Case Study

FRE: Finding What’s Hidden By Analyzing Sales & Inventory

Online retailer FRE had $20 million in annual revenue.  They used a very popular multichannel distribution tool with reporting and warehousing capabilities. This was integrated with Shipstation helping them ship 91,000 orders supported by $3.1 million of inventory.

They were having problems growing but didn’t know why.

Challenges Faced:

They wanted to grow but just didn’t seem to have the money to do it. We used a two-prong approach. First, we started with a questionnaire asking the owner and staff about eCommerce knowledge, roles and responsibilities, company goals, communication, training, & and operational challenges they faced. Next, we asked for their data. We needed to understand what they knew, what they were looking at, how they did their jobs, and then validate everything with their data.

Next, we looked at the Customer Experience. FRE’s ratings were 4 and 5 stars, but every day, customers had a problem that required immediate attention. These included receiving the wrong order, a damaged item, the order was late, or the order wasn’t received. Why?

  1. Order Issues:  FRE suffered from a higher-than-expected percentage of order issues.  Customers complained they didn’t get their order, got the wrong item, got it late, or didn’t get it. Reviewing their order data, the system showed the products were in stock, but pickers said they couldn’t find them to ship or they picked the wrong products.  This put FRE in a daily firefight. They would offer the customer a deep discount. If that weren’t acceptable, they would ask the customer to return it and ship the right product, let the customer keep that product and ship another, drop-ship the product from the vendor, or buy it in the open market at full retail—almost anything to protect their seller ratings.  
  2. Stock/Inventory: Some products were so popular they couldn’t keep them in. About 1/3 of their inventory was on backorder. FRE then spent a lot of time ensuring they were fully stocked or looking for new items and creating bundles, hoping to make more sales.
  3. Cash Flow Issues. It seemed FRE was scraping by – just enough cash to pay the current bills but not enough to grow. The owner and buyer were on the phone daily, talking to vendors about their outstanding balances and payments to ensure they had products to sell.
  4. Shipping Cost: The owner constantly looked at the cost of sending orders from NYC to California – especially heavy products.

Root Causes:

Our proprietary data analysis showed the company struggled with inventory control, forecasting, supply chain inefficiencies, and operational organization, which led to disruptions and strained relationships with key vendors and created frustrated customers.

  1. Inventory – Inventory was lost in the warehouse. They had reorganized twice, but it kept getting lost over and over. This meant buyers would see it online to buy, but warehouse staff couldn’t find it. This was due to system limitations, staff training & accountability, and not having defined processes.
  2. Data Analysis: FRE lacked a data-driven approach to the organization and all activities.  FRE was only looking at top line (gross sales) not a full set of KPIs to monitor the organization’s health.
  3. Immature Systems: FRE’s popular system didn’t have a robust analytics suite, which would have helped to spot these issues. Plus, many reports had to be manually prepared using spreadsheets, which took them hours. Even if they had an analytics package, they would need training to understand it.
  4. Training & Oversight: FRE didn’t have a formal training process or documented procedures.  This created an expectations gap between management and employees because of the inconsistent application of processes and procedures.  Who was to do what, and by when? 
  5. Communication Gaps: Poor communication within the organization led to misunderstandings, delays, and a lack of transparency regarding inventory levels and order status.
  6. Resistance to Change: Staff & management were resistant to adopting modern inventory management practices, technologies, and eCommerce best practices. People often say, “But it worked in the past,” or “This is how we have always done it”, or minimize the impact of “minor’ issues & inconveniences. + There is always a concern about the cost of implementation and training.
  7. Constant prioritization changes:  Priorities constantly changed before the original effort could be completed, which left employees confused and frustrated.  Yes, they were running around like chickens with their heads cut off.

Proposed Solutions:

  1. Implementation of a BIN system: Bin location is the smallest unit of space inside a warehouse where merchants store their goods. Bin locations simplify the inventory management processes, ensuring merchants always know where to store and find their products. This required us to map out the inventory, identify higher-ordered items, and place them closer to the packing area to reduce pick./pack cost. It also required labeling their entire warehouse so staff knew exactly where brands, categories, and items went.
  2. Use Advanced Analytics for Company Analysis and Forecasting: Started using the advanced analytics service by Inventory Detectives, which allowed them to review multiple dimensions of their sales & inventory. These reports provided insight into sales, marketing, purchasing, logistics, and finance.
  3. Employee Training: Provide comprehensive training to management & employees on the new inventory management system, digital best practices, and processes to ensure a smooth adoption and reduced resistance to change.
  4. Implementation of standardized processes: This ensured everyone knew what they should be doing. 
  5. Goal prioritization:  Have everyone agree on the goals, the roles, and the responsibilities, then support those efforts until they are complete. 

Results:

  1. Implementation of a BIN system: When implemented, FRE found $275,000 of “lost” inventory due to incomplete & inconsistent warehouse processes.
  2. Regular Inventory Analysis: Performing regular inventory analysis, we discovered the following:
    • A product category was 25% of sales but only contributed 4% of revenue – using an excessive amount of labor without the associated revenue eats away at company profit.
    • A product with 1,100 days of stock.  This was a poor use of capital.  We improved the inventory mix to improve the financial picture so capital could be used to grow the company.    
    • “Found” $100,000 in inventory that was not merchandised for sale.  It was in the system but not available for sale to customers. Fixing broken and incomplete processes and adding clearly defined roles & responsibilities needed to be done ASAP.
    • We identified over 1,000 SKUs that cost over $500,000 to create and merchandise but never sold.  Unfortunately, staff spent time creating products without doing the proper research, so they didn’t know or understand no one wanted them.  While we couldn’t get that time back, we could prevent it from happening again. 
  1. Improved Demand Forecasting: With the adoption of advanced analytics, FRE significantly reduced overstocking & stockouts, improving their overall ROI. This created better cash utilization necessary for growth.
  2. Enhanced Supply Chain Efficiency: FRE was able to optimize order quantities, leading to improved order fulfillment and customer satisfaction.
  3. Streamlined Processes: Automation and process integration reduced manual errors and saved valuable employee time, which could now be allocated to more strategic tasks.

Conclusion:

This proves that by adopting a data-driven strategy, modern technology solutions, and fostering better communication, FRE successfully transformed, which led to improved operational efficiency and stronger customer relationships and grew their profit.


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