At Prediko, we recently collaborated with Limited Supply Slack community to do a webinar on Inventory operations titled "5 Ways to Boost Your Cashflow by Improving Your Inventory Ops."

We share the main insights and takeaways from the webinar as well as channel on helping business owners and supply chain managers.

If you prefer learning by watching over reading, watch the YouTube video below 👇

Here are 5 important pieces of information shared in the Limited Supply Slack channel and webinar that can transform your inventory strategy:

Importance of Supplier Relationships

1. a) Establishing strong foundations

Successful inventory management begins with solid relationships with your suppliers. By setting up strong, reliable connections with suppliers, businesses ensure a steady flow of products, that is essential for maintaining consistent service levels and customer satisfaction.

We shared with the Limited Supply Slack channel and community that personal engagement, such as visiting suppliers and interacting with them face-to-face, significantly strengthens these relationships.

Here are some practical tips shared with Limited Supply Slack channel:

• Sell Your Vision:
  Communicating your business vision to your suppliers is crucial. It’s about making them a part of your journey, ensuring they are as committed to your success as their own. This involves more than just contract negotiations; it's about inspiring your suppliers with your brand story and future goals.
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• Personal Visits:
  While digital communication has become a norm. We advise making the effort to meet suppliers in person. Whether they are located in Asia, Mexico, or Europe, taking the time to visit can leave a lasting impact and foster a deeper commitment to your business.
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• Mutual Growth and Support:
  Engaging suppliers is not just about getting them to fulfil your immediate product needs. It’s also about discussing future growth and how they can continue to meet your evolving demands.

1. b) Navigating supplier negotiations and partnerships

Effective negotiation is an important part of good inventory management. One practical advice shared with the Limited Supply community is that every order placed with a supplier presents an opportunity to renegotiate terms that can lead to significant improvements in cost, quality, or delivery timelines.

Specific strategies from the webinar hosted by Limited Supply Slack Channel:

• Continuous Improvement:
  The importance of viewing each interaction as a chance to negotiate for improvements, whether in unit costs, production times, or payment terms. This approach ensures that operations become more efficient and cost-effective over time.
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• Be Upfront and Honest:
  Being transparent with your suppliers about what you're looking to achieve from each negotiation. This clarity helps in aligning goals and expectations, fostering a relationship based on trust and mutual benefit.
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• Leverage volume for better deals:
  As your business grows, use increased order volumes as leverage to negotiate better terms. Suppliers are often willing to offer favourable conditions in exchange for the promise of more substantial and consistent business.

1. c) Mitigating Risks Through Diversification

Diversifying your supplier network is a strategic move that strongly advocates for enhancing supply chain resilience.

Diversification helps mitigate these risks by ensuring that if one supplier faces issues, others can step in to fill the gap, thus maintaining a continuous supply chain.

• Broader Geographic Spread:
  We suggest considering suppliers from different geographic regions to avoid the pitfalls of regional disruptions, such as political instability, natural disasters, or pandemics. For example, if a primary supplier is in Asia and there are delays or shutdowns, having a secondary supplier in Mexico or Europe can maintain the flow of goods.
  
  You can use email to get in touch with other suppliers in different geographies. Check this blog to learn how to choose the right suppliers. In order to reach to the right suppliers, learn the main email best practices.

• Reducing Dependency:
  We emphasize importance of not letting any single supplier become too critical to your operation. This approach not only strengthens bargaining power but also gives companies the flexibility to negotiate better terms and ensure product availability under various circumstances.

1.d)Choosing Suppliers Strategically

Choosing right suppliers involves more than evaluating cost-effectiveness; it's about strategic alignment with your business goals. We offer the following advice on how to select suppliers that can truly add value to your business:

• Alignment with business objectives: It’s crucial to select suppliers who understand and align with your business goals and customer commitments. This ensures they can meet your quality standards and delivery schedules, which is vital for maintaining customer satisfaction and loyalty.
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• Capability and Reliability: Assessing a supplier's capacity to meet your needs now and in the future is vital. This includes their production capabilities, quality control processes, and ability to scale operations in response to your growth.
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• Cultural Fit: A supplier's culture should align with yours, especially in terms of communication, work ethics, and corporate responsibility. A strong cultural fit enhances collaboration and the long-term sustainability of the partnership.

1. e) Practical Steps for Supplier Diversification

We detail several practical steps businesses can take to effectively diversify their supplier base:

• Conduct Thorough Market Research:
  Understand capabilities and strengths of different suppliers in various regions. This research helps you identify potential new partners who can meet your specific requirements.
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• Develop Multiple Supplier Relationships: Gradually build relationships with multiple suppliers by starting with small orders to test their reliability and service quality before committing to larger volumes.
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• Regular Supplier Reviews: Continuously evaluate your suppliers based on performance metrics such as delivery times, quality, cost, and responsiveness.
  This practice helps identify risks and opportunities for improvement and ensures that your supplier base remains robust and adaptable.

Advanced Inventory Planning Techniques

Advanced inventory planning helps in preventing common issues such as stock-outs and excess inventory, both of which can have detrimental effects on cash flow and customer satisfaction.

Effective inventory planning not only ensures that products are available when customers need them but also helps in managing resources efficiently, thereby saving costs and optimizing operations.

• Forecasting and Demand Planning: Accurate forecasting is foundational to inventory planning. We suggest leveraging historical sales data, market trends, and upcoming events to predict future demand accurately. This approach allows businesses to adjust their inventory levels proactively rather than reacting to stock issues after they occur.
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• Technology Integration: Implementing sophisticated inventory management software can significantly enhance the accuracy of inventory forecasts.
  These tools can automate data analysis, track sales trends in real-time, and update inventory needs dynamically.

In the Limited Supply Slack channel, we also discuss how brands can move beyond manual spreadsheet management to more precise, automated systems that reduce errors and time spent on inventory management.

Leveraging Technology

The importance of using technology to streamline inventory operations, making them more efficient and less prone to human error. There are several technological strategies and tools that can be instrumental in enhancing inventory planning:

• Real-time Inventory Tracking: Advanced systems provide real-time visibility into stock levels, that is crucial for timely decision-making and efficient supply chain management.
  This visibility helps prevent both overstocking and stockouts by allowing businesses to respond swiftly to changes in demand or supply.
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• Integrating POS Systems: Integrating point-of-sale (POS) systems with inventory management software can provide valuable insights into customer purchasing behavior, that can further refine forecasting models and inventory strategies.
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• Automated Replenishment: Automated replenishment tools can help in maintaining optimal inventory levels by automatically placing orders when stock falls below predetermined thresholds. This ensures continuous availability of products without manual intervention.

Strategic Inventory Reviews

Regular reviews and adjustments of inventory policies are vital. We recommend these practices for maintaining effective inventory control:

• Scheduled reviews: Conduct regular inventory reviews to assess the health of your stock levels and identify any discrepancies or opportunities for improvement. This should include analyzing inventory turnover rates, carrying costs, and the performance of different product lines.
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• Adapting to market changes: Stay adaptable by continuously monitoring market conditions and customer preferences. This agility allows you to adjust your inventory planning accordingly, ensuring that your business can respond effectively to external changes and maintain a competitive edge.
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• Collaborative planning: Engage with suppliers, customers, and internal teams to ensure that your inventory plans are aligned with broader business goals and market demands. Collaboration helps in fine-tuning your strategies and making informed decisions that benefit the entire supply chain.

Effective Strategies to Manage Inventory Levels

There are a lot of pre-sale strategies to manage stockouts. Stockouts can significantly hinder sales and damage customer relationships. Pre-sale strategies can be an effective tool to manage customer expectations and maintain sales momentum even when inventory levels are low.

Here's how businesses can implement this approach:

• Transparent Communication: Clearly inform customers about the availability timelines of products. This transparency builds trust and can even enhance the perceived value of products as customers feel they are worth waiting for.
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• Incentivize Pre-orders: Offer special discounts, exclusive access, or additional benefits for customers who opt to pre-order out-of-stock items. This not only secures sales in advance but also helps in forecasting demand more accurately.
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• Automated Updates: Keep customers in the loop with automated updates about their order status, expected shipping dates, and any changes to the delivery timeline. This proactive communication can greatly enhance customer satisfaction and loyalty.

Managing excess inventory is equally crucial as it ties up capital and incurs storage costs. Here are a couple of ways to do it practically

• Mystery Boxes: This strategy involves selling products at a discounted price without specifying the exact items in each box. It's an exciting way for customers to receive more value for their money while helping businesses clear out excess stock.

• Flash Sales and Promotions: Temporarily reduce prices to clear excess inventory quickly. This tactic can be particularly effective when paired with targeted marketing campaigns to drive traffic and convert high volumes of sales in a short period.
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• Bundle Offers: Package slower-moving items with best-sellers. This not only helps in moving excess stock but also increases the average order value, improving overall sales metrics.

Join the Limited Supply Slack Channel today to stay updated on similar webinars and inventory management strategies. Read part 2 of this blog series with the Limited Supply Podcast team.

This is post No.2 in the blog post series of the webinar done with Limited Supply Podcast team. Full webinar available: Cash is King - Cash Flow Boosting Tips for D2C brands.

Get rest of the insights, takeaways and strategies from webinar that can help Shopify business owners and supply chain managers to learn about Pre-sale and D2C financial metrics.

1. Pre-sale strategies to manage stockouts

Effectiveness of pre-sale strategies as a proactive approach to managing stockout can be particularly disruptive to both revenue and customer satisfaction.

Here is how businesses can implement these strategies to maintain sales momentum and manage customer expectations:

• Transparent Communication: Initiating a pre-sale allows businesses to continue selling products even when they are out of stock by clearly communicating the future availability. Transparency is crucial.
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  We recommend informing customers about the expected wait times and the reasons for delays. This open communication builds trust and can even enhance customer loyalty, as buyers appreciate the honesty and are more willing to wait.
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• Create Urgency and Exclusivity:
  Offering products on pre-sale can create a sense of urgency and exclusivity, encouraging customers to purchase before the items officially come back in stock.
  
  This tactic not only secures sales in advance but also generates excitement and anticipation for the product release.
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• Incentivize Pre-orders: To make pre-sales more attractive, we suggest providing incentives such as discounts, free shipping, or exclusive bonuses for customers who place orders during the pre-sale period.
  
  These incentives can significantly increase the conversion rate of pre-orders.

One of the listeners of Limited Supply podcast, Srdjan Popovic, asked this question: Does anyone have a good pre-order solution for when variants go out of stock? 

Youri discussed this question during the webinar at 19:35 highlighting Haven Athletic's approach to pre-sale strategy:

1. Test demand before launch: Haven Athletic creates product pages with images and descriptions for potential products to gauge interest before manufacturing. This method allows them to assess demand and make informed production decisions.

2. Managing pre-sale orders: Haven Athletic implemented email automation to keep customers informed about pre-sale orders, including expected shipping times.

3. Engaging customers duraing wait times: By maintaining communication throughout pre-sale period, Haven Athletic keeps customers engaged and informed, enhancing satisfaction despite longer wait times.
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2. Optimizing Inventory Levels

Careful monitoring and managing of inventory levels plays a critical role in ensuring operational efficiency.

• ‍Demand Forecasting Accuracy: Accurate demand forecasting is critical to maintaining optimal inventory levels. Learn the importance of leveraging historical sales data, market trends, and even customer feedback to predict future sales accurately. Technologies that incorporate AI and machine learning can significantly enhance forecasting accuracy, allowing businesses to adjust their inventory levels proactively.‍

• Safety Stock Calculation:  Learn importance of calculating safety stock accurately to avoid potential stockouts during unexpected fluctuations in demand or supply chain disruptions. Use statistical models that consider both the variability of demand and the reliability of supply to determine the appropriate level of safety stock.

• Lead Time
  Understanding supplier lead times and maintaining appropriate levels of stock are vital to prevent stockouts.
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• Inventory Turnover Ratio: This metric is vital for assessing how quickly inventory is sold and replaced over a period. A higher turnover rate typically indicates efficient inventory management, as it suggests that products are selling quickly and not sitting on shelves.Set targets for inventory turnover and closely monitoring this ratio to ensure inventory levels are optimized to meet customer demand without leading to overstock. In this post, you can easily learn how to calculate inventory turnover.

Youri's insights provide a roadmap for businesses to not only react to current market conditions but also proactively plan for future inventory needs.

3. Managing Financial Metrics

Financial metrics are often discussed by Moiz Ali and Nik Sharma in a lot of seasons of Limited Supply Podcast. Brands must stay on top of these to maintain an optimal cash flow.

• Margin Analysis: It’s important to regularly analyze the profit margins associated with different inventory items. This helps in identifying which products provide the best return on investment and should be prioritised in stock levels.
  
  Use detailed analytics to track product performance and adjust inventory purchases based on profitability rather than just sales volume.

• Cash-to-Cash Cycle Time:
  Understand the duration between outlaying cash for inventory and receiving cash from sales can help businesses manage their cash flow more effectively.
  
  Youri points out that reducing this cycle time can significantly enhance liquidity, allowing businesses to reinvest in other areas more quickly.
  Strategies such as negotiating better payment terms with suppliers or offering discounts for early payment from customers can effectively shorten this cycle.
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• Inventory to Revenue Ratio: This ratio is essential for understanding how much of your business's working capital is tied up in inventory versus how much it's generating in revenue.
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• Cost Considerations: It's crucial to consider both the direct and indirect costs associated with maintaining inventory levels. Direct costs include purchase price of the goods, while indirect costs involve storage, insurance, and potential obsolescence.‍
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We have seen both these topics being discussed with a lot of guest speakers on the Limited Supply Podcast. These speakers have a lot of past experience of dealing with inventory numbers and financial metrics.

Become a part of the Limited Supply Slack Channel to stay informed about future webinars and inventory management techniques. This was part no.2 of the blog from our webinar with the Limited Supply Podcast team. Click on the link in case you haven't checked part no.1.

Hope you enjoyed reading this post and took away some key takeaways from this webinar.