, okay, how many of this toy did I sell on Amazon? And how many did I sell on Shopify? How much do I need overall? And the first chunk of your time is just going to be saying, how do I put all this data together? So use the same SKU across all your sales channels too.
Let's say I am a merchant and I haven't been using SKUs, and now I know that they're important.
So I want to add them, but am I shit out of luck when it comes to forecasting for historical data? Or can I still make things work?
Yes, you can definitely still make things work. In Shopify, there's a unique identifier on the backend. It's nothing that you, as a Shopify merchant can control, but it assigns a unique record to that. So if you're adding the SKU later to that product page in the SKU field, it's just going to assign it to all of your historical data then too. So you can add your SKU to Shopify later. You're going to be fine. You're still going to have all of your historical data there too. So it's not too late. Today's a new day assign some SKUs.
Just totally hypothetical here that there's a supply chain challenge.
Hypothetically, how do you build in a buffer so that when a supply chain challenge happens, you're along for the ride. So it doesn't happen to you. You're happening with it.
Actually let's give a real life example and you can tell Apple how to fix this. There is a global chip shortage. It's affecting phones. It's affecting computers, it's affecting TV's, vehicles, all kinds of different products. So if I were Apple and you're... I'm consulting you, or I'm having you consult me on what to do here, what is your recommendation?
Okay. There's a couple of considerations, one from a forecasting perspective and one from just the sourcing perspective. So in terms of sourcing, I would say try to have some redundancies in your supply chain. So as a merchant, I definitely got hosed because I didn't build in some of these redundancies. I didn't have an alternative vendor, which can be important for in several cases. So one, it could be that maybe my original vendor doesn't have enough supply. So that's the Apple situation, right?
How do we have enough raw components so that we're building all of these items. It could be that your original vendor is raising your costs and it's going to be not feasible for you to make a profit with those increased costs. It could be that there's a natural disaster where your supplier is. So I used to have a supplier in the Carolinas where they have hurricanes all of the time, it's advisable to have a backup plan for somebody in another part of the country or in a different country, something like that. So you're building in some-
Or maybe if a ship gets stuck in a particular canal.
Yes, yes, exactly. [crosstalk 00:33:57]
We to cover all bases there. So there's a whole host of reasons that you would want to build in redundancies, but I think it definitely will be to your benefit to start figuring out what are alternative sources for my products. So that's the first thing I would do. From a forecasting perspective, you want to think ahead and particularly if you have suppliers that just regularly are out of stock or they deliver different amounts than what you order, happens all of the time, happens all of the time. You'll want to build in that buffer in a dynamic way. So this all ties back to that sales velocity, that average demand that we talked about at the beginning. So if I'm selling a 100 items per month, and maybe I ideally would like to have a month's worth on hand, but I'm running into all these supply problems and I'm not able to get products and I'm running out of stock all the time.
Maybe that's where I bump it up. And I'm forecasting ahead to say, okay, we're going to have two months on hand so that I have some room to work here. And it's not keeping me up at night because I can't get this exactly like I want. So instead of doing something like, okay, I just need a hundred more units. Well, what if demand increases a lot that 100 units may not cover it. So you want to think in terms of time, if I have two months on hand, that's always going to tie back to that velocity, that demand and figure out how much more I need to have on hand right now.
Let's talk a bit about fashion merchant. And they use open-to-buy planning, right? What is open-to-buy planning? Why is it used? Who else should use it?
Okay, so open-to-buy plan... So far we've been talking about, I've got a particular item that I've sold in the past, this dog toy, how many more of this exact dog toy do I need in the future? But obviously for fashion, you're introducing new styles with new seasons each year, you have these new products that we're rolling out, right? So we don't have history on this exact item. So open-to-buy planning says, let's look at the product type. Let's look at the category and say, how are sun dresses selling? How are winter coats selling? And you can look at the forecasting on a category level because we know that, okay, when I introduce this new style it's going to perform roughly the same as what we've had in the past, even though we haven't had that exact one.
So it allows us to do some high level financial planning on a category level. So it can help when we're introducing new styles all the time. Another way that open-to-buy planning is helpful is with high growth companies that are just really scaling quickly. So say we have some revenue projections, just like we talked about before. You need to have the inventory on hand so that people can spend their money on those items. If we're out of stock, they're not donating their money. So this helps us say, okay, if we've got these revenue projections, we already have this much stock, how much more inventory do we need? So we can reach those goals. Because if we don't have a million dollars worth of inventory, people can't spend a million dollars with us. We're never going to get to that goal unless we have that much inventory on hand.
So it allows us to say, how much more inventory do we need to get to those goals? Even if we haven't had this particular item, we know in general, how this product type or how this category performs as well. So super useful for fashion retailers to say, I need some way of figuring out how much of this to have produced, how much to order in. And this is a way for them to do that at a higher level, rather than for a particular item when they haven't had that in stock before.
That makes a lot of sense. Okay, well, this has been elucidating and I have understood 50 to 80%. This might be an episode people need to revisit, which is fine. And I think that's good, right? It's like, come back to this. This is the resource. So Jill final question for you is where can we find you on the internet?
Yes. So you can find me @inventory.planner.com professionally. That's where you can find me. I lurk on Twitter. I look, but don't post a whole lot.[crosstalk 00:38:31]
I too luck on Twitter.
Okay, perfect. Perfect. Yes, I do pop into LinkedIn one time, even though I don't think the cool kids are using LinkedIn anymore, but I do pop in there once in a while as well.
Amazing. Amazing. Well, thank you so much for joining us. We really, really appreciate it.
It's my pleasure-
We want to have you back soon.
Thank you so much for the invite. I hope that this helps. And in unpredictable times, hopefully we can get a little bit closer to figuring out what's going to happen in the future and how we can use that to our advantage in terms of business and helping folks out.
Absolutely. Absolutely. Well, thank you everybody for tuning in and thanks to our sponsors for supporting this episode, visit our YouTube channel at youtube.com/commercetea. If you like our podcast, leave us a review on Apple Podcasts. They make us super happy. You can subscribe to Commerce Tea on your favorite podcasting service. We post new episodes every Wednesday. So grab your mug and join us. We'll see you next week. Bye. Bye.
Leave a comment
Please note, comments must be approved before they are published