The Hidden Costs Of Poor Inventory Management And How To Fix It — Chris Hondl | The Complexity Of Multi-platform Inventory, Why Overstocking Hurts Your Business,

The Hidden Costs Of Poor Inventory Management And How To Fix It — Chris Hondl | The Complexity Of Multi-platform Inventory, Why Overstocking Hurts Your Business, Speaker 1: Hey there. Welcome to the Ecommerce Coffee Break. I'm your host, Claus Lauter, and you're listening to the podcast that helps you become a smarter online seller. In today's episode, we discuss the hidden costs of poor inventory management and find out how you can fix this issue. Joining me on the show is Chris Hondl, co-founder and CTO of Finale Inventory. So, let's dive right into it. Hello and welcome to another episode of the Ecommerce Coffee Break podcast. Today we want to talk about the hidden cost of poor inventory management and we want to find out how to fix this issue. Now, I need an expert for this on the show, and with me is Chris Hondl. He is the co-founder and CTO of Finale Inventory. Prior to Finale, Chris had a senior technical leadership role at Core Mobility, IMVU, and Adobe Systems. He brings a wealth of knowledge and insight into the world of technology, inventory management, and accounting, and I'd like to welcome him to the show. Hi, Chris. How are you today? Speaker 2: And you're doing great. It's a beautiful day out here. Speaker 1: Excellent. Chris, inventory management, for a lot of people, it's a very complex topic. Lots of people are not very excited to deal with that. But I think with the complexity, specifically when it comes to e-commerce, a lot of people underestimate what actually it is and where you can make mistakes along the way. Let's start with the basics. What are the biggest inventory mistakes you see e-commerce businesses are making? Speaker 2: You know, the biggest mistakes people get into are the classics of underselling and overselling, or I should say understocking, and then leading to overselling and selling product you don't have. But also, you get into situations where you can be overstocked. You have too much inventory in the wrong thing. And one that catches people as they grow that's a little bit less obvious really comes back to cash flow and, you know, ending up with a situation where maybe you have the opportunity to sell but you don't have the cash to sell. And, you know, that gets compounded if you have a lot of your cash tied up in inventory that's not moving. So those are the kinds of things that really you get into. Speaker 1: Now, complexity comes in because most of the sellers, specifically if they come to a certain revenue level, they go omnichannel. We're talking about different platforms, selling from different platforms, and things become really, really difficult. So how do you manage all of that? I mean, it's just a very simple question and explain it to me like someone who has never heard about it. Speaker 2: Yeah, it gets really hard and what gets really hard is you're suddenly in a world where you've got several different systems that all have to be coordinated and you have to keep track of In our case, we focus a lot on the stock levels, but you're also keeping track of the sales and what's coming down from each of the marketplaces. And without a tool, you end up doing lots of uploads and trying to move data back and forth. And things to really focus on when you're doing that is how quickly am I being able to upload the data? And then how do I deal with complexity? And one of the complexities that you get into very quickly is it's often important to do strategies with kidding and bundling. And as soon as you start down the path of kidding and bundling, Everything around inventory gets more complicated because when you sell the kit, the amount you have on hand is dependent on the piece parts. So, what we really try to do is, you know, just put together something that's actually pretty approachable that lets you actually kind of tackle that complexity without spending all your time in spreadsheets all day long. Speaker 1: Obviously, you don't want to deal with spreadsheets. I mean, side clusters might start with that, but I think you come really quickly to the limits of what you can do with a spreadsheet. Let's talk about the problems with overstocking, for instance. I'm interested in that. How does it reflect and when do you really figure out that you have an issue there? Speaker 2: Yeah, I mean, if you are in the world of Amazon and FBA, obviously there's placement fees, but there's overstocking fees for inventory if you have too much inventory of a product that's not moving. But even in your own warehouse, you know, the fact that you've got stock on hand that isn't moving, that's basically cash, right? So if you've got a certain amount of cash tied up in inventory that's not moving, even though it's just sitting there, you're maybe not thinking about it, that really is cash you could be using to grow your business and you don't have access to it because it's overstocked. And so really having a good handle on Not just what you have on hand, but what you expect to see in the future in terms of sales, what you already have inbound, right? So if you've got purchase orders that you've placed that haven't arrived yet, being able to see that all in a single spot, you know, really opens up a lot of possibilities to make sure that you don't have a lot of cash tied up in product that isn't going to move. Speaker 1: I can imagine if you have a lot of SKUs, it becomes really difficult to find out what's actually moving or better, where are the hidden ones where you have a problem. How does your system help with finding these items? Speaker 2: Yeah, 100%. So, you know, I've talked to very big – I remember years ago, I was speaking with somebody who was north of 50 million in sales, and he sold coconut water. And there was really nothing to talk about. He had four SKUs. He did 50 million in sales on four SKUs. He could keep track of the numbers. That was pretty straightforward. But if you're in other segments, if you're in apparel, you know, you're in automotive sales, a lot of medical devices, these are places with just lots of SKUs, lots of turnover SKUs, maybe you're selling stuff this year and then as the seasons change or as the years change, you're shifting out your product mix, getting all that in one place and then having really good filtering and sorting and searching and be able to see the history of any of those SKUs because you're going to forget. And then having notifications when things are out of stock or when things are looking like they're going to go out of stock to let you know that, oh, by the way, these are the products we're at risk for. Depending on the platform you're selling on, going out of stock ends up being a very significant deal in a lot of the marketplaces. And so, again, having those type of notifications, having that type of visibility to stay on top of it, Without having to hire a lot of staff, it ends up being a real enabler for growth. Speaker 1: You mentioned that there is a seasonal aspect to that, and I think a lot of businesses, not only Q4, but there might be other seasons, times in the year where they have more sales than during other parts of the year. How does forecasting play a role into good inventory management? Speaker 2: Having the ability to see what you've sold in the past and be able to make decisions on that and to be able to very quickly zoom into different segments ends up being pretty important. So, tying that then into a combination of that with plans for the future, you really get into the ability to basically decide what you're going to do for your purchasers. Speaker 1: So, if you're running your business on a platform like Shopify and Amazon and so on and so forth, and you're getting your products out, very simple question. How do you make sure that they get sent out from the right warehouse? Speaker 2: Well, most often on Amazon, we see a lot of FBA, and so that ends up being very straightforward, and then it turns into a problem of, well, how can I replenish Amazon FBA efficiently? How can I replenish FBA? Again, make sure I've got enough lead time in terms of what I send the FBA, and also visibility into maybe I want to go out of stock at Amazon because you're going to have a lot more margin if you're selling on Shopify and Amazon for the products that are out of your own store. And so having that kind of visibility of seeing, okay, here's where I'm getting low at Amazon. Well, here's what I think I can sell on Shopify. Maybe I'm on some other marketplaces with their own mix of margin. Being able to get all that data in one place, when they make a conscious decision that, like, I want to sell my products where I'm going to make the most money and I'm going to pull back from areas where I'm not making money. Beyond that, you get in this question of which warehouse you're going to sell. Can you move an order from FBA? That's somewhat less common. I think it's much more of the planning and where the inventory needs to be that comes to the fore. Speaker 1: Now, I think we have shown to our listeners that this is a very complex topic. There's a lot of data points in there that are coming in, and it can be very complex. Now, your solution helps with simplifying that. Talk me through what it does, about the features, and how it helps a merchant to make their life easier. Speaker 2: Well, probably the biggest thing is, you know, assuaging one of the fears, right? So one of the fears people have when they think about adopting a new system or a new piece of software is that it's going to be really complicated to get started. They're going to have to learn a lot. They're going to have to I have a lot of unknowns and that's one where we really invested in making sure that it's really easy to get data in. You can just cut and paste out of Excel or Google Sheets and data can flow right in without a lot of planning in terms of getting things into special file formats. You see a lot of systems. And that's an example of kind of ability to kind of make it easy for the seller. But also, we have a really strong staff that works closely with sellers. And you can, you know, read about how sellers are, you know, not just about our software, but how to get our software to work effectively in their world. And that comes with all of our plans. And so that kind of persuasion is the first part. Then once you're in the capabilities, once you're able to get going and you start to see the data flowing, then you start to see the power of Making sure that you have the right stock levels available on all the marketplaces, kind of core inventory management. Making sure that you have visibility into what's going on in your own warehouse. The system includes a barcoding system that includes everything you need, the barcode label printing, the software and the scanners, so you actually start seeing some real efficiencies and not have to ask yourself the question of like, where did that inventory go or did someone pull the inventory out of the overstock location? Then from there, leaning into the purchasing side, you get this ability to then issue purchase orders, be able to see what you have coming down, be able to keep track. Again, when you are smaller and you've only got one or two purchases that are outstanding, this is pretty easy. But as the number of purchase orders you have outstanding increases, maybe you're starting to import directly from overseas. At that point, you know, having that visibility, like what exactly is on the water? When is it coming? Okay, it's going to be late. What do I need to do about it? Those are the type of decisions it facilitates. And then there's always the promise underneath all of this that by having everything in a system that has a lot of precision and accuracy, at the end of the year, at the end of the quarter, at the end of the month, you can get the financial records out you need to get to your accountant to actually know where you stand financially, know that you're paying your taxes correctly, know that you have a good financial footing for your business. A lot of times people, you know, your situation of you're just giving like a box of documents to your accountant and say, hey, make something of this. You know, we put you in a position of being like they have the information they need to provide you expert advice. So that's the kind of combination of capabilities to really achieve a high level of maturity around how you run your business and that's the kind of things that you need to grow because when I talk to folks that are 50 million sellers, are 100 million sellers, The way they get there, the way they succeed, there's no magic bullet. You have to get efficiency. You have to get good at a bunch of different things. You have to get good at supply chain. You have to get good at logistics. You have to get good at marketing. You have to get good at loyalty and repeat sales. All these different things you have to get good at. We're a small piece of the puzzle, but you've got to get good at inventory. You've got to get good at logistics to achieve that kind of level, to achieve that kind of growth. And so we help with that piece of it. Speaker 1: Yeah, I think it's not only the money side of things. There's also customer satisfaction because if you're not capable to deliver, the customer will probably not come back for a second time. Now, tell me about who's working with the system and how many hours per day are they spending in your system? Just a bit on a day-to-day basis, what does that look like? Speaker 2: It really depends on the scale of the merchant, right? And it also depends on the job role, right? So when you think about a warehouse worker in our team who's packing and picking orders, they're using the scanners all day long as a core part of their job. It's helping them be more efficient. They're not having to ask where is that item or they're able to deploy more advanced picking methodologies where they can go into the warehouse and they can pick a bunch of orders at the same time or be guided through the warehouse and picking up, you know, so they don't have to go back and forth, back and forth picking individual items. The business owner may come in there for answers, right? So in that situation, you're just sitting there looking for an answer or even better, you're no longer the one that everyone has to come to and say, hey, what's going on with this particular purchase order? What's going on with this particular item? I don't know why we don't have any. They can go in the system and get answers. We often see that's actually one of the key things that drives a business owner to want to do this. It's to kind of get them out of the business of just being like the traffic cop and they know where things are because that worked when they were at $500,000 a year in sales. And now they've got to grow and they can't spend all their time just answering questions. They want to get out and grow their business, not be the one that everyone has to ask because they're the only one that knows how this stuff is put together. Speaker 1: That makes sense. So at what point in their business journey do companies come to you? What's the size of your perfect customer to get started with your system? Speaker 2: It really depends on the particular vertical, but a good rule of thumb is around a million in sales. Again, earlier I talked about a I run a company that was a coconut water company, and they were much, much bigger, but they didn't have complexity. But I talk to, again, folks in apparel, automotive, anything with serial numbers, medical devices, any type of food products. We have lot ID tracking. These are all areas that drive a lot of complexity. Solar panel installations and other types of industrial supplies often have traceability requirements. You can do this stuff in spreadsheets. You can also do some of these things, capabilities in a WMS, but even in a WMS, you end up being very compartmentalized. It's helping you maybe with one part of your business, but it's not helping with purchasing. It's not helping you with planning. It's not helping you with financial record keeping. That's one thing that's evolved in the space. If you think back, we've been around for about a decade now. Inventory management systems have really evolved to kind of be a whole of business system for back office. We're not doing front office stuff, but you look at the kind of software that people in the space provide, it really is solving a variety of problems. Speaker 1: Yeah, definitely. Now, tell me about the onboarding process. Does the merchant have to do some homework? How long does it take to get up and running? Speaker 2: We see motivated merchants come online at the very fastest, a couple of days, more typically two to four weeks. It depends a lot on how Let's talk a little bit about how much they've been able to get things together. Do they have SKUs for all their products? Do they have the same SKU in different marketplaces? If they don't have the same SKU, do they have a place where they keep track that this SKU on Walmart is the same as this SKU on Amazon is the same as this other SKU on Shopify? So, again, it depends a little bit on the preparation, but typically, you know, probably a total of four to six hours worth of phone calls in two to four weeks over the course of two to four weeks with some homework after each one, you'll be up and running. And again, that's all included in the base price. You're not engaging a separate consultant. You're not sitting there like, is there going to be a big implementation fee that's not on the website? We've always felt that we want to align our success with the customer's success. And we don't win until we have made you a happy customer, not just the day you sign the contract, but six months from now, a year from now, two, three years from now. And by doing so, by basically saying, you know, hey, you know, we're not going to take a big bunch of money for implementation, that really has drive that kind of alignment. Because we're not going to, you know, we're not going to basically come out ahead with you as a customer and we're not until we have made you happy, until we have provided you value for an extended period of time. Speaker 1: Now, I like this approach. You told me also that you basically will be a partner on the long run. How does it work if most businesses start small and then they add more platforms over time? How do you help with that? Speaker 2: We kind of help avoid a lot of the complexity with the platform, so the day-to-day operation complexity as you're adding platforms. We are avoiding that because, again, as you add a platform, we support over 30 market selling channels directly. As we add those platforms, the data just starts flowing. You don't have to worry about like, oh, I have to do integrations or I have to go to some screen in that app to see my orders. I'm going to go to some screen in that new platform to see if my products are selling. It's all flowing into one place. So that's a big part of helping them grow to those new platforms. Speaker 1: I want to touch on a topic that's everywhere – AI. How do you think AI will change inventory management going forward? Speaker 2: It's pretty interesting. AI is changing a lot of things. I don't think it has quite the same depth and impact on core inventory management. I think the big thing that's going to happen, though, is it's going to change the way the data flows into the system. If you think about it, counting the numbers is not something that the new generative AI approaches are particularly good at. Math is sometimes painfully bad. But what they are good at is taking unstructured information, and I think what you're going to see is a dramatic reduction in the amount of clerical work that it takes to get information in. It might sound a little Big Brother, but we're all getting used to AI being in our inboxes, no matter who you're using the inbox vendor, where you're actually seeing a message that says, hey, we've got a new order or something is late, and it's automatically giving you a list of things that like, hey, you want to just apply all these changes to the system so that you don't have to worry about whether things are staying up-to-date or are staying current. That's where I think the biggest AI implications are for some of this back-office software. Speaker 1: Okay. It would totally make sense to have it as an assistant helping you in a day-to-day job. You briefly talked about pricing. How does your pricing structure work? Speaker 2: So pricing is pretty much based on kind of a proxy for customer size. So it scales number of orders, number of customers, number of integrations. It starts at $99 a month or $1,000 a year. Many customers, you know, as they get bigger, you know, they're on that kind of more advanced plans that are in, you know, several thousand dollars a year. The pricing is open and transparent, right? So, you can go to your website, you can look at your business, you can say, okay, here's what it is or you can just get on the phone and talk to somebody. And again, there's not a separate implementation fee and I think that's something that gets pretty important. I think we're all kind of sick of saying, oh, that's the pricing, but oh, wait, you want this big implementation fee, you want an annual contract, you want – oh, it doesn't actually include everything. That's laid out there. I won't pretend like everything's on the $90 plan, but we do make it transparent. You can go see for yourself. And there's not going to be surprises because, We're here for the long haul. I built this business over the last decade in e-commerce. We're not going anywhere and we want to be there for our customers. Speaker 1: Now, I like this because obviously, if you make the decision to go with a supplier, there should be a long-term relationship and you want to make sure that there are no bad surprises when it comes to the prices. And I think this is very affordable, taking into consideration how much money you can lose if your inventory management goes down the hill or you just overstock, understock, or whatever. I mean, this can add up very, very quickly into very high numbers. Now, before we come to the end of our coffee break today, is there anything that you want to share with our listeners that we haven't covered yet? Speaker 2: You know, I just want people to think about the opportunity, right? And so what I mean by that is, You don't have to keep doing everything by hand. You don't have to go to a billion different little pieces of software. You know, it's a little bit of a conundrum, right? Because I'll talk to folks, I'll talk to sellers and they'll say, I want to solve one thing. I'm looking for an app. I'm looking for that Shopify app. I'm looking for that app on Amazon that's going to solve my problem today. But then at the same time, they say, wow, my tech stack is really complicated. I've got all these apps. They don't work well together. And what are we going to do about this? And I think there's an opportunity, right? I think the opportunity is To get products that actually can solve a bunch of different things in one piece of software that's all pre-integrated with a team behind them that's going to back up and make sure that you're successful. I think that's what we try to provide and provide that in a way that allows you to focus on growing your business as opposed to spending all your time basically chasing down. Let's be real here. Inventory management is not the fun, cool part of growing an e-commerce company. Maybe for some people, but it really isn't. What we hopefully allow you to do is get back to the fun cool parts and take a lot of this kind of cruft off your plate. Speaker 1: Managing 30 different apps that do not talk to each other is definitely not fun. Speaker 2: We hear this constantly. This is the curse. I mean, the beauty of the app store has been, wow, there's a lot of apps out there. And then the curse is, wow, there's a lot of apps out there. Speaker 1: Yeah. And a lot of people are blinded by the shiny object syndrome. So I think it's better to think it through and go for a solution that solves more than one small problem and can be your long-term partner. Where can people find out more about you guys? Speaker 2: The easiest way to find more about us is just go to our website. It's FinaleInventory.com. Finale is spelled F-I-N-A-L-E. It actually comes from our origin story. We actually came out of the world of fireworks inventory. Inventory is very important in that space. The government gets very upset if you lose track of explosives and they need strong motivation. And so we think of fireworks finale, the grand finale, and that's how you get to Finale Inventory. Speaker 1: Cool. I will put links in the show notes and you just want to click away. Chris, thanks so much for giving us an overview of what's important in inventory management and how you can make it better in your business. I hope a lot of people will reach out to you and I hope to talk to you soon again. Thanks so much for your time today. Hey, Claus here. Thank you for joining me on another episode of the Ecommerce Coffee Break podcast. Before you go, I'd like to ask two things from you. First, please help me with the algorithm so I can bring more impactful guests on the show. It will make it also easier for others to discover the podcast. 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