Rachel Liaw, Co-founder of Fuse Inventory: The Supply Chain Is Not Linear
The Profit Forecast: The eComm CEO's Podcast
Episode #18: Rachel Liaw of Fuse Inventory
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Ben Tregoe: [00:00:00] All right, Rachel, it's great to have you on the Bainbridge PA podcast.
Rachel Liaw: Yeah, it's great to be here.
Ben Tregoe: Rachel Liaw is a co-founder of Fuse Inventory and I'm excited for this conversation because this is one of the hardest areas for a lot of the companies we work with. It's in a super difficult problem for brands .
So I'm excited to get into the nitty gritty, get into the weeds with you about it. But first I think it would be really helpful for you to give your background how you came to Fuse, how you came up with the idea , and then, give a little bit more of the of, what you guys are doing and what makes you special.
Cause you are very special in this space, so I wanna make sure that comes.
Rachel Liaw: Yeah, absolutely. I started my career in supply chain. Actually I started my career as a software developer and then I restarted my career in supply chain, actually as an operations intern, packing boxes in a warehouse.
So it was definitely quite [00:01:00] a jump from being, a software developer doing. Natural language processing to then packing boxes at warehouse, working my way up the supply chain. So I've done everything from inventory forecasting and planning, the fp n a side, all the way down to the fulfillment in the warehouse.
I've spent a lot of time in sourcing both with international suppliers as well as domestic suppliers. Working with vendors, quality control, production management, warehouse operations, the whole supply chain. And when , I was doing that. Did not find technology very up to date in this space.
Ben Tregoe: Okay. How in the world did you, I going from software developer be like, okay, let me get into another warehouse. That's a huge change. What promised that?
Rachel Liaw: I basically, I enjoyed coding, like I liked the problem solving aspect of it. I think back when I was a software develop, It was just a different time.
Everyone in the room would assume, I was working at companies, I was working at startups, and every time people would assume I was like the [00:02:00] admin, HR person or like marketing or like executive assistant, even if I was like the lead developer and I was just like really tired of it. I was really tired of not having a physical product.
And so I decided I wanted to do problem solving with physical products. And so I joined a company called QBE Crate at the time. Now it's rebranded to Kiwi Co. And just wanted to get my hands into What are some problems that companies and with physical goods are experiencing and what I, I had assumed going in there, coming from the software side, like there would be tons of like amazing softwares, like helping out these folks in the warehouse.
And turns out everything was like paper, pencil, excel, CSV, uploads. And one of my first tasks was helping them optimize their shop fulfillment and it was literally like someone copy and pasting from a CSV file into a label generator. So I set up ship Station at the time was one of the softwares that, that was out in the market.
This is like pre Shopify days, . And so we were [00:03:00] what year? Though, other than Shopify and a lot of the shopping cart improvements, not much has really been fixed on the supply chain side. And you hear about robots fulfilling things on Amazon, but for your average three pl and your average warehouse, it's very much like Ship station, ship this, ship that on the OMS side generating labels for you.
But above that, past order management. There's just this wide empty space of Excel world. Yeah. And. We created Fuse to basically fuse all the data together. That's the idea behind the name. Get it, an end-to-end system that connects from Shopify to ship station and that can manage your inventory, everything in between that order shipping out and the order being placed, which kind of just happens and excelled these days.
Ben Tregoe: All right, that's a lot. So let's like go through the sort of flow here. Go up for people that aren't like totally familiar with this space. I okay, so I have an E-com store order comes in through Shopify now. [00:04:00] What's, what would, what was happening typically before? Fuse.
Rachel Liaw: Yeah. I think the way that people thought of the supply chain before was that it was linear.
Or I think people coming into the space, they think it's linear. It's like, all right, like I find a product, I develop a product, I brand it, I order it, it comes to the warehouse, and then it gets shipped to my customer. and like at the basic level. That's what supply chain is. But I think what people don't realize is your demand fluctuates.
You might have placed an order for your product and you realize it's actually a lot more popular or lost, less popular than you thought. Yeah. Your supplier runs into issues getting key raw materials, and the production is delayed. It's not arriving in time when you thought it was going to. And so it's a lot of actually back and forth, a lot of collaboration with various parties.
Whether it's your own team, your design team, Hey, can we modify it so we can change an ingredient or change, trim on the clothing so that we can get this done in time cuz we can't find the original component or, hey, you know what? Pay manufacturer, can we move production down [00:05:00] because, this product's not selling.
What we actually wanna prioritize production for a different product. And so it's actually a just a bunch of conversations all happening at once. And then you're trying to coordinate with your marketing department be like, Hey, don't promote that item. That's not gonna be here in time. Or we schedule time to be on Oprah's favorite things, but Oprah's favorite thing isn't arriving for another month,
So it's things like that where gotta be an open conversation. Can't we swap out the good, can we, promote something else? And I think a lot of times, because there aren't systems that enable that it's heavily liberal, reliant on Email you hear stories. My email was kept open at Cuba Creek for many years after I left, and I'd get eat random emails like on a Sunday night.
Do you remember what happened in October of 2014 and , what was, what happened to one shipment of Hanukkah candles? . Yeah. And that's the way that it happens today. And I think it's not as straightforward as like I placed the. The thing arrives, I ship it out. It's really like I place the order, I need to move up, pos I need to cancel pos, I need to modify the product, I need to communicate with my customer, [00:06:00] communicate with my marketing team.
Ben Tregoe: So yeah, I think that's a huge insight because I'll admit I've never been in operations at a brand and I had much more of that kind of linear, simple
Rachel Liaw: straight founders or e-com founders. It's like their first time doing ops and sourcing and. The most common thing I hear like in forums and stuff is I didn't realize how hard it is to source good quality product and have it on time.
And I think that's, yeah, the biggest, like key learning, I think the companies that do operations they end up being the ones that you know last and I think the ones that just tried. Pretend operations don't exist or outsource all of it or just basically only focus on customer acquisition and not what happens afterwards to make the customers happy.
Those are gonna be the short-lived companies. Yeah.
Ben Tregoe: And it sounds like so chaotic. So now Fuse comes in, so what does F like of all those problems you described as Hughes solved them or. [00:07:00] subset.
Rachel Liaw: Yeah, so we do we're primarily a planning system but we actually just released a bunch of features around materials resource planning and vendor management as well.
And so I think of us as everything, between, as I mentioned, between Shopify and an oms. The. The ordering, the planning, the purchasing, the forecasting of the inventory, all the way until the inventory arrives at the warehouse and can be quality, verify quality checked and, deemed ready to ship to the customer.
We handle everything in that white space in between. Nice. And I think that's what differentiates us from, I think a lot of times people will mix us up with a, an inventory management solution or a order management solution with inventory tracking. Yeah. Where it's more about like, how much do I have in each warehouse location.
Like what gets shipped out of which warehouse. Like we don't handle that. We really handle, like getting that inventory into the warehouse in good condition, from the right suppliers at the best possible cost, not overbuying, not stocking out. Yeah.
Ben Tregoe: And you had [00:08:00] mentioned another specialty of Fuse was really around you guys had a lot of tooling and capabilities around brands that are assembling or building or making their own products, taking raw materials into a.
explain why that's more complicated and hard to do.
Rachel Liaw: Yeah. know, I think as brands scale, almost every brand I see too that starts just ordering finished goods from their co-packer or their filler in cpg or even an apparel like they're buying the finished good from the cut-in. So factory, inevitably, if you have something that's differentiating about your product, whether it's a key ingredient in skincare or like a special sustainable fabric in.
You end up managing that raw material. And so as companies are scaling they need to manage those raw materials, whether it's just one or two key ones or just packaging or they're managing every single component. Some of our clients are really key and, the clean beauty space and they really care about every single ingredient they need to manage all of that.
And so with that added complexity, especially if you have multiple levels of bill of materials, you've. , you know [00:09:00] how many drops of organ oil go into your shampoo and then how much shampoo goes into the bottle, and then you have a travel size, a 16 ounce, 32 ounce bottle, and then you spell it in a pack of shampoo and conditioner.
That's like multiple levels of bill of materials. Managing that in Excel is quite difficult. You often make mistakes. You don't have a key ingredient at the right place at the right time to do your production. . And so what we did was make sure that the platform was flexible enough to handle finished goods as well as these raw materials, these kits and components packaging, things like that.
Yeah. And we can even do like order level collateral. So your shipper boxes, your welcome cards, things like that. Cuz I notice a lot of people were just managing that and then outside spreadsheet, outside of their normal inventory systems.
Ben Tregoe: And you guys can handle everything. To finish. Wow.
Rachel Liaw: Yeah, bundling. We actually even have like variant bundles. I think we're the only one in this space that can handle if you let your customers let's say they're choosing a eyeshadow and a lipstick and they want, they can choose whatever color eyeshadow and whatever color.[00:10:00]
Lipstick they want. We can actually do variant bundles as well and predict of the customers that buy this duo. Like 50% will get brown, 50% will get black of the eyeshadow, and then, 20% will get red, 20% pink, et cetera, et cetera.
Ben Tregoe: Wow. Okay. And so the where it stops though is tracking the inventory levels.
That's one area that you stop at. It sounds.
Rachel Liaw: We do track the on hand levels, but we're not necessarily going to be tracking like, okay, we, from the counting perspective, we damage this many out. Or we consume this batch so we can write off this, unit cost before this unit cost. Yeah. I think that's what a lot of e r p systems like focus on, and that's not what our core capabilities are.
We sit on top of the systems and then we read in the unit costs and the on hand levels. Got it.
Ben Tregoe: what, if someone's not using Fuse, what would be like, are they wasting money? Is it like, what are some of the financial [00:11:00] implications of doing
Rachel Liaw: this better? Yeah, think the immediate financial implication is gonna be your inventory levels and how much working capital it ties up.
Generally yeah. Generally as a brand is scaling at first, if you've found a product that people love, you're gonna experience stockouts. It's just gonna keep flying off the shelves. You can't keep it in stock. And then what I notice commonly is people then over buy.
They're like, you know what? Like I keep increasing my buys. It only got me three months instead of two months. I'm just gonna like massively buy and hope that I don't stock out because my customers aren't getting mad. , know, I don't have the product. And then they massively over purchase and then they're sitting on inventory blood that's not moving.
almost every kind of inventory has some sort of expiration date. Even if, durable goods like clothing will have faith levels. , skincare products, though they have long shelf lives, they still will expire in six months, one year, two years. And so then you're sitting on this inventory glu, there's like a.
Like a little, like ticking in the background as you're starting to calculate like, when [00:12:00] is this inventory obsolete? You wanna free up working capital so you can introduce new products and new shades and, new styles and new excitement to the brand. But you don't have the capital to, because it's tied up an inventory.
And so then a lot of people end up starting to do like discounts, things like that which ends up hurting the brand. . The immediate value add is like we, we gen generally help our customers reduce inventory overspend by about 70% and we help reduce zero. Yeah. 70% . Wow. That's huge. . Yeah. We just published a case study with one of our customers suit shop, and they said 75% for them.
Yeah. And one of our customers, generally we reduce stockouts by 10%, but we just, surveyed Margot and they were like 40% for us . So it's really like a core r o ROI around your cash flow. Yeah. Beyond that, there's brand reputation, customer experience. You don't wanna be a discounting brand.
You don't wanna be the brand that spends all of this money on like Instagram ads to drive someone to a Stockout product. have poor experience in that brand damage that's harder [00:13:00] to measure. But is definitely, top of mind for a lot of E-com brands. Yeah.
Ben Tregoe: Yeah. That's really amazing.
70%, so what is, you said 70. inventory overspend. Are you saying like their annual inventory spend for the year? times 0.7 is, yeah.
Rachel Liaw: Or the inventory invoice, on products that they have overbought in. So what we actually, our product is measure every single inventory level and weeks of supply target that they wanted to be at.
Yeah. And then you, over your weeks of supply target, or you're under your w of supply target, we're able to show that number to every single sku.
Ben Tregoe: God, that's So when you, somebody puts it in, puts fuse in and they could like very quickly see the reductions in working capital. Yeah. Free more cash.
Rachel Liaw: We have a weeks of supply report that literally has an indicator and it'll show you how much you overstocked for the [00:14:00] whole business and how much you under stock for the business. and the idea is you're never gonna be zero, right? Like you're never gonna be perfectly able to predict demand, and the world goes exactly the way you think.
I think the pandemic has taught all of us that. But you can get better by an order of magnitude. You can go from being overstock, like hundreds of thousands of dollars or millions of dollars. And reduce that to, 30% of what that was. And so that's really the core value out of Fuse and why we work with a lot of fast growth brands.
I think when you're a smaller company, just getting your footing in, in the space you can get by with spreadsheets. It's when you're really scaling, when you're starting to hold like significant amounts of inventory that it really makes a big difference to reduce that glut and reduce the stock.
Ben Tregoe: Yeah. Yeah. One thing that we've noticed is with fast growth brands is that because they're growing so quickly, they are often like applying the habits of a year or two ago to their current problems. Like we see it in financial [00:15:00] modeling and planning. . And do you see that, that like people are oh, this is how we've been doing it for the past couple years.
Rachel Liaw: ,
yeah. We def we definitely see that especially during the onboarding process when they first look at that report and they're like, wow. Like we knew we had. a lot of times, even during the sales process, be like, how often are you talking at, how much overstock you guys have? And a lot of times people would be like, we know it's a lot and like in the tens of thousands or the hundreds of thousands, but they can't put a number to it.
They just know they have a problem. And then when they hop into Fuse and they see that number in front of them, they're like, oh, it was like 750,000 and it was like 2 million OK . Then they really start to think about that ROI and change that behavior because I think unless you see that hard.
Just knowing you have a problem and not confronting it can really snowball, especially if you're a fast growth brand and you're expanding new channels, retail expansion, things like that. It's oh, okay. Like things that were maybe like a few thousand dollars of problem that you could ignore now are like tens of thousands or hundreds of thousands as you scale Rex.[00:16:00]
Ben Tregoe: Yeah. I wonder if if you could almost do like a cash. Like a working capital savings, cash savings, dilution, savings, for the founders. You're like, Hey, we could have saved you like 3% dilution.
Rachel Liaw: Oh, . Yeah. That would be an interesting, yeah, that would be an interesting, like raising all this
Ben Tregoe: money.
And they're like of course I don't spend it. Inventory. But money's fun. I
Rachel Liaw: think it's the surprising, spent, a lot of people are very worried because they're measuring, their cac. They're like, okay, I spent this much on ads this month. I spent this much on pr, I spent this much on cac.
What's my lifetime value? And because those. Metrics are so easy to measure nowadays. People are looking at that, but they're not looking at their fp and a overall. They're not looking at how much is inventory costing my organization. Yeah, it's usually a surprise, like the founder is so busy, like getting the brand out there, getting it, running that.
It's usually, , it's [00:17:00] like an afterthought to be like, oh my gosh, actually that's right. All my money is going to, not just salaries and , but inventory. And, a lot of times, oh, our second biggest spends marketing. And I'm like, are you sure? And then they like look at their documents and they're like, oh, it's actually inventory
Yeah. Second spend usually is inventory, not marketing.
Ben Tregoe: Yeah. Yeah. And it's funny cause when you were talking about like stockouts and then the other side of being working capital. , I was thinking like to myself, like I bet internally the ops person fears stockouts more than over allocating capital because when they stock out, like you're probably getting an email from the ceo. What the hell did you do? ? Yes.
Rachel Liaw: What's going on here? ? Yeah, we actually, we did an email campaign on the sales side once that was like stocking out on skew 1, 2, 3. And then people were like, You, this is not productive.
You gave me a heart attack. I thought my CEO was emailing me and we're like, okay, , let's not do that campaign anymore. So we stopped that campaign . [00:18:00] But yeah, it's, when you hear from the ceo, when you get that email, like 2:00 AM is like, why are we stocked out on our best seller? How did this happen? Yeah, exactly.
Ben Tregoe: then they're like, I'll never make that mistake again. And Yep. Yep.
Rachel Liaw: Oftentimes it's not so simple as like buying more, and that's why I see that problem happening where people, they're like, because they got a couple of these emails, they're stocking out. They're growing so much.
They thought they ordered enough, they ordered more, and they're still stocking out. That's where you get that overstock and then suddenly you're sitting on, A ton of inventory that's not moving fast enough. And then you have the opposite problem. And it's almost something that people don't even realize until they ne get their next fp and a report and then they're like, oh wait, my accountants, are you sure you like didn't calculate this wrong?
Why am I sitting on so much working capital tied up in my inventory? And then that's when people start getting tempted with, can I do discounts? Can I get rid of this somehow? .
Ben Tregoe: That's and you're so right about the discounts. I mean, I guess if it's expiring you, you
Rachel Liaw: don't have much of a choice.
Yeah. Like even, I was [00:19:00] actually talking to one of the investors in Everlane and they were saying like, they had just found a bunch of inventory they didn't even realize they still had. And they had to do a ma massive sale because it's not like that the clothing goes bad, but. No longer fits with their merchandise assortment.
It's no longer trending. It's no longer, doesn't match everything else on the website. It doesn't look cohesive. And so you just end up trying to get rid of it in any way possible. And, yeah. Hundreds of thousands, if not millions of dollars of inventory for some of these brands.
Ben Tregoe: Yeah. You've seen so many of these operations now. What are some hallmarks or common, best practices like. When what distinguishes a great ops team from one that's just average?
Rachel Liaw: Yeah. I think, I think it's the same as hiring for other teams. You want people who are able to see the big picture, but have attention to detail.
Like I feel like inventory planners are the most detail-oriented people ever because they're looking at, like 10,000 lines of inventory, making sure every single one of them is [00:20:00] bought properly. But they also still have to be able to see the big picture, understand where the spend is going, the priorities of the organization, how they can support, the big initiatives for the organization.
And I think the other thing that I think the. Difference that I see from say, a traditional retailer and like an econ brand is the, some econ brands, like they'll hire like a general business analyst or a general like junior inventory analyst to manage everything but not necessarily give like strategic direction as to where they need to.
In for the business, and I think the better run companies are the ones that hire people who have a background. in inventory planning in operations who can maybe be that like VP of ops or who have hired a VP of ops that can give that strategic direction. And it's not just someone like crunching numbers on a spreadsheet and then not like really thinking holistically about where to invest and and so that's where, software like [00:21:00] Fuse also comes in where we say okay which, , which products, which skews you.
Do you wanna have a higher weeks of supply so that you don't stock out on your best sellers, your core products, and which ones can you maybe go a little bit leaner on? Because you may not have the budget to order everything equally. And what I see a lot is a lot of people just doing a spreadsheet with a percentage and they're like, buy this distribution.
Cause that's how we've. typically sold it. And I'm like yeah. Did you typically sell it like that because that's what you had available or because that was a true demand, like maybe we're stocked out on a period and, and so a really good ops person would be like, okay, I know that, we actually stocked out from, June to August on our bestseller and that's why it looks falsely low.
I need to order up on that. And, but we're not running that same one, so we're not gonna see a big lift in this product.
Ben Tregoe: So would they go in and gross up the stock out to what they thought the demand would've been? Or is there a way to measure
Rachel Liaw: the demand? It's so painful in an Excel that what a lot of companies do today is just look at the last 1632 [00:22:00] weeks of sales and put like a gross multiplier to it.
Oh, it's holidays season. Make that 60% more and they don't have capacity. And especially if you're managing like a hundred SKUs to go through and say okay, this skew stuck out in this time period and we. Very often in shoe and apparel because they're always planning at a style level, and then they apply a general size distribution.
And yeah, the reality is like you're, by looking at the style level, you're not looking at did this style sell really low? Because all we had left were like extra small and like extra large. And, certain styles might fit, , like larger bodies better than others.
And so certain styles you might actually, your best sellers are large and the other style, your best sellers are small. Yeah. And so because they're just applying like a generic sales curve across the entire organization, which again might be skewed by the fact that you weren't in stock on certain style like sizes they always get it wrong.
They're not able to fix it. And so what we can do is actually tag. , okay. You were at a size [00:23:00] medium on this style from this date to this Tate, and this is what we think it would've done otherwise. And here's your true size distribution, not just based on your historic sales, but based on what you know, your historic sales layered with data validation on top of it.
Ben Tregoe: Yeah. Interesting. Yeah. You're trying distinction between e-com and retail in the ops people. Are you, were you of implying or saying that. Better ops people tend to come out of retail
Rachel Liaw: because yes and no. I think experienced ops people come out of retail but retail has its own way of doing things and I think sometimes that way of doing things is not the most modern.
So like some people are very married to that 16 week average sell through rate plus X, Y, Z, or like a lot of retailers will be like, oh, tie it to this, like one curve of this one product that performed in the past, which is. Like a very this blue shirt may not be like that blue shirt, but you're just using that information because that's the best you have.
Whereas what [00:24:00] we can do is like tag things, have, use predictive analytics and actually say okay, blue shirts were a big part of your organization, two years ago when you had a similar style. But nowadays what's trending or red shirts. And so even though that style's very similar, you can't really use that exact.
Because your business has changed because the style's different because various parts about your business have changed, your demographics now that you've expanded to Canada are different. Things like that. And I think so. I wouldn't say that the best ops you are from retail. I think experienced ops people are, tend to come from retail.
But I think it's someone who. , like any hiring situation has, experience enough that they can be dangerous, but not oh, this is the way I did it for 10 years, so I never gonna change. Never change. This is what I did it for 10 years. For your business. I'm gonna modify the knowledge I've had for 10 years.
Yeah. And make it suitable for your business, .
Ben Tregoe: Yeah. So many brands are going omnichannel. This sounds like it would be in incre make incredible levels of complexity. That what, what happens when you start going [00:25:00] omnichannel to this, these problem? Yeah,
Rachel Liaw: That's a great question. So what we see happen, and I've ac actually headed kiwi creates, like efforts into target.
And so I've worked with these retailers. I've worked with, Costco, target, Walmart, and I think the big differe. These large retailers, they've got a lot of bargaining leverage. So a lot of times they will give you a forecast. They'll be like, this is our forecast of how you're gonna perform in target stores, and it's from their buyers, et cetera, et cetera.
But, until you get sell through data. It's all just like very like in the air, but they require you to hold that inventory that you're like obligated contractually to hold enough inventory to support their replen so that when they do wanna replenish, you ship it out to them like within a certain timeframe.
Otherwise, you get a bad vendor score, you're not gonna be promoted, et cetera. . And so these retailer relationships are really tricky to manage, especially if you still, need inventory, just put your dtc, but you don't wanna hold a lot of like inventory glut in case the, in the retailer doesn't place that second order.
And I'm not even going into all [00:26:00] the labeling requirements, which usually causes skew proliferation within our brands because they have target specific packaging, Walmart specific packaging. Yeah. Yeah. . And so it's about being able to quickly get that sell through data, which usually is not in the form of the EDI order that you get from Walmart.
Walmart will just be like, we placed an order for 20,000. And then two months later, they're like, we placed another order for 20,000. And then three months later they're like, now we want 10,000. And then four months later they're like, now we want 60. How do you predict that? Literally
Ben Tregoe: you just get these
Rachel Liaw: like lump sums.
You just get these giant pos and lump sums, right? If you're lucky and or your product's already well established in the stores, they might do it every two weeks. So if you get in a good cadence, they'll be like, okay, every two weeks, here's what we expect. And it's more or less the same. But for a lot of brands, especially when they just start, it's like huge number of skews, tons of working capital, and just like very arbitrary timelines and.
Yeah, so what we [00:27:00] do with our customers is actually take a look at the weekly CSV sell through. So like Nordstrom, target, all of these folks, they will either email you like a CSV file from their listserv or give you a login to their porter will. They would upload a weekly sell through report so that you can start to see what is selling through at the shelves.
So you have this data. A lot of people are just like saving them all to like their box or their Google drive somewhere and like doing a one-off analysis every once in a while. But I think what was really nice about a system like Fuse is being able to see that real time. Being able to get that into a system where you're constantly looking at the report so that you can estimate Hey, you know what?
We sent them like 20,000 and they're selling through like X amount of units every week. The next PO's likely to come. On this date. Yeah. And, either more or less than the previous po.
Ben Tregoe: Boy, that's a hard problem because you yeah. You have to make sure you have enough to satisfy 'em and accurately predict, depending on how long it takes you to produce or get your stuff. Yep.
Rachel Liaw: Have what? You, it's [00:28:00] very different from like boutique wholesale where you're selling to like boutiques and they order smaller quantities every few weeks. Yeah. For a 20% discount. These retailers are gonna want like a 50% discount.
They're gonna want, minimum x like, quantities on hand at all times so that they can replace the replenishment order and get it within five days. Things like that. Yeah. Yeah. So you have to get really
Ben Tregoe: what happens if you get it wrong as a. , you mentioned the bad vendor score can you recover or is like target oh, thanks guys, see you later.
Rachel Liaw: It really depends. I think it's two factors. One of them is like how popular is your product? How much upside do they think they're gonna have? How many doors is it selling through? Usually they start with a test though. And so if you fail that test, you're screwed. So most people will order overorder for the test.
Usually the test will not, it'll be like middling, right? And. They, then they need to expand more doors, and then that's where it starts to get really difficult. And so the, wait, say that
Ben Tregoe: again? So there's a, there's usually a test period
Rachel Liaw: Yeah. Where they, and it's like, how [00:29:00] many doors are you in? Are you in all the west coast doors or are you in like the west coast and east coast doors?
Or are you in a thousand doors or 3000 doors. Okay.
Ben Tregoe: So if you're in like 500 doors or West coast, you're in the test. Yeah. How long does that usually go for?
Rachel Liaw: Usually it's like your first PO and then you'll see how it. .
Ben Tregoe: Okay, so you might know in a month or something, or we might know
Rachel Liaw: in a month or something.
And that's from the data perspective. I think the real thing is with Target and these big retailers, there's also a human component. You're working directly. Oftentimes you're not only just working with a target buyer, but with some sort of I told them Go-betweens. But there's an official name for them.
Broker. There's like brokers that, yeah. So oftentimes you have to go through like a licensed broker Yeah. To sell these stores. So it's like how good is your broker, how good is their relationship with the buyers for these stores with Target corporate? That will give you a little bit more leeway, I think.
Yeah. If things go wrong or if you notice like, Hey is Tess is not performing well because like you didn't put us in the area on [00:30:00] the shelf that you said you. . Like for Kiwi Crate on our launch, we actually went to the local target stores that we were supposed to be s stock at, and we noticed Hey, our products are not on the shelf they said they were supposed to be on.
And we had to go back and be like, Hey, you said you're gonna put us at eye level at the kids' aisle and like we're on the very top of the shelf. Or no kid's gonna see it. They're not gonna, the parents to buy it if it's they can't even see it. . Yeah.
Ben Tregoe: And did, and do they care when you say that?
Rachel Liaw: Or are they like, oh where your broker and your buyer come in. If you have a really good one, they will advocate for you. They will call the stores. They will, make sure it happens. And if you have a not so great one, you're outta luck. And you gotta find another one. .
Ben Tregoe: It's like amazing, isn't it?
How, D two C is hard enough and then you're like, here's this whole different world of these
Rachel Liaw: giant, it's a different beast. Yeah.
Ben Tregoe: break you. So let's talk about
Rachel Liaw: another time. Much control. Like you can't just be like, let me increase like my marketing spend or decrease it. Yeah. Gotta be like with someone being like, Hey, please move my products up.
Like three levels on the [00:31:00] shelf, .
Ben Tregoe: Yeah, exactly. It's wait, I'm calling store by store to do this.
Rachel Liaw: Yeah. The store manager's gonna be like, what are you talking about? You have to go back to corporate. They have to issue a direct it's a whole nother beast. Yeah.
Ben Tregoe: Yeah. Tell me about Amazon.
How does Amazon differ from. D to C or?
Rachel Liaw: Yeah I think when you talk about Amazon, there's there's fba, fbm and then there's also like online of the retailers, which we haven't crossed yet, which is like target.com or like madewell.com, like you can actually sell through those where it's fulfilled by merchant.
It's more like a marketplace disguised as target.com. . Yeah. And. I think Amazon
Ben Tregoe: fba. Cause that's let's just pick fba, does it change the kind of ops
Rachel Liaw: from a planning and procurement perspective? Not so much. Okay. Because it's like you almost have another warehouse that you're just sending things to.
So if you're already operating, like maybe out of two, three peels so that you have bicostal coverage, adding another three pls, not a, like a [00:32:00] huge headache. If you are however, . If you've never done more than one three PL location or a warehouse location, it could be like the first time you have to manage inventory in multiple locations.
And that definitely makes it harder in Excel. And the other thing about FBA is you have to have either your own warehouse or through PL partner that can store pallets that good FBA as well. Cuz FBA will not hold pallets for you if you know until you get a certain allocation and it's costly for them to hold pallets.
But you have to be able to send them pallets, as they need it so that you vendor score is good it's like a hybrid between a retail retailer and E-com. And so you do need to have a three pal that is able to do FBA pallets pretty seamlessly. Cause not all three pals can handle.
Yeah. Designed for just their own pick and pack and not like managing your pallets that you send to fba.
Ben Tregoe: What's the sign for a company that like, man, we really need to get this, get our arms around this? Is it the sales? Is it the multi, [00:33:00] it's,
Rachel Liaw: is it, I think a lot of times people think it's like revenue or like number of skews.
For me, Usually I try to measure it as a number of complexities. So number of forecasting channels is like our primary indicator. So if you're. Target and Costco, and you have dtc and you have dtc like Canada or like Amazon fba, fbm. Once you start to have a lot of proliferation of different sales channels, that's where your complexity increases.
I think we just chatted a bunch about a bunch of like different details that you have to track. It's not just the operations, like demand for each one of these channels will be very different, the kind of products people buy, the, the way you have to manage the replenishment is gonna be very d.
And Amazon, oh, I should also mention like their FBA has a whole nother problem of like list hijackers who hijack your listing and have like lower quality products. And Amazon have good controls because all of them are name like labeled with the same barcodes. So they're pick and pack will just pick and pack and you don't really have [00:34:00] control if someone hijacks your listing and sends like low quality products.
But anyways, I'm getting on a tangent there, . But yeah, I think it's in the number of like sales channels, that amount of complex. Number of warehouse locations could be another way you add complexity or as you start to get into raw materials management, if you're just doing one or two key ingredients, it's usually not too bad moments.
You start, doing packaging. Once you start having multiple levels of bill of materials, that's when you need something like Fuse or some sort of more, high level system. And then that's when I usually see people start to buy NetSuite. But NetSuite doesn't solve all of their problems. .
Ben Tregoe: So you guys would work in conjunction with NetSuite, it sounds
Rachel Liaw: like?
Yeah. We would work in conjunction with NetSuite. NetSuite will solve your, like unit costing problems, your inventory tracking problems. But what it doesn't solve is your demand forecasting, figuring out like what's the appropriate levels for each single SKU that you want to be restocking at each, sales channel.
Ben Tregoe: signs that ops has gone off the rails? If [00:35:00] you were a CEO or founder, these, there's so much going on, they would, you could, you can conversations internally. , and it's I dunno, is it this thing or is it like, what are some signs that it's just gone off the rails and they need to make a.
Rachel Liaw: Yeah. I think usually the first time it really come so there are some CEOs who have backgrounds in ops and so they're keeping a close eye on their inventory at all times. Yeah. I think a lot of times people come from the branding or the advertising or the product development side, and they usually don't notice until there's a massive overstock.
Ben Tregoe: So it shows up like they're like, wait a second, we don't have any cash left cuz we bought so
Rachel Liaw: much inventory. Yeah. It's like, oh, we're gonna launch this new product and launch this new campaign. Wait, why is our cash flow? Not where we thought it would be. Crap. Yeah. It's inventory. And I think that's usually the first sign in when we start to see people, really think about an inventory system.
Ben Tregoe: Yeah. That makes. . Let's switch gears a little bit like to the economy. We're talking on December 1st of 22. got through Black Friday and [00:36:00] Cyber Monday. Yeah. Were you surprised at how strong it was or was it what you
Rachel Liaw: I honestly. I wa I was, I went into it like 50 50. I was like, it's either gonna be a great Black Friday or it's gonna be a not so great Black Friday.
And then we're gonna have a massive amount of January sales and everyone would be like very sad about their performance . So I think the, I'm glad to see that it was, a great Black Friday for most folks. I think a lot of times, like people. , read the news, read the macroeconomics and start to project that into their daily lives.
But the reality is , you can only control what you can control. So you can only control your own Black Friday sales, your own Black Friday promotions and just like hope for the best. And so I think, I'm glad to see that people generally had very strong performance and I think people were smart about the kind of promotions that they were offering.
I think. , what I did notice was a big difference between more traditional retailers and like Shopify [00:37:00] merchants, Shopify merchants obviously blew it out of the park. Whereas like I think more traditional retailers, they had to discount like massively. They're probably like, I see a lot of Cyber Monday, extended sales, , things like that.
And so it's definitely aware of that.
Ben Tregoe: What, why that difference?
Rachel Liaw: I think. When you are larger. I think a lot of brands were really smart about their working capital this year. I think they learned a lot from 2021. Just from what I saw in the industry, 2021 was like year of stockouts, but then a lot of the inventory arrived mid 2022 when no one was buying.
And then, so all of these, econ brands had a ton of inventory just sitting on their. Like in June, July wasn't moving, they just doing summer sales of like winter close, things like that. And so I think they got smarter and were a little bit more conscientious of what kind of inventory they were investing in.
and we saw that with our own clients as well. Okay, we're gonna really invest in the core skews that we think are gonna perform well and not just buy across the board. I think when you're larger and you have more capital and you're [00:38:00] not forced to be as scrappy and you know when you have a lot more pool, so like Target, Walmart, those folks were able to get their inventory, in time for q4.
Q1 because they could rent container ships. Because they could do things like pull up, their vendors and make sure that the vendors serve them first. . And so they didn't go through as painful of a learning as a lot of the, I think e-commerce and like younger brands. Did, yeah.
Ben Tregoe: Yeah. You, you guys have such interesting data sets.
You must have a, your customers in aggregate must have a view of what 23 is holding. Do you, do they, do you see indications that they think it's gonna be good or are people worried and Yeah.
Rachel Liaw: I think there's always, and because I talked to a lot of founders as well, there's always worries about the macroeconomics.
Like I'm sure you and I worry about macrono economics as well. And I think it's about, and I think. What I can offer to our clients is [00:39:00] that real time visibility that they can actually stay on top of their numbers, be able to detect the first signs of things not performing well, and be able to change it then.
But I think what we've seen and so far at least, is that business as usual , we had a strong holiday performance so far. I think it'll continue to be strong. I think, people are still willing to buy things. There's, Christmas is still there. People are, I feel like there's a renewed emphasis on family since the pandemic or people are gathering.
And I think what we're seeing is people are already placing their pos for, Chinese New Year and all of that. Is that it's business as usual, but always with a, like an eye out of any changes. Yeah. Any indicators that you need to react quickly to. . if you don't have that good reporting yet and you're a founder, you need that reporting cuz you need to be able to write quickly.
But you don't wanna if you don't buy inventory, you can't sell anything and then you will buy definition not perform well, . So you don't want that, right? You still wanna be able to purchase and run your business like it's going to perform well otherwise you shoot yourself in the foot. [00:40:00] But you have to be ready to be able to adapt and trim. if, you see those signs. And so that's really what I've been advocating for our clients and what I've seen. That's interesting. Do
Ben Tregoe: they, how do they think of it at a high level? Are they thinking like day's inventory on hand or day's sales or like what are some of the metrics that people are using to know if their right sized and they're.
Rachel Liaw: Yeah. So generally we use weeks of supply and we used a forward looking weeks of supply rather than a backwards looking. And so what I mean by that is like 10 weeks of supply during the holiday season might be 10,000 units. Okay? 10 weeks of supply during a low selling season might be like 5,000 units or 2000 units.
Okay? So always keeping that forward looking weeks of supply helps you right size your inventory amounts depending where you are in the year. Okay.
Ben Tregoe: Yeah. So you're doing it seasonality. Okay. Interesting.
Rachel Liaw: Yep. But being able to do it at a skew level, I think a lot of times people just look at their, because of the lack of [00:41:00] granularity or the, your Excel can only have 10,000 lines and have all these variants and color waves and things like that.
Being able to do a granular level and be able to be like bucket like, okay, search core products, I'm gonna have a higher weeks of supply. They're my best sellers. They're my most profitable products. I don't wanna stock out on them. Yeah, maybe some seasonal patterns, seasonal sense, seasonal fragrances can be a little bit leaner on.
And so I think what, and then you can also adjust that ratio based on what you're seeing. So maybe something that wasn't under performer before is starting to become really hot. It's trending. You can then, quickly increase that waste of supply target for that product and maybe lower your waste of supply target from some other products that aren't performing as well.
So having that flexibility and the ability to react quickly at a very granular level is I, is what I've been seeing with our clients and what I do advocate for a lot of founders. Yeah,
Ben Tregoe: that makes a lot of sense. Rachel, anything else? Did I miss anything? .
Rachel Liaw: I can talk about supply chain for hours, so we could keep going.
But , I think we've talked a lot about the best [00:42:00] practices, like going into the next year. I think the, yeah, the only other like major theme that I have for folks is just, paying attention to the global, like geopolitics. I think that's gonna be huge in, the upcoming months, upcoming years.
Ben Tregoe: What are you saying specifically there? What is,
Rachel Liaw: yeah, so I think, I think in general, I think the biggest one on the horizon is, I think all eyes are on China right now. Yeah. What that's gonna look like. I think previously we, we saw Brexit during the pandemic.
So if you were sourcing from the UK or selling to the uk, there were a huge headaches around customs there. And you're seeing, you saw the, Russia invading Ukraine, what that did to gas and to wheat and to a lot of things that are sourced from, eastern Europe. Eastern Europe has a lot of good industries that where you can get like high quality but reasonably price manufacturing.
And so a lot of folks source from there. And that's gonna be, I think, a continual concern as you start to see blackouts and [00:43:00] whether or not the Gresham, exon missiles accidentally hitting Poland. That, there are a lot of Eastern European countries right next door that supply like, key products to a lot of customers.
And so that's gonna be, on the radar and, any, anything and that's changing in the world is gonna be focused on. But I think China's probably the biggest one in people's minds. We've already been in a trade war with China for many years. I think a lot of people with the pandemic forgot that we started a trade war with them in 20 17, 20 18, and we're still in a trade war with them
And that doesn't, that's unlikely to stop. Yeah. So we're seeing a lot of the inflation comes from a lot of costs being higher due to that trade war. Yeah. So a lot of production moving to Vietnam, Cambodia, things like. But I think if there is ever any sort of like armed conflict over Taiwan, I semiconductors are just the tip of the iceberg.
I That obviously affects a lot of companies like Apple. Our economy , that'll be Interesting. That, that means you cut off access to, maybe even India and Pakistan cuz of the uncertainty around the freight containers in the [00:44:00] Pacific Ocean. And so that's, there could be huge ripple effects there.
And so I. One of the things I've advocated even pre pandemic was vendor redundancy. Being able to have multiple vendors that can source similar products. Yeah. It's something that I'm hoping will be more in people's conversations, cuz even before the pandemic, like I I remember getting a postcard from Function of Beauty and they were like, we can't ship any shampoo this holiday season because our one factory in Houston, like there was a hurricane and we can't ship anything.
It's like stuff like that where it's if you only have one vendor and any sort of, even not geo geopolitical, but climate change related action happens. If you were sourcing out of Indonesian, , then now you probably can't source out of that region and that was your one supplier.
You're of screwed. And so having that vendor redundancy, something, maybe a lower cost further abroad. Take advantage of those cost savings. But maybe something also closer, that near showing reshoring initiative. But I think from a practical perspective being able to ramp up things faster, maybe producing high [00:45:00] demand volatility products closer so that you can ramp up, ramp down, like really trendy products.
You know that the black T-shirt that makes me know that the black teacher that always sells, you can always just produce that at a better cost, maybe further. So I think that's the other big theme that we're gonna see in 2023 that I think, should be in people's conversations and people's radars a little bit more.
Ben Tregoe: Man, this has been awesome. Thanks Rachel. This has been a, a terrific it's like a tour to force of insights and supply chain and ops wisdom. It's been fun for me cause I, it's like I, this is not an area that I ever get to go in a bunch of details
Rachel Liaw: on it. Yeah. I'm happy to talk supply chain for hours.
So always happy to chat about supply chain anytime. Cool. Thank you Rachel. All right. Thanks Ben. It was a pleasure.