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, How Accurate Records Help Your Finances, Why Non-moving Inventory Limits Your Growth (#382)

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In this episode, we dive into the hidden costs of poor inventory management and discover practical solutions for e-commerce businesses. 

Our featured guest on the show is Chris Hondl Co-Founder and CTO of Finale Inventory. Chris shares insights on common inventory pitfalls like understocking and overstocking, strategies for managing complex multi-channel operations, and how proper inventory systems can unlock business growth by improving cash flow and customer satisfaction. 

Topics discussed in this episode: 

• How can overstocking drain your cash flow. 
• Why is forecasting crucial for seasonal demand. 
• How does real-time tracking prevent stockouts. 
• What you should look for in an inventory system. 
• How does inventory management impact customer loyalty. 

Links & Resources 

Website: https://www.finaleinventory.com/
LinkedIn: https://www.linkedin.com/company/finale-inventory/
Facebook: https://www.facebook.com/finaleinventory/
X/Twitter: https://x.com/finaleinventory 

Get access to more free resources by visiting the show notes at
https://tinyurl.com/3mmsp369

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Transcript

[00:00:00] Hey there, welcome to the E Commerce 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 [00:00:20] Inventory.

So let's dive right into it. Hello, and welcome to another episode of the e commerce 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's the co-founder and [00:00:40] CTO of Finale Inventory.

Prior to Finale, Chris had a senior technology 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? And doing great. It's a beautiful day out here.

[00:01:00] Excellent. Chris, inventory management, um, 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, um, a lot of people underestimate, uh, what actually it is and where you can make mistakes along the way.

Um, let's start with the basics. What [00:01:20] are the biggest inventory mistakes you see e commerce businesses are making? You know, the biggest, the biggest mistakes people get into are the classics of underselling and overselling, or should I say understocking. Um, 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 [00:01:40] 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 [00:02:00] that really you get into. Now, complexity comes in because most of the sellers, specifically, if they come to a certain revenue level, they go omni channel. Now 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 very simple question and [00:02:20] explain it to me like someone who has never heard about it. 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 um but you're also keeping track of the sales and what's coming [00:02:40] down from each of the marketplaces and without a tool you end up doing lots of uploads and try 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 [00:03:00] 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've really tried 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 the, uh, in, in [00:03:20] spreadsheets all day long. Now, obviously you don't want to deal with spreadsheets. I mean, side clusters might start with that, but I think you've 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. Um, how does it reflect and when do you really figure out that you have an issue there? [00:03:40] Yeah, I mean, if you're, if you are in the world of Amazon and FBA, obviously there's placement, there's, um, not, sorry, not placement fees, but there's overstocking fees for inventory, and 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 [00:04:00] 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'd not 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? [00:04:20] So if you've got purchase orders that you've placed that haven't arrived yet And be 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 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, the hidden [00:04:40] ones, um, where you have a problem.

How does your system help with, um, finding these items? Yeah. A hundred percent. 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. [00:05:00] 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 parts, um, a lot of medical devices. These are places with just lots of SKUs. Lots of turnover skews, maybe you're selling stuff this year, and then as the seasons change, or as the years change, you're shifting out [00:05:20] 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 skews, 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, [00:05:40] Going out of stock ends up being a big, you know, ends up can end 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 ends up being a real enabler for growth.

You mentioned that there is a seasonal aspect to that. And I think a lot of [00:06:00] 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? You know, 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 like zoom into [00:06:20] different segments ends up being pretty important, um, time that then into a combination of that with plans for the future.

You know, you really get into a. Um, the ability to basically decide what you're going to do for your purchase orders. So if you're running your business, like on a platform like [00:06:40] Shopify and Amazon and so on, so forth, and you're getting your products out, um, very simple question. How do you make sure that they get sent out from the right warehouse?

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 [00:07:00] efficiently? How can I replenish FBA? Again, make sure I've got enough lead time in terms of what I said in 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, [00:07:20] 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. Then we'll 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, you know, which [00:07:40] warehouse you're going to sell? Can you move an order from FBA? That's, you know, 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. Now, I think we have, um, reads 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 [00:08:00] solution helps with simplifying that talk me through what it does about the features and how it helps immersion to make their life easier. 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. [00:08:20] They're going to have to learn a lot. They're going to have to 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. [00:08:40] And that's an example of kind of ability to kind of make it easy for the, 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 and how to get our software to work effectively in their in their world, and that comes with all of our plans. And so that kind of persuasion is the [00:09:00] 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, you know, making sure that you have the right stock levels available on all the marketplaces, kind of core inventory management, making sure that you have them.

Visibility into what's going on in your own warehouse. Uh, the system includes a barcoding system that [00:09:20] includes everything you need, the barcode label printing, the software and the scanners. So you can 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 [00:09:40] track. Again, when you are smaller and you 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 [00:10:00] decisions it facilitates.

And then there's always the promise underneath all 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, 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 [00:10:20] financial footing for your business.

A lot of times people, you know, your situation of you're just giving like a box of. 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 [00:10:40] 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 a hundred million sellers, the way they get there, the way they succeed is there's no magic bullet. It's 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 at logistics. You have to get good at marketing You have to get it whether it's loyalty and [00:11:00] repeat sales all these different things you have to do that You know, we're a small piece of puzzle But it's the kind of thing you got to get good at inventory. You got to get good at logistics To kind of achieve the kind of level that kind of achieve that kind of growth.

And so we help with that piece of it. 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, um, the customer will [00:11:20] probably not come back for a second time. Now, tell me about who's working with the system and what's kind of, how many hours per day are they spending in your system?

Just a bit on a day to day basis. It really depends on the scale of the merchant, right? And also depends on the job role, right? So when you think about a warehouse worker, uh, in our team who's [00:11:40] 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, uh, and picking up. You know, so they don't have to [00:12:00] 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? particular item. I don't know why we don't have any.

They can go in the system and get [00:12:20] answers. We often see that's actually one of the key things that drives a business owner to want to do this is to kind of get them out of the business of just being like the traffic cop and like they know where things are because that worked when they were at a, you know, 500, 000 a year in sales and now they got to grow and they can't spend all their time just answering questions.

They want to get out and grow their business, [00:12:40] not be the one that everyone has to ask because they're the only one that knows how this stuff is put together. That makes sense. So what, 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?

You know, we, it really depends on the particular vertical, but you know, a good rule of thumb [00:13:00] is around a million in sales again, you know, earlier I talked about a A company that was a coconut water company and they were much, much bigger, but they didn't have a complexity, but you know, if you, I, you know, talk to again, folks in apparel, automotive, uh, anything with serial numbers, medical devices, um, uh, any type of food products where we have lot ID tracking, you know, these are [00:13:20] 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 at 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 [00:13:40] with planning. It's not helping you with financial record keeping.

Yeah, 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, whole of business system for back office. You know, we're not doing front office stuff, but you look at the kind of software that we, the people in the space provided, it really is [00:14:00] solving a variety of problems.

Yeah, definitely. Now tell me about the onboarding process. Does the merchant to do some homework? How long does it take to get up and running? You know, we see motivated merchants come online at the very fastest, a couple days, more typically two to four weeks. [00:14:20] It depends a lot on how much they've been able to get, 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 [00:14:40] on Shopify? So again, it depends a little bit on the preparation.

But typically a, you know, probably a total of four to six hours for the phone calls and two, two to four weeks over the course of two to four weeks with some homework after each one, you'll be up and running. Okay. And again, that's all included in the base price. There's no separate, you're not engaging a separate consultant.

You're not sitting there, [00:15:00] you know, 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 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, [00:15:20] by basically saying, you know, Hey, you know, we're not going to take a big bunch of money for implementation that really has drives 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.

I like this approach. And you told [00:15:40] me also that you basically will be partner for the long on the long run. How does it work? If a, I don't know, most businesses, they start small and then they add more platforms over time. Um, how do you help with that? A hundred percent. So we've. You know, we kind of help avoid a lot of the complexity with the platform.

So the day to day operation [00:16:00] complexity, as you're adding platforms, you know, we are avoiding that because again, as you had a platform, we support over 30, over 30 market, uh, selling channels directly as we had those platforms, the data just starts flowing. You know, 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 [00:16:20] some screen in that new platform to see if my products are selling, it's all flowing into one place so that. You know, that's a big part of kind of helping them, helping them grow, uh, to those new platforms. I want to touch on a topic that's everywhere. AI. How do you think AI will change inventory management going forward?[00:16:40] 

It's pretty interesting. AI is changing a lot of things. I don't think it has quite the same depth of 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. All right, if you think about it, you know, counting the numbers is not something that, like, the [00:17:00] new generative AI approaches are particularly good at.

You know, math is kind of painfully, 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, you know, I'm, you know, I'm thinking about a world where.

Might sound a little big brother, but you know, we're all getting [00:17:20] used to, you know, AI being in our inboxes with all the different, no matter who you're using inbox vendor, where you're actually, it's 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, do you want to just apply all these changes to the system so that you don't have to worry about, you know, whether things are staying up to date or staying current.

That's [00:17:40] where I think the biggest AI implications are for some of this back office software. Okay, no, 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? So pricing is pretty much based on, you know, kind of a proxy for customer size.

So it scales number of orders, number of, number of customers, [00:18:00] uh, number of integrations. It starts at 99 a month or a thousand dollars a year. Uh, 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. Uh, 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 [00:18:20] 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. You know, oh, that's the, that's the pricing, but oh, wait, you want this big, big implementation fee.

You want an annual contract You want oh, it doesn't actually include everything That's laid out there. You know, I won't pretend like [00:18:40] everything's on the 90 plan, but we do make it transparent You can go see for yourself and there's not gonna be surprises because again, we're here for the long haul Um, I built this business over the last decade in e commerce Uh, we're not going anywhere And we want to be there for our customers.

Oh, I like [00:19:00] this because obviously, if you make the decision to go with a supplier, that should be a long term relationship. And you want to make sure that there's no bad surprises when it comes to 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 overstocked, understocked, or whatever.

I mean, this. [00:19:20] 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? You know, I just want people to think about the opportunity, right? And so what I mean by that is you don't have [00:19:40] 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 pick software solves. 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. [00:20:00] But then they 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 software.

That's all pre integrated [00:20:20] with a team behind them. That's going to back up and make sure that you're successful. And I think that's what we, we try to provide and provide them in a way that allows you to focus on growing your business as opposed to spending all your time, basically chasing down because I let's be real here.

Inventory management is not the fun, cool part of growing an e commerce company. [00:20:40] Made 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. Managing 30 different apps that do not talk to each other is definitely not fun.

I hear this constantly. This is, this is the [00:21:00] 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. 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 [00:21:20] about you guys? The easiest way to find more about us is just go to our website. It's finale. Inventory. com. Finale is spelled f i n a l e. Uh, it actually comes from our origin story. We actually came out of the world of fireworks inventory. It's a very important, inventory is very important in that [00:21:40] space.

The government gets very upset if you lose track of explosives and then it's strong motivation. And so we think of the fireworks finale, the grand finale, and that's how you get to finale inventory. 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 [00:22:00] reach out to you and I hope to talk to you soon again. Thanks so much for your time today. [00:22:20] [00:22:40]