People Spend Money in Places That They Shouldn’t

Will:
All right everybody, we are back with another episode of Safety Stock. I’m Will Davis. That’s Dan Magida. Dan I’ve run across a couple of brands, now have two interesting things that are happening and this, they aren’t the only ones. In fact, there’s a lot of brands out there that are doing this, Dan, they are not taking advantage of their 3PL’s and they are searching, or in some cases have already purchased an inventory management system where it does not make sense that they did. So,

Dan:
Yeah, it, I agree with that cuz the 3PL is a very powerful resource that you obviously have in the, in the d c space right to consumer if you’re for finished goods, but also components as well that you’re storing like your shippers. You get a lot of valuable insights from leveraging your d toc partners that brands should take advantage of and is the first line of defense for any of those fires. Or if you’re outta stock, that’s what your 3PL is for, to tell you if you’re approaching out of stock,

Will:
Dan, they have the, the software that the 3PL is providing them is the same. It’s giving them inventory amounts

Dan:
800% and, and it’s, and it’s at the skew number or name, which is the norm, which is what the 3PL does. And also breaks it out based off where those centers are too. If you’re in multiple,

Will:
You’re right. And, and in this case what I don’t understand is, you know, they’re giving receipts, they’re in, you know, you get automatically receipts when things are coming through and the reason that they’re saying that they wanted to move forward with inventory management system is because they needed more visibility into their numbers. And I’m like, what, what more do you want?

Dan:
Well I think it all depends on the, the business too. Like do you have multiple, not fulfillment centers but multiple fulfillment partners. So if you’re start working with, you have one fulfillment partner and X and then a separate entity and y now you have two different SY systems and then merging them together in a holistic view makes sense. But you can also leverage that through like your own API and build or Looker or any BI tool and build your own dashboards. But then the complexity comes off of your bombs, your bill materials and parts. Are you holding prefinished goods in other warehouses and getting them set up or raw materials? Then you got add a little bit more complexity where an inventory management system does make PLA does make sense but we all know complexity but that’s not the reason why they go to those inventory management systems. It’s some, it’s usually around, we have a fire that fires where out have inventory, but the inventory management system doesn’t solve that fire because you already should know if you have inventory from your 3PL partners cause that’s your last line of defense.

Will:
That’s my ultimate thought is is like where like when I’m seeing people do this I, I ask myself and I, a lot of times I ask them, is this something that you already have that you can get from your 3PL or is this something that you can augment one or if you have an E R P, is there something that you can do within the module that you already have? Like is it set up that way? Is there something you can get a discount that way? Because yeah, if you’re bringing on this new system that’s totally unrelated to your E R P, then to me you’re ultimately going to wanna put the information in there which is going to require a connection. Yep. And if you don’t, what are we doing?

Dan:
I, I agree and especially I think the one thing brands should also take a step back and work work out is what’s your model for inventory? Are you a just in time model or are you doing a safety stock model and where are you doing that across your components or finish goods? Cause that will dictate also where you put your resources and money into. If you’re a just in time model, then you don’t really necessarily need an inventory management system as much as I come with that as building safety stock.

Will:
You’re right, you’re right. You don’t And I think that kind of leads me in a way in terms of like things that you don’t need. The second part of that is I see a lot of brands who as a default rely on their contract manufacturers or the people who are putting their goods together to manage their components. The component purchasing for them.

Dan:
Yeah. Turnkey What?

Will:
Turnkey. Turnkey. When you hear turnkey, that means that someone is buying all the items for you and then putting them together and you’re paying one price. That convenience is costing them anywhere from 10, 10% to 8% all the way up to 25 or 30%. Yep. For the cost of goods that they are managing. If you have, you know, if just doing the simple math, right, if you’re paying 20 cents for something right, and they’re adding on 25%, that’s now four and a half cents. That’s a like that’s a decent amount of things, especially if you have scale, you know? Yeah,

Dan:
Yeah. I mean that’s that and that’s always one of the first conversations you have with your contra manufacturers is they’re gonna try to push this turnkey model onto because they think it’s gonna alleviate some of your pressures. Cuz if you’re just starting off, it’s one less headache to worry about is the supply chain. And they say we got this, but it actually turns more into a headache if you’re delayed cuz you’re not, you don’t have the foresight visibility into who they’re going to. So it’s a bandwidth thing to start, but that’s something that you should take over and manage yourself at scale.

Will:
100%. The other thing is, Dan, is that you see people that they’ll choose the suppliers, they know what the cost is, but they just don’t wanna order. And that’s, to me it’s like that’s where it’s like what are, what are we doing? What are we missing? Like is it if, if you have such a lean team that you are focusing on, you know, customer acquisition or marketing or if you’re developing your product, whatever it may be, right? If you have such a lean team to get it, you, you may, this may not be your expertise, but to me you have to justify having whatever you’re doing, be more than an eight to 30% return on what you’re doing in order not to tackle this

Dan:
Problem. But just, just think about it in terms of just business is all these companies wanna grow and they can go raise capital and it’s fuel to growth engine and that’s usually done through your acquisition costs. But if you have this eight to 10% already on your op side that’s going to this turnkey model that’s mar that you’re still, you’re taking a margin hit so that it’s the one of the easiest levels levers to pull is bringing it this in-house and managing it and then you bring your, just your contribution margin just decreases. And that’s the metric that investors wanna look at is how do you get your margin to be better over time because that’s how you become profitable over time. So it’s one of those things that you gotta control in house.

Will:
And, and the other thing is too is when you buy something turnkey, this doesn’t mean that the suppliers are responsible for the quality.

Dan:
No, it’s still you, you’re still the

Will:
Sign-Off person. Yeah. It’s still like you’re, yeah, you’re still ultimately the person who has to deal with it. There’s a problem. Like, and so what outside of the time, which listen ambu exists for these reasons to give you visibility of when you issue a purchase order and see exactly where that purchase order is at any point in time, what the components look like, what it is if, if, you know, we talk about this from an ROI perspective on the business side is like it’s immediately there, but we continuously see people do this. And so I always ask myself, is it that you have people pushing for it if you’re on the supplier end, Not always, a lot of times it’s not worth the headache for them. But is it just one of those things where it’s a misconception where effectively we need to evangelize as much as possible and say there’s a better way to do it?

Dan:
Yeah. Look, the, the most important thing you’ll do to your business when you’re setting up just tracking your inventory is the naming convention of your finished goods. So what the consumer is buying and the components you’re ordering. If you have that naming and convention down and we can go a whole thing on naming and convention on like what’s the proper format, but it’s just a string of characters because that string of characters talks to everybody. It’s like your universal language. It’s like my name Dan or Will Will like that string just gets pushed and you can leverage so many internal resources just around the skew name that you have full visibility already. You can build your own models. You use it for forecasting already, so you’re already using an Excel spreadsheet, most likely if you’re new or maybe a demand forecast planning software, which we have experience using. But it’s all referencing that same skew number. So get that in place and then you can figure out what your inventory is a lot cleaner and simpler instead of relying on somebody else to still update those numbers for you through whatever means of its barcode scanning or a manual account.

Will:
Yeah. And so we, we wanna hear from you if you’re, if you have a great reason why you’re going through the turnkey method and why it makes a ton of sense for you, let us know there. There’s definitely points and times out there, but we want to know, so reach out to us at hello@anvyl.com. That’s A-N-V-Y-L.com. Or you know, if you’re like, hey, I’m purchasing this system because it makes sense, we also wanna know that too. And so we love to hear from you. We appreciate you listening and we look forward to talking to you soon.