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Peak Planning

A Proactive Approach to Supply Chain Planning

Peak Planning
August 12, 2021
13 min read
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Ware2Go’s supply chain planning expert, Matthew Reid, describes how a proactive approach to supply chain planning can drive top line revenue for businesses of all sizes.

Proactive Supply Chain Planning in Action

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Proactive Supply Chain Planning.mp4 from Ware2Go on Vimeo.

Supply Chain Planning that Drives Demand

The question of whether your demand should dictate your supply chain planning or you should optimize your supply chain to create demand is like the age-old chicken or the egg question. It’s one of those questions that merchants may look at and throw up their hands, thinking there’s no way to solve it.

However, after nearly 11 years of engineering supply chain and logistics solutions for UPS and now 3 years enabling growth for SMB’s at Ware2Go, I’ve learned the relationship between service levels and demand is much more clear-cut, and that one (optimized service levels) inevitably leads to the other (increased sales). I’ve seen it in action with our clients at Ware2Go, and at the risk of sounding a little cliche, the “build it and they will come” approach on some level actually does work when it comes to both ecommerce and B2B sales. 

The truth is, today’s consumers aren’t going to take a chance on your brand if it takes 5 days or more for your product to make its way across the country to them. And more than that, your margins likely aren’t high enough to justify air upgraded shipments to those new markets in the first place.

That’s why I think the “wait and see” approach to supply chain planning, or making decisions based on urgent needs driven by rapid growth, leads to high-cost, margin-depleting band-aids on your end-to-end supply chain solution. Merchants who are ready to take control of their growth will take a proactive approach to supply chain optimization. Their decisions will be based on granular details and sku-level performance, and they’ll actually see that they can control demand from the bottom-up.

I’ve laid out a few examples of some real-world challenges merchants come across in their supply chains and what a reactive vs. a proactive approach to these issues looks like.

Problem #1: Inflated Time in Transit Costs

Most small to mid-sized merchants may know the best way to cut down on time in transit costs is a distributed warehouse network, but often SMBs don’t have high enough monthly sales volume or free cash to justify the cost of implementing multiple insourced warehouses.

Reactive Approach:

SMB’s will attempt to outsource to small and mid tier 3PLs, which are typically hyper-regional in their footprint. Either to save a few dollars on fulfillment rates, or out of an inability to attract the attention of a higher-tier 3PL, SMB’s will settle for poor locations that really aren’t optimized to serve major markets. SMB’s sacrifice competitiveness by not being able to meet customer expectations for 1 to 2-day delivery and ultimately sacrifice their margins with inflated final mile delivery costs.

Furthermore, if SMB’s want to expand their geographic footprint in response to new pockets of demand, they will often source multiple small to mid-tier 3PL’s. These smaller 3PL’s will not be operating on the same WMS platform, and may or may not integrate with marketplaces or ecommerce shopping carts. This results in a patchwork system full of manual processes that make day to day operations for an SMB daunting and unwieldy.

Proactive Approach:

A tech-enabled network of 3PL’s like Ware2Go is a way in the door of those top-tier 3PL’s that might not have looked twice at a small to mid-sized merchant on their own. This relationship enables SMBs to leverage space in prime locations to serve their highest-performing markets with 1 to 2-day delivery and improving customer sentiment by meeting and even exceeding expectations for fast delivery. This value has proven to drive repeat purchases and customer loyalty by 20-25% in top line sales. 

Ware2Go’s platform, FulfillmentVU, connects all the 3PL’s within our network through a single WMS and TMS system that integrates with virtually any sales channel. This allows SMBs to manage their business on one platform connected to all the warehouses within their network. SMB’s now have complete visibility of inbound deliveries, inventory levels, and outbound shipping performance.

Problem #2: Lack of Inventory Optimization 

Symptoms of this problem are: losing the buy box due to slow or expensive shipping, high rates of returns, and low shopping cart conversions. Diluting inventory does not have to be rocket science. Focus on the top 20% of SKU’s that drive 80% of the volume. Arguably these SKU’s cost SMB’s the most because they are shipping most frequently.

Reactive Approach:

When SMB’s get to the point where they’re just trying to keep their heads above water to meet marketplace SLA’s or high customer demand for 1 to 2-day shipping, they usually choose one of two options. They over-utilize overnight air, which eats into their margins, or they pass the shipping costs on to their customers, which prices them out of consideration. This is the beginning of the end, when SMB’s are so hungry to gain market share they are willing to operate in the red. This approach can have long-term implications on the growth of SMB brands. 

Proactive Approach:

Study your shipping trends, and ask yourself, “What are my customers buying?” and “Where am I shipping most often?” This is a leading indicator to identify which products consumers are most attracted to. Using this simple approach will allow you to start focusing on the SKU’s and customers that are driving the volume. An SMB that is ready to control their costs and create demand will have the right SKUs in the right quantity in the most optimal location before a consumer makes a purchase. This enables the fast shipping customers expect without eroding profitability with costly solutions like next-day air. 

This level of SKU management requires access to resources like supply chain planning software that can analyze historical order and shipping data to map out geographic demand. When merchants have a complete picture of where their customers are located, they can stock their inventory in the optimal locations to serve those customers with 1 to 2-day ground shipping.

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Problem #3: Misalignment Between Marketing and SKU-Readiness 

Poor demand forecasting results in poor supply chain performance. Running a marketing campaign with no guardrails in place for geotargeting based on available inventory at the SKU level is a recipe for stockouts and shipping delays. After you have studied which SKUs are most popular and which geo’s find your product most desirable, now focus on your marketing campaigns. Don’t run nationwide campaigns if your inventory is only positioned on the coasts, you will under-serve the middle of the country and pay more to reach these customers through expedited shipping or worse promote 4-5 day delivery times. Focus on the regions that you can optimally support based on your available inventory, hone your craft, get really good at serving the customers you can support really well. Then as sales grow, dilute your inventory to the next major markets. Arguably California, Texas, Florida and New York are the top four ship to states based on US demographic data. Build your brand in these markets and then start to focus on more targeted selling after you have collected data, analyzed buying/shipping behaviors to conquer your next new territory.

Reactive Approach:

Timing is everything. It’s tempting to look at top-line revenue alone when measuring the success of a campaign. If you’re hyper-focused on sales or sku-level profitability over customer experience during your campaign, you may begin to accumulate backorders while waiting on a replenishment order to be shipped from your supplier.

Naturally, SMB’s focus on top-selling products as this is where they are making the most profit (assuming you have followed the guidance above). But when products stock out and go to backorder this can lead to a frustrating experience for customers, and they may leave your site in search of a comparable product from a competitor. Sure, there may be some consumers that stick with you based on brand loyalty but you shouldn’t leave it up to chance.

If you are starting to run lean on your popular SKU’s this is an indicator for SMB’s to turn off marketplace promotions for these items and look at which products aren’t selling. Many SMB’s have a percentage of products that missed the mark for consumers and haven’t sold. These products may leave you with leftover inventory in underperforming SKU’s that will eventually become obsolete and further erode margins due to high-long term storage costs.

Proactive Approach:

Marketing efforts should be mapped to the supply chain demand. Monitor sku-level performance, turn off campaigns for over-performing skus, and ramp up marketing efforts for underperforming ones. This will help SMB’s control storage cost for seasonal SKU rotations and avoid long-term storage cost for storing underperforming SKU’s. If a replenishment order is on its way to a geographic area where demand was lower than expected, reroute inventory to an area of higher demand. This will allow SMB’s to control cost and generate high rate of return to purchase more replenishment inventory and offer faster deliver experience to consumers. 

Marrying marketing efforts with supply chain planning may be a new way of thinking for many SMB’s, but doing so transforms supply chain into a top-line revenue driver as well as a bottom line cost saver.

Problem #4: Slow-Moving Inventory

Inventory turns longer than three months drag down profitability due to inventory carrying costs and if you are with a Fulfillment partner that imposes long term or peak storage charges the risk is further compounded to impact SMB profitability. Don’t buy long if you don’t have a stable marketing plan to sell through the inventory.

Reactive Approach:

Some merchants turn all their focus to supplier/manufacturer discounts. To get the steepest volume discount SMB’s order more inventory than they can sell through in a quarter and allow inventory to sit on the shelves in a costly storage facility for 6-12 months. By the time items sell, the storage costs have consumed all profitability and the dollars saved with the supplier discount are eroded, likely resulting in increased costs.

Proactive Approach:

Partner with an outsourced fulfillment provider with the tools and supply chain planning software to provide accurate demand forecasting. Find the perfect balance between getting as much of a volume discount as possible while still turning your inventory within the quarter to maximize your margins.

Supply Chain Planning at Scale

The key to taking a proactive approach and gaining control of your demand from the bottom up is supply chain visibility through the final mile. The future of supply chain management and the only real way to gain full visibility is with cutting-edge fulfillment technology. At Ware2Go, we are committed to building tools for merchants that simplify the end to end supply chain with direct integrations, a flexible API, and easy to understand reporting with actionable insights.

  • FulfillmentVu is an advanced WMS, TMS, and OMS system that integrates with virtually any sales channel. It gives visibility into arriving ASNs, inventory availability, order status, and more across an entire distributed network. Get a free demo of FulfillmentVu.NetworkVu gives visibility into order mix and geographic distribution to build an ideal fulfillment network. It gives side by side comparative models of a merchant’s current state and possible future state networks with pricing breakdown and measurable business impacts. It’s free for all merchants, whether they leverage Ware2Go’s services or not and builds models based on user-uploaded data or through an ecommerce shopping cart app.

Complete visibility gives you a full understanding of your overall cost to serve and its impact on your bottom line. This enables you to scale quickly and with confidence by serving up the right products at the right price points to just the right customers. The question of the chicken or the egg isn’t really even a question any more. Instead it becomes a question of, how quickly do you want to scale?

FAQ’s

What is Supply Chain Planning?

Supply Chain Planning is the process of looking at the full supply chain to find areas for improvement across any phase of the process: procurement, freight forwarding, fulfillment, or final mile delivery. Supply chain planning is enabled by accurate demand forecasting, historical order and transportation data, and healthy vendor relationships.

What is Supply Chain Planning Software?

Supply Chain Planning Software uses historical data to create demand forecasting models, analyze delivery footprint, and determine optimal sku distribution. These softwares often employ machine learning and AI to recognize patterns and project possible future state scenarios.

What is a Supply Chain Planning System?

The goals of a Supply Chain Planning System may include shortened lead times, inventory optimization, sku hygiene, increased service levels, and improved order accuracy and on-time delivery to name a few. A merchant’s Supply Chain Planning System should be tailored to support their specific growth goals and customer profile.

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