How to overcome the logistics crisis

This year-end, online and offline businesses will have to deal with the economic recovery and the re-establishment of global supply chains. Why do we talk about a logistics crisis?

A drastic recovery in consumption has reactivated the supply chain, which has been swamped by high demand and slowed down by covid protocols both at origin and destination. The price of sea containers has increased fivefold and is at historic highs.

On the other hand, we are facing the most important dates in the calendar for the majority of retailers: Black Friday and the Holiday Season, which involve the highest increase in demand for products of the year.

Today, more than ever, good inventory management can make the difference between achieving record sales or giving them up to competitors. That is why, on 3 November, we organised a webinar to learn about the recommendations of logistics experts Eric Daniel Fernández (CEO & Co-Founder at Kubbo), Ángela del Real Sánchez (Quality & Operations Manager at Baïa Food) and Álvaro Callejo Sánchez (Head of Business Development at RITMO). The session was moderated by Carlos Bosch, Growth Capital Manager at RITMO.

You can access the video of the full session here, please, note that the whole session is only available in Spanish.

Below you will find a recap with the main ideas and the most relevant comments shared by the speakers at the webinar "Control your inventory cycles. How flexible financing helps you avoid stock-outs".

How to implement a good restocking policy

The key factor for a good resupply policy is data. Data analysis will allow you to know how your audience behaves over time and to consider seasonality, understanding how traffic flows behave depending on the period of the year.

Ángela del Real, Quality & Operations Manager at Baïa Food, draws a comparison between inventory management and a car's gas tank. In the case of the car's fuel tank, we consume the fuel and at a certain point, the tank tells us that we have reached the reserve and it is time to refill. The same happens with the inventory, we are selling products and when we reach a certain level we have to start planning how we are going to restock it.

This warning level must take into account all the variables that can affect restockings, such as raw materials, production time and shipping time. Given the current situation, taking into account the shortage of raw materials, the logistical crisis and the general increase in transport costs, the warning level for working on refuelling should be higher than what we had previously established.

Angela also concludes that companies like RITMO play a very important role in advancing funds for inventory supply. For smaller companies it represents a little boost that helps them to be able to meet production and subsequent sale and repayment at the pace at which sales are produced, to keep playing with those cycles.

How to manage brand logistics with a unified structure

On the other hand, for proper inventory management, we also need to have a good last-mile logistics partner to meet the needs of customers. There is no point in good inventory management and control if we cannot get the product to the customer when they make the purchase.

We must realise that it is not only necessary to have stock to avoid running out of products, but also to know how you are going to store it in order to be close to your customers and to meet the delivery and return times to which you are committed.

This need for logistics organisation becomes even more evident if we are talking about an international company that sells products to different parts of the world. In this case, good stock allocation in different international distribution centres is key to meeting customer expectations.

Maximising consumer experience

Aside from the current crisis situation, we have with the closures in China that are complicating restocking, Eric Daniel Fernandez, CEO & Co-Founder at Kubbo, shares what are the keys we need to follow in a strategy to maximise customer experience:

Delivery time. Reduce delivery time as much as possible to satisfy the consumer.
Provide information to the customer throughout the delivery process. From the moment the consumer makes the check-out until they receive their product at home.
Take care of the unboxing experience. The way the order is received, how well it is packaged and how it is personalised.

A good stock placement strategy will allow you to maximise the customer experience by meeting very short delivery times. To define how this stock distribution policy should be, companies such as Kubbo carry out a study to understand the profile of each brand according to demand.

Analysing the order history of the last 3-6 months allows the identification of where the highest demand occurs, which generally in the case of Spain for most eCommerce brands 60% is located between Madrid and Barcelona. If we have the opportunity to make an excellent impact on this percentage of the population, we must do so by always seeking to exceed customer expectations.

Therefore, by analysing sales history and knowing where and when demand peaks, we can segregate inventory between 1, 2 or multiple fulfilment centres. From here, the algorithms have the ability to recognise when an order comes, which fulfilment centre will be the best one to serve this order. For inventory positioning, companies like Kubbo rely on Business Intelligence and Big Data systems to optimise stock distribution to the maximum.

This type of logistics strategy is similar to Amazon's, which distributes stock among the different fulfilment centres based on consumer demand research to maximise the delivery experience at all times.

Eric says that fulfilment and logistics are core functions for any eCommerce company but it is not a core competency. In other words, it is essential that all logistics and fulfilment are very well managed but it is something that can be outsourced. Relying on the technological and human resources that a company dedicated exclusively to fulfilment can provide, could provide a differential value when it comes to effective management and maximising the customer experience.

How to prepare a good inventory forecast for sales peaks (Black Friday, Christmas...)

The short answer is to be data-driven and have a good logistics partner. Many retailers are very focused on stock and product management but neglect the last mile, which is what ultimately delivers a good customer experience.

In uncertain situations like the current one, slightly higher leverage usually covers you against worst-case scenarios such as a stockout in the first month. A stockout will negatively affect you both in terms of loss of revenue and loss of market position. If we miss the 3-4 most important weeks of the year due to a stockout, the problem will not be the sales we miss out on, but rather the market positioning we would lose.

On the opposite, if we have made a good supply policy according to the demand forecast by buying stocks in excess to take advantage of peak sales events and everything goes well, the growth potential is higher than usual because many players would not have made a good forecast so efficiently or due to lack of resources have not been able to cope with it.

Of course, taking the risk of purchasing more stock will depend on the company and its available resources and should always be done after an in-depth analysis of the data.

Given the crisis we are experiencing, the best thing we can do to deal with uncertainty is to rely heavily on data and try to make a good leverage strategy in purchasing stock with a cycle a little longer than normal, taking into account that we may suffer delays in the next shipments, but betting on getting ahead these 3-4 weeks that in the end will define 60-65% of annual sales of most eCommerce or marketplace sellers.

How much am I going to sell, how do I get the right amount, what forecasts do I have to make?

In order to make a forecast, you should analyse your company's sales data history, especially if you have already gone through other Black Friday and Christmas campaigns to get an idea of what your customers' demand will be like. If you do not have this data because the company is more recent, always rely on data from other campaigns such as Mother's Day, Valentine's Day... and study how your audience behaves in those peaks of demand.

Once we have identified the historical sales data, we must apply an error coefficient. The more data from more years we have, the less aggressive we can be with this coefficient, but if we do not have much data, this parameter should be very much adjusted upwards. For those brands with more historical data, applying a 5-10% upward deviation can help them to define their supply strategy wisely. For brands with limited data, the error coefficient should be much higher, even upwards of 50% to avoid stock-outs.

It is important to make these forecasts for each of the sales channels. Not only for our eCommerce but also for Amazon, eBay, BackMarket... if we also work with these marketplaces or with other distributors.

Some general considerations to bear in mind:

In recent years the trend is for these campaigns to last longer and longer. We are no longer just talking about Black Friday, we are talking about Black Moth and the campaigns run throughout the whole month, something that we will have to take into account when we are outlining our forecasts.
Although we are talking about the whole month, we have to understand the weekly and even daily charge profile. Users do not have the same predisposition to buy at the beginning of the month when they have just been paid their salary as they do in the last days of the month.
Understanding how your audience behaves (if you sell products that are bought on a premeditated basis if they are more of an impulsive purchase...) will be key when it comes to scaling your warehouses.
Be foresighted with packaging. Some brands have had to stop selling not because they had run out of product, but because they had run out of packaging, labelling machines, filling material, ribbons...

After this analysis, we will be able to have a more concrete idea of how our customers will behave, which will allow us to make more effective forecasting, inventory provisioning and fulfilment centres management.

How flexible financing helps you avoid stock-outs in times of uncertainty

If we want to invest in a surplus inventory strategy, this can have a negative cost to the company's cashflow that not everyone can afford. For this, there are alternatives such as RITMO, a revenue-based financing model that aims to avoid short-term cash strains.

Álvaro Callejo, Head of Business Development at RITMO, shares from experience how, due to the current crisis, we have seen how brands that were making a very good positioning strategy and had sustained growth over time have been affected. Due to the cost overruns that carriers are asking for at origin and the usual cashflow tension that a company that is investing in growth may have, they have been unable to pay the extra costs of acquiring inventory. This is where flexible financing can be the perfect ally to survive these circumstances.

Taking certain risks in a growth phase is necessary to maintain that growth trend even in times of uncertainty. Flexible financing can allow you to avoid cash strains and stock-outs, but overstocking can also lead to storage and management costs which, if not in line with demand, can result in catastrophe.

That is why it is very important to make a forecast supported by data and your company's sales history and always apply an error coefficient.

Weighing the pros and cons of what is the best way to cope with a logistics crisis like the one we are experiencing and especially if we want to continue growing and/or maintaining our position in the market, it is worth taking a risk and the best way to do this is through flexible financing. RBF will allow you to get the money you need to acquire your stock with time in advance to ensure that it arrives on time and you will be able to repay based on the real situation you find within the market. Avoiding you from having to pay for products in advance, storage space or even repaying a loan in set instalments to pay for that stock even though it is not being sold.

Find out how RITMO can help your eCommerce and how to get funding here.

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