Inventory replenishment + FBA with Jeremy Biron

Episode Quotes “If you don’t fix the fundamentals and the rest of it is isn’t any good.” “You not only need to focus on marketing, you need to focus on the core fundamentals of business as well which it will all come down to cash flow.” “My whole kind of philosophy is you need to […]

October 31, 2017 28:21
eCommerce Q&A
Download (MP3)

Episode Quotes

“If you don’t fix the fundamentals and the rest of it is isn’t any good.”

“You not only need to focus on marketing, you need to focus on the core fundamentals of business as well which it will all come down to cash flow.”

“My whole kind of philosophy is you need to start at the core of the issue. The core of the issue is demand forecasting.”

“We don’t do Amazon marketing or ecommerce marketing. All we focus on is inventory replenishment and everything that goes into that.”

“If you aren’t organized when you’re small then you’re going to be a lot lot lot less organized when you’re larger.”

“A lot of times I think I’ve learned a ton from podcasts.”

 

Listen to Learn

00:40 Jeremy’s Forecastly story. How did it started?

05:28 Ecommerce pain points and the importance of cash flow more than marketing

07:07 Solving demand forecasting

08:27 Why Fulfillment By Amazon (FBA) is a good move for business?

10:14 Inventory in FBA

11:34 How does Forecastly interact with FBA?

13:40 Forecast and demand planning on normal ecommerce sales

15:42 Importance of being organized, inventory management

17:12 What are some software for demand forecasting

21:40 Jeremy’s MBA experience

23:00 Jeremy’s main insights for the audience

24:10 Employment, operations and business process

26:10 Calls to action

26:35 Contact Us (Michael and Jeremy)

 

Transcription

Michael: Hello folks! Welcome to ecommerceQA. This is the show where we talk about ecommerce sellers, directors, managers. Basically if you’re dealing with ecommerce and you want to listen to this show. We’re joined today by Jeremy Biron who is the founder of Forecastly which is a really cool solution to problems that I think most of you listening are having. Hello Jeremy!

Jeremy: Thanks for having me on.

Michael: Absolutely. Jeremy, tell us a little bit of your story. How did you get into thinking about Forecastly which implies it has something to do with forecasting inventory which we’re going to talk about today.

Jeremy: Exactly. Forecasting inventory for Amazon FBA specifically but he has smelled my background and I think he kind have to go a way back. I started as an ecommerce seller. I think it’s about 10 years ago now. I did it part time, I had a full time sales job. I was a business to business sales rep and I started in an office supply company selling office supplies online. Came across this thing called ebay and started selling office supplies on ebay and grew a Magento store. Eventually heard about Amazon which at that point is more of like a bookstore online and started selling office supplies on Amazon, then I came across Amazon FBA. I actually got a phone call from somebody from the FBA. It was the FBA department there.

Michael: I was like you got a phone call from the FBI, but no.

Jeremy: Yeah, no, no. It was a data program for Fulfillment By Amazon. Of course I was skeptical of it. Why would I want anybody else sell my products out. I could just do it myself. Well, anything is worth a test. In my mind, show me the data and I’m good to go and I took off, so I was one of the data testers of the FBA program in Amazon in the office products category. There was of course, they’ve already done it in several other categories

Michael: Nice, and this company we’re talking about. This is the Honest Office which I think is a great name.

Jeremy: Thank you very much! Took a long time to think about that.

Michael: It’s not the one you started to.

Jeremy: See, I think we started with something longer than that. I can’t remember exactly what it was, “Discount Office Supply” It wasn’t Discount Office Supply. Yeah, I can’t remember, it was at the top of my head. But it was a much longer and the domain name was really really long. So I picked honest office, domain was available and I like it.

Michael: There you go, a bunch of awards here in internet retail and magazines, like what is that? Six of their awards. Fastest growing from multiple years, Top 1000 leading [term unclear – 2:43] retailers. This is a legitimate business here. Why did you shut it down?

Jeremy: My god, office supply is a funny category plus it was drop shipping. It was a combination of I really didn’t have a segment that it was my niche. I wasn’t growing my own brand. It got big, you’re right. We were a multimillion dollar seller. It got fairly large and we did develop some of our own brands that are sold around today, all of which that I don’t own. But what happened was is I was having frustrations. What was happening was there are cash flow issues. It was definitely my lifestyle, my lifestyle was taking a hit the time I was working and also the stress as I was feeling. The cash flow was probably really the biggest issue that I had and that was causing the most stress. Dug into it, I got a bunch of my mentors around the table. We sat down, dug through the numbers. What it came down was a funny thing, I was just having tons of excess inventory and way too many stock outs on our best products, and that’s how I get into software. Ended up building some in house software to solve the problem, and it did not solve it completely because building in house software is easy as it sounds. I learned pretty quickly and then at least I was doing a better job than the inventory management software we’re using at that time.

Michael: Which we will leave as unnamed.

Jeremy: Yeah, it’s still around today and I don’t want to. They’ve improved quite a bit but it’s all about fundamentals. If you don’t fix the fundamentals and the rest of it is isn’t any good.

Michael: So what happened after that? Building software?

Jeremy: I had some in house software that we built on this office. We used it for about three years on our own. And then I kept going to this Amazon conferences and hearing other sellers or ecommerce conferences as well and these other sellers are selling, “Alright, you’re running a multimillion dollar business.” How are you not having like tons of excess inventory and stock ups? They are having exact same issues I was having three years prior to that. The thing is I had the answer. Well, I have software unfortunately you just can’t use it. It’s not set up to use in multiple businesses and I feel a little bit [term unclear – 4:58] Day in and day out

00:05:00

was the same thing. At that point I decided, alright I’m going to make a leap. I’m going to start a software company. We kind of use our previous, our in house software as a baseline but we didn’t use a single line of code when we started Forecastly. Forecastly solves the same problem but we went about it a different way. It’s much more advance than any software that could anyone build in house unless they are Amazon or Fortune 1000 company.

Michael: Let’s talk about this. I mean, what are the big concepts, pain points that you’re looking to address specifically?

Jeremy: Sure. Mile thing is there are with ecommerce or it’s not just selling on Amazon. It’s kind of ecommerce in general, right? Everyone likes to focus on fancy marketing tactics which are awesome. Don’t get me wrong marketing is really important. I depend on it every day. But it makes it easy for folks to forget about, you not only need to focus on marketing, you need to focus on the core fundamentals of business as well which it will all comes down to cash flow. In ecommerce if you own inventory you need to watch that inventory. The inventory need to turn over and if it’s not you’re going to end up with cash that’s sitting on a shelf or you’re going to end up with your best products running out of stock and you’re going to miss out on the profit. Relatively simple.

Michael: I was just saying, problems are huge, you have to walk this tight rope. The funny thing is there is a lot of sellers don’t realize that though. They don’t realize how important that cash flow statement is or upon looking at your assets at the end of the month or end of the quarter and saying, “Where is my cash being tied up?” They forget about that stuff, because it’s truly easy too and I’m guilty of it as well. I did it on Honest Office for a long long time and I almost ran a multimillion dollar business into the ground because of it. And if you don’t have the right reporting, or the right tools to help you see what you need to see even if it’s just Excel. If you don’t setup your right Excel reports to give the info that you need to make decisions then you could run into a serious issue.

Michael: So we are aware of the problems. How does you software specifically solve those problems?

Jeremy: We look at things a little bit different. My whole kind of philosophy is you need to start at the core of the issue. The core of the issue is demand forecasting. I have a pen sitting next to me right now, and let’s say you sell pens, Michael. If I can’t tell you exactly how many pens you’re going to sell in Q4 then how I’m going to tell you when to replenish. Why does it matter if I can print off fancy shipping labels. Why does it matter if I can have the most beautiful PO that you’ve ever seen in your life and I can send that to you supplier. None of that matters if you cannot focus on the core number of how many units you’re going to sell because if I can’t tell you exactly how many units you’re going to sell then I can’t tell you how much safety stock you need. I can’t tell you when you’re going to run out of stock. Can’t tell you exactly how much money you’re going to need in Q4 to buy inventory. All of these numbers come down to the accuracy of that prediction. So that’s what we focus here on Forecastly. We focus on the core problem at hand and we don’t do bells and whistles. We don’t do Amazon marketing or ecommerce marketing. All we focus on is inventory replenishment and everything that goes into that.

Michael: I want to take a brief segway, alternate route and talk about FBA for a second because I think that inventory planning is incredibly important no matter how you’re selling stuff but it’s particularly important at FBA. Not everybody who is listening is highly familiar with FBA, they know it means Fulfillment By Amazon but can you talk to us a little bit about why it’s such a great claim why you find it to be a good move for your business.

Jeremy: Sure. I’m actually a pretty good person to talk about this because I was highly skeptical of it. I was really really skeptical and it took me a couple of months when they had first made the phone call, actually get on board. But Fulfillment By Amazon is relatively simple. They are a fulfillment company for your products, so the pen that we spoke about before you ship them a case of 20 of this, they break them down for you, labels on them and as orders come through either from your side and you feed them the orders or from Amazon.com. What happens is they’ll just pick pack and ship those products right out to the customer. You don’t have to touch it. You don’t have to deal any of that. The beauty of it is if you do sell on Amazon it’s an immediate boost in your demand because you win the buybacks which means that you’re the main seller on that Amazon page for anyone that’s not familiar with that. And it’s scalable, that’s the

00:10:00

beauty of it. If you are doing a million dollars a month come Q4 and you’re doing zero dollars a month the rest of the year or let’s just say a tenth of that $100,000 a month in revenue. You don’t have to let any warehouse employees go. You don’t have to deal with all that overhead that comes along the way, the boost in demand that you will see in Q4. Amazon will handle all of that for you.

Michael: As long as you have enough inventory sitting there in the warehouse for Q4, right? How does that work? Do you have a ton of inventory in FBA all year?

Jeremy: That’s the hard part. You’re exactly right. If you don’t know how many you’re going to sell it becomes more important to make an accurate demand forecast because what happens is you need to either ship inventory from your supplier or you manufacture directly to Amazon or you need to ship it to your own warehouse and then back out the door to Amazon. So you’re building up a lee time, takes longer for your product to get back in stock and available for sale for the customer. So if you’re not really really careful it’s easy to run out of stock and it’s also to build up excess inventory if you’re looking at the wrong reports because it’s not like you’re going out to the warehouse and seeing, ok I have a dozen pens left on the shelf. You need to depend upon Amazon’s reporting and everything that goes along with it to make your replenishment decisions.

Michael: Yeah, I just want to emphasize one thing you said at the beginning which is winning the buybacks. I mean, I think everybody knows that but that’s paramount. You don’t win the buybacks if you’re not going to sell. Whoever wins the buybacks wins and that’s super important. But if you’re winning these buybacks you’re selling really quickly to your stuff then you have to have reporting. Take it back to Forecastly, how exactly does Forcastly interact with FBA and how this insight.

Jeremy: Sure. So what we do is we tie in to Amazon’s API so we look at a few for someone that signs up, a user or business that uses Forecastly. What we do is we tie in to Amazon’s API. We download all your product data, order data and we can see exactly how these product are selling. The important thing is not only I can see how that black pen is performing. Most likely we analyze about 25 million products a month that are sitting in our catalog right now. But I can also see not only how your pen is performing but I can see how the entire category of pens is performing. Even if you build the same exact in house system that we have here at Forecastly. You stole our code and you just want to use it at your own company. It would never perform as well or as accurate as our systems as a whole because we can have machine learning algorithms to say, ok how is that product performing? How is the product category performing? How is the parent category performing? And also the really important one is how is the site as a whole performing? And a perfect example of that which Amazon has done a really good job of is Amazon Prime Day. This isn’t just on Amazon. There are other sites out there, other marketplaces or even your own site where you’re going to have a big marketing push. Well, you need to take that into account when you’re doing demand forecasting for your own website and it’s important to think about all those. Alright, how does this site as a whole is going to perform. If I usually have 10,000 visitors and I have a 100,000 this month where you can expect all of your products to sell a lot more than you typically would.

Michael: Absolutely. Let’s bring this. Obviously, anybody that’s selling in FBA is to take a look at Forecastly. That we are going to include the link of the show notes and yeah, it’s a no brainer people. However we want to also think about sellers who aren’t on FBA. Hey, I think this is enough some good reasons to get on FBA. But B, what about just normally ecommerce sales, do you have any thoughts regarding forecast, demand planning or normally ecommerce. How do you end up solving that problem in your own company?

Jeremy: Sure, so that’s a great question. And I didn’t come out here just to talk about Forecastly so it’s important that we head upon that and we get some. What we will talk about can also apply outside if just Amazon in my particular software happens to only work with Amazon but the same concepts apply. Like with seasonality. Look at If you have previous sales data, look to see, alright how did September, October, November and December, month to month compare to each other. Well if sales went up double from October to November and from November to December you should account for that. You are able to use your October sales data to figure out here’s how many black pens we sold in October. Now I can figure out how many we think we’re going to sell in November and December. The other cool thing that you can use is Google Trend. You can type black pen, I have never actually done this with black pen.

Michael: I’m going now, google.com/trends.

Jeremy: There you go. You could type in black pen and you can see, alright how do black

00:15:00

pens perform in the United States if that’s where we’re selling. How do black pens perform in United States? That’s really hard to do at scale but if you only have a limited number of few products. That can be super helpful and you can say, alright, well I can see that this summer for whatever reason, August you sell a lot of black pens coming back to school. And that’s something that you might not have thought of. In this case it’s pretty easy to think about but you will never really know what is the best month versus what is the worst month then you can take that into account when you’re doing demand planning.

Michael: I’m doing a quick test here, looks like black pens are twice as popular as blue and red pens, so in case anybody is selling those, good to know.

Jeremy: Perfect. The other thing I want to talk about as far as ecommerce sellers as a whole that I see a lot of folks, for a lack of a better term, they just mess it up. It’s all about organization because if you aren’t organized when you’re small then you’re going to be a lot lot lot less organized when you’re larger. You have to get organized. This is especially true and I’m going to tie it back to inventory management. Let’s just use your supply chain as an example. How many black pens do we have on order coming in from China? How many do we have going from our warehouse to let’s just say we use Amazon, right? So how many do we have in transit from our warehouse to Amazon? How many black pens do we have in our warehouse? How many are in a third party if we use a third party fulfillment center. These are all numbers that they need to be accurate and the only way that they’re going to be accurate is if you’re organized. So it’s really important that you have a process in place to figure out how many units are in each step of your supply chain? Tracking those purchase orders, tracking the orders that are in transit coming in to you and then also you have sitting on the shelf. What’s outbound to customer that’s already been sold? If you don’t have a good process and you don’t get those core numbers down, it doesn’t matter if writing them on a piece of paper or using a fancy software. If those numbers aren’t right you can’t come up with a good inventory replenishment number.

Michael: Do you think you could actually do that on pen and paper nowadays if you have a good enough number of products? What’s a good software?

Jeremy: I would do it in Excel.

Michael: Oh really, ok. So were you using Excel and spreadsheets to manage this part of your business when you had Honest going?

Jeremy: Yeah, unfortunately yes. But the thing is you can’t do it with let’s just say greater than, you can’t do it in any level of accuracy with more than ten skews. It’s just isn’t scalable and the problem is that you’re constantly updating numbers. The other piece is that Excel doesn’t have functionality to do seasonality demand forecasting properly. You could do it kind of in an old school way. Break it down product to product but it’s not just going to be as accurate as you can get with the machine learning software.

Michael: Is there a software that will work for general purpose ecommerce that you’ve used or heard of it might be a good fit.

Jeremy: No, not that I know of. Yeah, unfortunately.

Michael: They are going to have this built in. There is also dedicated forecasting planning software that you can attach your inventory software. You don’t need to talk about specific software as much as the principles which I think you’re getting really well right now.

Jeremy: Thank you! Thanks! Michael, you and I had spoken about this previously. I think it’s important to talk at least in a little bit about segmenting products into tiers because that is, no matter what size ecommerce company are running and no matter if you’re selling on Walmart or Amazon or only you own Shopify store. It’s really important that you break your products down into tiers and what I mean by this is for anyone that’s not familiar, it’s called the Pareto’s principle or 80/20 rule, where I like to do an A list, a B list and a C list meaning when I look at my profit and loss. I say to do it for about 2-3 months because you don’t want to do it for too short for a period of time, or too long for a period of time. 2-3 months, take a profit and loss statement broken down by products so you’re going to have all your rows with your products on it. And you’re going to see how much you made per product for that period of time and then sort it in descending order. You’re going to have your most profitable products at the top and you’re least profitable product at the bottom. What happens a lot of times is folks don’t want to get rid of that bottom tier. They think, oh we’ll still make money on it. It’s worth it. But when you start to look at the operational expenses that are involved

00:20:00

then that building purchase order us running forecast. Someone has to actually receive that inventory, everything that’s involved in that, right? There is accounting that comes down to it. A lot of times that C list is just extra money that you’re spending. Whereas, your A list and your B list, those are the products that make the most money at the end of the day. That’s your bread and butter. In every aspect of your business you need to think like that as it relates to inventory management. Ok, my A list needs to, we need to be running a forecast more often than my B list or my C list. The A list need to be more accurate so maybe I have different forecasting strategy for my A list than I do with my remainder of the products. And then the same goes down to safety stock. Safety stock is just like buffer stock. You’re trying to predict the future and you really don’t know exactly if you’re going to be right. You might sold a hundred pens. You think you’re going to sell a hundred pens but you might sell 120, might sell 80 so you need an extra 20 as a safety stock. It’s insurance. I’m willing to commit more cash in terms of percentage of inventory for my best selling products than I am for those lower tier products because I don’t want to run out of stock in Q4. It’s going to be hurting on my business. I only bring this up on every single interview that I have or call that I have because I feel so passionate about segmenting your products. I learned from experience. It was one of the biggest mistakes that I made as an ecommerce seller, was not segmenting my products early enough. I learned it from, I remember sitting in an MBA class in the Cost Accounting, the biggest take away that I got from the entire program was that one report. I almost passed out when I looked at it because I knew right away the number of mistakes we’re making.

Michael: So just a sideline question, did you end up getting an MBA while you’re running this company?

Jeremy: Yup. I quit about 6 months, I had about 6 months left on my MBA and I quit my day job and went to run Honest Office full time. I ended up finishing the MBA at the same time but it was extremely stressful and as getting married same exact time, all in the same month. 6 months out, I was in April 2012 that I quit my job 6 months earlier than that and finish my MBA and I got married. I don’t know how my wife stuck with me, but she did.

Michael: Do you feel that the MBA helped you run the company better. Like, will you do it again?

Jeremy: I definitely got a lot out of it. I think any education, it is what you make of it, right? Do I think I could have run my company just as well without an MBA? Definitely, I do I think you can get a lot out of having a good network, having a lot of friends or mentors that are in business that can give you good advice. Definitely. A lot of times I think I’ve learned a ton from podcasts. There are a lot of folks that don’t listen to podcasts, and it’s free education.

Michael: Yeah, I saw a study recently that says that 25% of the populace in the U.S. is now listening to podcast. So, that’s cool. Yeah!

Jeremy: Wow, that’s impressive.

Michael: Yeah. Well, we’re reaching the end of our time, I am wondering if there are two or three main thoughts you would like to leave the audience with.

Jeremy: I think the first one is definitely segment your products into tiers. If you don’t do anything else from this conversation or look from this conversation just do that one thing. The next thing is to use data to make seasonality decisions. I say, make it just in any aspect of business to make informed decisions but specifically when it comes to inventory management. You really need to start looking at the data, and your sales data, and then product level and category level to make demand forecast decisions or replenishment decisions. And then the last piece is stay organized. Get a process down for everything that you do and then start delegating those pieces as you start to scale up. The more organized you can be, stay organized, write it down into a process. You really need to write it down. It has to be written down because if you don’t know what you’re doing right now you can improve upon it and then it makes it a lot easier once you start delegating these tasks out either to an assistant that you have there, employees, or even virtual assistant.

Michael: At your peak from staffing employment view how many people were working at Honest?

Jeremy: At Honest Office we have three full time and a couple of part time. It was pretty small operation in terms of the amount of revenue that we’re doing.

Michael: Yeah, that’s very very tight and super good ratio.

Jeremy: Beauty of outsourcing fulfillment, right?

Michael: Did you have standard operating procedures written up for like every part of the business?

Jeremy: That’s one of the things that I didn’t have when things start going and then my mentors sat down when we’re, “Wait a second, you don’t have written processes. Every business needs written processes.” Any of my mentors that

00:25:00

were sitting there that ran large scale companies and I’m not talking Fortune 500. I’m talking like several million dollars in revenue but not $500 million. And they said right away, “It doesn’t matter how small you are, you have to have written processes.” The beauty of it is I was able to carry that over to Forecastly. We know exactly what we’re doing and we can look at it and said, alright if a mistake happens you look at the process and say, “Yep, something is not right here where did things go wrong? We need to fix that.” You don’t have to go crazy. It doesn’t have to be a printed 500 page manual but Google Docs is an amazing thing. And as you bring on a new, let’s just say you bring on your first virtual assistant part time, he or she can use that process that you’ve written down or typed up. And then you can take that and have them add comments, ok, I don’t understand what this means. And this was very well explained because when they have questions you’ll know, ok this piece of the process needs further explanation. We went wrong here.

Michael: I’m going to ask you, do you use Dan Martell’s playbook model?

Jeremy: No, I don’t. He is a great guy. He has a lot of experience and I’ll have to look that up.

Michael: That’s the one we are using for our playbook is his model. Yeah, great great to look up. Cool. Well, there are a few calls to action here. I think the first one is I’ve love everybody here who is considering doing FBA or already doing it particularly to consider Forecastly as well. You mentioned that there is a special URL that people could go to.

Jeremy: Sure. You can go actually to forecast.ly/sellry.

Michael: The other thing is if you’re interested in operationalizing your business which you should be based on this call, feel free to reach out to me, michael@sellry.com or I’m going out and here Jeremy. Cool people will contact you and ask questions about that.

Jeremy: Of course, yeah absolutely, I love talking to anyone that’s in ecommerce even if you don’t sell in Amazon don’t hesitate to reach out. My direct email is jeremy@forecastly.com.

Michael: There you have it. Well, thanks so much Jeremy for joining today and I think that the things you shared are really going to be great really to basically to ensure their business doesn’t go belly up just right when you start getting successful just from having too much inventory or not having things on the shelves. Both problems are huge.

Jeremy: Yeah, definitely learn from my mistakes. Thanks so much for having me on.

Michael: Yeah. Shownotes today can be access at ecommerceQA.com and be sure to go to iTunes which you are already take your podcast and give us a review. Doesn’t have to be 5 stars. If you think it’s 1 star, just kidding. Give us 5 stars, thanks everybody. See you later.