A big key to success for any CPG brand is to know your true profit margins. Successful brands do that by tracking all sales, production, and costs in order to better understand when and how to scale. The best way that we’ve found to do that is to collaborate with your supply chain in real-time.
Actually, around here, we prefer to call it a supply network, not a supply chain. Because without co-packer partners, ingredient suppliers, packaging suppliers, fulfillment partners, and other 3PLs, you couldn’t really get the job done. They’re really your partners in building and scaling your business.
The question is, how do you manage all of these moving parts accurately so your product gets made correctly and on time so you can scale your business?
Opportunities to Improve
For a modern CPG brand, managing inventory is more than just knowing how many finished units of a product you have in stock. At any given time, you should also know:
1 – Inventory levels of your raw goods – This goes for inventory stored in your own facility, at your co-packer, or another 3PL.
2 – Order statuses – A new order just came in from a retailer and a marketplace, do you have enough finished goods to fulfill the orders? If not, do you have enough raw goods across locations to produce the finished goods you need?
3 – Production lead times – When will your co-packer start the production run? How long will it take? Do you need to source more raw goods before they can start?
With so many moving pieces, it’s easy for bottlenecks to occur. And that quickly leads to friction within your business, delays in production and, ultimately, a reduction in sales. Nobody wants that!
Luckily, there’s a much better way to do things. Here are a few key areas to analyze when looking for ways to improve upon your operations.
This includes product costing, purchase order tracking, production runs, and supplier & co-packer management.
Do you know all the fees that come into play when developing your product? What fees are you racking up from your various suppliers?
It’s important to ensure that you are tracking every fee that comes into play. Everything from shipping, freight, storage and even pallet fees will affect the results of your true margins.
Like we discussed above, this means tracking your finished goods, SKUs, AND raw materials.
Do you have aspirations to land a big box store? Then you’ll need to provide traceability or batch records. Stores like Costco, WalMart, Target, and others will all require that for compliance.
As soon as you begin adding sales channels like Shopify, retail stores, marketplaces, and others, make sure you account for the various fees of each channel. Doing so will allow you to know your true profit margins. Knowing these profit margins will then help you determine whether the channel(s) are beneficial or detrimental to your growth.
This means knowing the exact amount of finished goods you have on hand and knowing your consumption rates. That way, you’ll know when it’s time to place a PO for a production run with your co-packer, how much you need to order with that co-packer, and whether you need to source any more raw materials to send them for the production run.
Constant involvement in your business and its operations is crucial. However, if you are a small team, this can be difficult. Now that you’ve made improvements in your processes, how do you ensure success? Some key elements to success include:
- Track inventory at all levels so you know your reorder points
- Track orders and margins to understand your next production run
- Track lead times for all your vendors – ingredients, packaging, copacker, etc.
- Get accurate inventory from your partners or track it yourself
- Understand COGS which include landed costs and all fees
- Add compliance and recall functionality which are key to landing big accounts like Costco
An open line of communication with your partners will be important as you scale your business. If you’re like most CPG brands, you probably already do most of this tracking in Excel or Google Sheets. And that’s how it should be when you’re getting started and bootstrapping your business. Eventually, spreadsheets become a nightmare to maintain and update. Besides the frustration that causes, it also costs you money and peace of mind!
That’s exactly why we created Fiddle. It’s modern software that helps CPG brands automate their inventory operations.