Marketing Podcast for Shopify Merchants: The Ecommerce Coffee Break

The Future of Inventory Management | #176 Bahadir Efeoglu

April 26, 2023 Claus Lauter: Ecommerce Podcast Host | Shopify Partner | Marketing Optimizer Season 4 Episode 39
Marketing Podcast for Shopify Merchants: The Ecommerce Coffee Break
The Future of Inventory Management | #176 Bahadir Efeoglu
Show Notes Transcript

This episode of the Ecommerce Coffee Break Podcast features a conversation with Bahadir Efeoglu, CEO & Co-founder of Fabrikatör. We discuss how to forecast, plan and execute your inventory operations.

On the Show Today You’ll Learn:

  • The best approach to start with inventory planning
  • How to find out which products to restock and in what quantities
  • Insights into why back ordering is important
  • How to utilize back orders as a market research tool

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Claus Lauter: Hello and welcome to another episode of the Ecommerce Coffee Break podcast. Today we wanna talk about a topic we have never touched on, and actually it's a very important one. We wanna talk about your inventory planning. From time to time, or more often than not, I see stores where you get a product detailed page where a product is not in store and that is a sign either of bad supply planning, bad inventory planning, and the merchant is losing money there.

So we wanna dive a little bit more deeper into the topic, and I have a guest on the show that can help us out with that. That's Bahadir Efeoglu. He's the co-founder and CEO of Fabrikatör, the head of operations for e-commerce prior to Fabrikatör Bahadir worked as a product manager at growing D two C brands like Marley Spoon.

He's an automation geek and obsessed with creating value, generating automation at every step of e-com operations. So he is the right person to talk to. Hi Paia. How are you today? 

Bahadir Efeoglu: Hi, Claus. Thank you very much. Doing great. Very happy to be here, sharing our vision with our fellow of DTC listeners.

Claus Lauter: Cool. Let's dive right into it. So inventory management, something that's specifically small and medium enterprises struggle with from time to time. Give me a bit of a background on how you got there. What is the best approach to start with inventory 

Bahadir Efeoglu: planning? We actually started from the different part of the market.

So back in 2018, we were building a solution for manufacturing management. Basically helping the suppliers of d c brands on what kind of raw materials they should supply in order to meet the demand from the brands. , back in time our software was available in Turkey and we were mostly working with textile manufacturers, which also helped us to meet with a lot of D two C brands out there.

When we were like chasing the problem, trying to understand what is the core issue, we found that actually issue lies in the brand site. Brands did not have. A good idea which products to restock and in what quantities. And that pressure was being reflected on the manufacturers as well. Manufacturing actually has a longer history, compared to e-commerce when it comes to solutions.

So that market was more saturated than the solutions in the e-commerce space. So that's actually brought us to a point where we , started to think that e-commerce founders out there are being underserved with the old E R P solutions and ERPs are just built as a system of record.

They're there for you to keep record of things, but they're not. Giving you any suggestion, I've never seen an e r P solution saying that you will increase your profits by 40%. So it's just there to keep things running. With that in mind, we said, alright we need to help the D two C community out there.

Build something that actually acts as the head of operations who would be worried about. The KPIs the company is running for the growth projections and make sure that their supply chain is following what direction the company is going for. So that's how we started. Okay. No, that's very interesting 

Claus Lauter: that you said you started from the other side, and obviously yes, if a product is running outta stock the panics mode start setting in and then if it goes all the way to the producer of the product in a worst case scenario.

Now, interesting you said ERPs are more like, Keeping track of what's happening, but not for forecasting. And obviously that's the point that's for immersion, very important. Specifically, if they have a lot of skews, a lot of products in their store becomes increasingly difficult to find out which one is running out of stock.

So what's the best way to approach forecasting from that side? 

Bahadir Efeoglu: In most basic terms, if you're just starting your store and you don't have enough data to forecast what's gonna happen, or maybe you're not ready to invest in a solution, the Gotto solution is always going for Excel sheets. So you will export your order data from Shopify and calculates the average quantities that are being sold, every day per S Q u.

If you have a lot of sqs, that will be painful, but that's the way you have to bear with in the early days and then, You have to look at your supplier dynamics as well, how long it takes them to deliver products to your warehouse. Remember it's not about manufacturing time, it's also about the logistics time, like what is the duration?

And this will have a huge impact on your costs as well. If you're going to. Ship them via air. That will be costly. , but if you can wait longer, you can go for length transport as well. So these kind of decisions will change the way you are looking at your inventory. And the earlier you do this, the more time and money you will save.

Even if you are an early stage merchants, you should start building that Excel sheet. You should start thinking about your next purchase order before it is two lanes. And the risk here is that your data is in Shopify, is your store is living, your data is being updated, but your Excel sheets are just on your computer or on your Google Drive, not being updated with those.

And then your plans can always fall behind the speed of your growth. And this will cause you to run out of stock earlier. Another suggestion I can make to merchants who are just starting inventory management is that understand the value of tracking sqs. I've seen many merchants who just go with the product names and do not follow any S Q U.

, System or barcodes. These are early investments that you can make into your inventory, which will save you time and money in the future. So today you can just get a barcode scanner from Amazon for a hundred dollars maximum and it'll really pay off. When you switch to a system like ours or any other, you will need that record with the SKUs.

I think there's 

Claus Lauter: very good tips in there. Start early with a proper system. Now when it comes to analytics, you touched on using spreadsheets, which might work in the beginning, but at some point you would just grow out that system and then you have to switch anywhere.

So you came up with a solution for Shopify and other platforms to help with that. Give her an idea on how that works. 

Bahadir Efeoglu: So we started with Shopify, and right now we want to excel our product. We want to make it perfect for the Shopify merchants before we jump onto other platforms. But that's also on our list.

So how it works today, you can easily find our app on the app store. It's called Fabricator like in German, and it's written with K. But if you also search for fabricator that will also show up. You can install it on your store. It's a self-service app. It will take, just a couple of minutes to, fetch your data from your Shopify store, including the order, history and inventory levels.

Based on that, our system starts running the forecasting algorithm in the background and giving you the first analysis in the first like 10, 15 minutes saying like, these are your best sellers. These are the products that will run out of stock soon. But one thing that we do, we understand the psychology of the merchants, so.

The real fear is not about running out of store, it's about losing revenue. So we really highlight what is the potential revenue loss. Some of our customers find it very depressing when they look at that widget in our control center saying that you're gonna lose 300 K in the next three months because you did not order these products on time.

That's depressing. But actually what keeps us alive as human is the fears, right? So we are using that fear factor on that side and showing them what is the stake on the table that they might be losing. And based on that, they take an action. So taking that fear and turning into actually a prescriptive analytics, telling them, alright, this is the case right now.

We describe the problem. You have products that are going to run out of stock, but what is the prescription? How we gonna fix it? To do that, we take couple of inputs from our users because that data does not exist on Shopify about the suppliers, their late times, maybe minimum order quantities, and any other restriction that might affect the decision in the end.

So based on that, we give them a list of products, when to order them, what is their deadline as a supply planner, and in what quantities they should be ordering. , many forecasting solutions or approaches are focusing on the stockout date while we are focusing on the deadline of ordering stockout date, minus the lead time.

Is your deadline any day that you are late? In ordering, you're actually running into the risk of losing potential revenue which will bring you to that big number of lost revenue. there are a lot of other, , helpful parts of the application, like bringing the data to the surface because I know D two C merchants are swamped with data and it's scattered all around the platforms.

There's Shopify data, Google Analytics, you three pl, maybe you're using Ship Hero. maybe you're using fulfillment software, so it's scattered everywhere. It's important to get the data into the right context, and that's what we are doing right now. We are integrated with Shopify, integrated with three pls, bringing the data, scattered data and putting into the right context and then turn it into, , prescription that will help mitigate the risks in the supply chain.

that's our approach But we also realized that in the last three years since the pandemic, now supply chains are broken, and it's not really easy to forecast with a high accuracy, even if you forecast your demand very well.

There's a problem of forecasting your logistics chain and maybe you remember that, evergreen ship being stuck in the swish canal blocking the whole world for 15 days, from raw materials to finished products. Everyone was just waiting. Nothing you can do. So we took that as a lesson and we said, We are still passionate about building forecasting, but there must be another way that is acting as an insurance.

Maybe that's me living in Germany for five years, being so adopted to the insurance mindset that there always has to be an insurance for something. We wanted to build, safety net that protects our merchants from. The revenue losses when they run out of stock. And then we started thinking about back orders.

What if the merchants start selling products before it arrives in their warehouse? Because as a d c merchant, you're probably selling something unique that your customers cannot buy it from Amazon. And your customers, if they're passionate enough, will be willing to wait for it. For a week, for 10 days, 15 days.

A little bit of a Kickstarter mindset, right? So we pay for projects on Kickstarter, wait for maybe years or six months because we know that outcome will be unique. And that experience we are paying for. Of course, don't make it six months for your store, but if it's like 10, 15 days before JR. I will off to products.

Now you can sell them. I have a lot to say about back orders, but I will just pause here , if there's anything you wanna ask. 

Claus Lauter: Now, I think back orders is a very interesting topic. I have done this three, four times in my own store. Not for a product that was on back order, that was for a product that was actually going into a new production.

And I use it as a pre-financing for the product. Mm-hmm. So back ordering works very well. And also for my coine, I always say, have the chance to take back orders, as you said. It will help you by not losing a potential. Customer on your store, but of course people really want it. they will sign up for it and they will wait.

In my case, they waited up to three months for it, but they were so interested in the product that it was not an issue. So back ordering I think is a very important step in this whole process of having a flawless forecasting, , and inventory planning. So definitely a great feature that you offer there.

Yeah. I wanna to dive a little bit, bit more into The relationship between you as a merchant and your supplier. With this piece of software, with your app in the middle is there any kind of information that you can draw out of it and take directly to the supplier?

Bahadir Efeoglu: Just assuming that you already have an established agreement with your supplier, what kind of options they provide in terms of delivery of the goods, if they handle the logistics part of it or not. Just assuming that you have a supplier in place who will be expecting you to send another purchase order.

So the first data from our site that goes to supplier is the purchase order. As a merchant, you come to fabricator, create your report, purchase order based on the forecasting that we have, select the location that should be shipped, and then we have a share button, which actually automatically generates an email.

Including all the line items, quantities and details the supplier needs, and then sending it with the attachments of pdf, f, Excel, whatever they like to receive. And then we have a little c r m kind of feature, which also allows you to track the email, especially if you're working with, hundreds of merchants in some cases.

I've seen that. You just want to know, if they received the email, if the email is being opened, if it is the correct address so you can track if they received it. And then you take over the conversation through your own, communication channels. But the emails are actually being sent from the merchant's own email.

They don't know if it's coming from fabricator. We don't want to intervene that relationship because. Supply relationships are quite fragile, and the data we are handling is also fragile. It's a trade secret for many brands who they supply it from. And for the suppliers, we don't want to raise any red flags.

So just , making it look natural. And then the supplier looks at the purchase order, says like, okay, we approve the quantities and the arrival dates, and the merchant comes back and says this incoming inventory is being locked in our system.

So the system is just waiting for it to arrive, adjusting the forecasting based on that. But beyond that, we did not want to, Onboard suppliers to our platform because especially thinking about like the long tail of the d c market, these d c brands are. Probably the smallest customers to these big suppliers overseas.

So if as a brand, as a merchant, I go to them and ask like, Hey, we have a lovely software fabricate. Do you wanna log in? We will. That's where we will keep our purchase orders. Supplier will probably say no, I have like hundred customers. I cannot bother with that. So we try to follow the way that they are used to and not trying to change it.

Claus Lauter: Okay, now who's your perfect customer? What kind of store size do you need to have? Or what kind of data do you need to have to make it really work? 

Bahadir Efeoglu: We are usually working with fashion apparel brands because they are dealing with a high number of SKUs. It can quickly go up to more than a hundred SKUs.

Like if you're selling one T-shirt, five sizes, five colors, it's already beyond hundreds easily, and you need to make sure you, have the right quantity. So the pain is higher on high SQ stores with a long, duration of late times. If you are a merchant. Assuming that you're another D two C, you're just buying from the mid-market.

You go to a wholesaler, buy finished products and sell through, channels. You don't have that problem. If you have one week of a late time, it's manageable. But for fashion, I've seen late times going up to nine months and you really need to forecast. So we are focusing on brands with high late times high number of sqs and in terms of revenue.

At least half a million dollars of a yearly revenue they must have per performed. So then we have enough data , to build on top of that and helping them to reach their next milestone. 

Claus Lauter: Okay. Now that sounds great. What's the kind of homework that a merchant needs to do before he approaches you?

Bahadir Efeoglu: Basically nothing they can install the app right away and we do a white glove onboarding for everyone who installs the app and it just takes 30 minutes putting in together the lead time, the days of stock, they want to cover supplier information. We do all of these during the demo and then they're ready to go.

They don't need to do anything. Okay. 

Claus Lauter: Give me one golden nugget, that you have seen of someone who does it really, really 

Bahadir Efeoglu: good. We had one customer who impressed me with, have they utilized back orders? They utilize back orders as market research tool. So they are selling in a vertical that is quite competitive.

All of their competitors are able to produce these products from suppliers in China. But the competition is based on who's gonna hit the market early enough and finds the trending products before anyone else. We're talking about colors. The product is the same, but every summer the trending colors change, and this merchant wanted to know which colors are going to be more popular.

, they created a purchase order with a very small quantity, but for a very high number of colors. I think they had like 15 different colors enabled back order for maximum quantity of five. So they sold maximum five from each color. And then see which one is leading the game with the ads that they're running.

it's actually also a very transparent way of running this because what our app does, it also changes the button on the website. So it's not just the back office app, it's manipulating the website page, changing the button to pre-order. , transparently sharing what is the estimated arrival date.

So the customer also knows that this is a pre-order and they agreed to wait for it. In that meantime, this merchant figured out which color is going to be trending this summer and ordered bunch of those, shipped them via air the fastest possible, and started selling them before the competition hit the market.

And they made great sales, year over year growth was beyond 200% for these guys, and they just know how to use these kind of tools in the best way possible. I'm telling this story to everyone. I'm onboarding to the app. Like, be bold. Don't be afraid of using these kind of tools.

, just do things in an honest way. Do not trick your customers. Keep your promises if you're not able to ship something. As a merchant, you should be the first one who goes to the customer and says that, I'm sorry, before they come to you and ask for the, order. As long as you follow this, like high levels of ethics, you should be able to grow your brand by utilizing such tools.

Claus Lauter: Yeah, that's an awesome example that you just gave us here. Another advantage of your app of Fabric Kaur is definitely that the back order's already in there, so you don't need to go for a second app, it's already in there. And it also shows you, if you are thinking out of the box, it's more than boring.

Supply management, there's much more in there. It's increasing your a o v, it's increasing your customer lifetime value, the whole lot to make your money in your store. Where can people find out more about fabricator? 

Bahadir Efeoglu: so the website is called , as I said, fabricator with K, , there's more information there.

They can always reach out to us through Shopify App Store as well. find me on LinkedIn, Baja Falu. I'm also sharing my insights on LinkedIn now, running and series where I shared the summary of 200 interviews with merchants that I did last year. Sadly I did not record a podcast.

It was mostly sales calls, but I learned a lot from these talks with merchants. And if you wanna be updated about those, , you can follow me on LinkedIn as well. 

Claus Lauter: I will put the link as in show notes, then you're just one click away. Bahiya, thanks so much for giving us, this background. I think it's one of the most important topics that every merchant should follow because stock inventory is in the core of your business.

If you don't have anything to sell, you don't have a business. Thanks so much. Have a 

Bahadir Efeoglu: great day. Thank you very much.