Introduction
The CPG Industry is rapidly changing every day with thousands of new SKUs, flavors, types, bundles, and much more in niche markets. The brands that will win will be the ones that get a handle on inventory, margins and who streamline operations.
In addition to more brands entering the market, there are also even more small-to-medium-sized 3PL and co-packers joining the fun offering more flexibility with a modern approach.
CPG Brands are set up to succeed when they have insight into their inventory at every stage and at all locations in real-time. It is very hard to scale a CPG Brand when you do not have full visibility into your inventory, reorder points, and production timelines.
Inventory Operations software tracks the lifecycle of inventory and stock as it comes and goes out of your business with key insight into the process.
“43 percent of small businesses in the United States don’t track inventory, or do so using a manual system.”
Ultimately buying too much inventory spends the precious cash needed to grow your business. Not buying enough can cause you to lose clients and customers. When you run out of product it can also damage your brand, customer relationships and can hurt strategic channels like store chains, marketplaces, and big box stores.
It is also THE fundamental component to a CPG brand to have products in stock to sell and be able to turn a profit.
So if you are leaving inventory details to manual spreadsheets are you really setting up your brand for success?
CPG Brands have some unique needs:
- Tracking lot/batch numbers
- Expiration dates
- Recall and compliance
- Certifications for niche categories
These items add even more complexity to the tracking of inventory units available to sell! Too often brands leave the inventory tracking in the hands of co-packers or 3PLs that don’t have as much invested in your brand.
Are you leaving this up to a co-packing partner to control and track or do you have visibility in your own software solution?
When you produce items with expiration dates and fail to track them, you can potentially lose thousands of dollars. It is not enough just to order your product, ship to a 3PL, and hope it sells in time before expiring.
The data from demand planning, consumption rates, and forecasting reports will help you determine the ideal amount to create to lower the loss and increase profitability.
Want to save this post for later? Get a free PDF copy right here.
“Worldwide cost of inventory distortion (including shrinkage, stockouts, waste, and overstock) is an estimated $1.1 Trillion”
LEAD TIMES
In addition to tracking expiration dates, it is vital to understand lead times for making your product. The common model for a CPG brand that is in growth mode would be the following:
- Contract with copacker on tolling fees and warehousing raw and packaging materials
- Source all ingredients, packaging, and labels from multiple suppliers
- Plan out production dates and timelines so everything arrives on time
- Production timeline
- Shipping timeline
- Ready to fulfill at 3PL
To be successful with that process, you must ensure materials arrive on time to keep your product in stock. That requires real insight into your supply chain with pricing, MOQ, and lead times.
Be sure to know what quantities of each item are needed for each production run. Don’t leave it all up to the copacker to track the inventory for your product. Lead times have to be tracked at each part of the process:
- Sending a PO
- Arrival at the co-packer
- Production
- Scheduling a truck to deliver to 3PL
- Out the door to a customer.
A cautionary story: Landed costs need to be tracked!
A startup CPG brand, excited and ready to launch, sourced all of their materials from overseas through a local supplier that had them shipped directly to a co-packer. The supplier added the customs and shipping charges after materials landed at the copacker. Several weeks went by before the supplier invoiced the brand for those shipping charges. Upon receiving the invoice the brand added it as an expense in their accounting software. The brand continued to sell tons of items, spent money on marketing, and paid for incentives to increase sales through partnerships but was never really turning a profit.
Their spreadsheets showed a 70% margin throughout the year but in reality, if they had included the full shipping and customs charges., the margin was closer to 22%. They based all of their marketing spend on having good margins and ended up losing money after year one!
It is vital to include landed costs in your COGS to see true margins and profitability.
Are you tracking all of the fees that go into landed costs of raw materials, tolling, and shipping? If not you may be setting yourself up for failure. A great product with decent margins can be killed by big shipping fees and additional costs if not accounted for in a business. Understand them from the beginning to figure out the right price points for DTC, wholesale, and distribution.
Want to save this post for later? Get a free PDF copy right here.
Sales – Multi-Channel and Bundles
If you sell on a single platform like Shopify, Amazon, or another DTC platform how will you know when you are ready to expand into other channels? How do you know you are ready to take the next step into brick-and-mortar retail?
Ask yourself the following questions:
- Do I have a healthy business with great margins after calculating landed costs?
- Do I have the capital to fund a big order and sustain a long payback period with terms?
- Are the co-packer and suppliers at a level to increase production significantly?
- Who will ensure my product is presented properly in the store and fully stocked?
These are just a few questions that we think are imperative to ask when getting ready to enter brick-and-mortar on a bigger scale.
As you add channels the complexity to track all orders, deplete accurately across packs and bundles is often left up to a 3PL partner. Is this the right solution for your brand that you care about more than anyone?
When scaling to new channels, it’s crucial for you to have insight into reorder points and real-time inventory quantities.
Don’t leave it exclusively to your 3PL to have accurate reporting. In order to scale you need your own system that notifies you when it’s time to reorder raw materials and finished products.
Sourcing and Supplier Management
Backup Suppliers
If Covid taught us anything, it’s that you need backup suppliers and co-packers that can deliver your materials and products.
Always be searching out ingredient suppliers, packaging suppliers, and co-packers for lead times, MOQ’s, pricing, and how they do business. In our day in age a partner can be here one day and be gone the next day, unfortunately leaving your brand to scramble.
Why not just have options in case of emergency or intense growth?
Find the best suppliers for your product for long-term success.
Track supplier pricing on every PO so you can look back at the history of which supplier fulfilled on time at target price points. If you’re manually sending PO’s via email in a Google or Word doc, it does not create checks and balances on receiving and tracking landed costs.
Also, PO’s in Quickbooks are good but don’t have the additional functionality to really track inventory closely when receiving multiple lots at different locations.
Copacker and Production Cost
A co-packing partner is one of the most important relationships when it comes down to getting your product to market on time.
Major questions to ask prior to partnering:
- Who will own sourcing for the raw ingredients and packaging components?
- Who is verifying accuracy when receiving a product?
- Who is managing the raw material inventory and keeping real-time counts?
- Do they have the setup to do small runs and then grow to greater capacity quickly?
- Can they scale with you quickly?
A common scenario for a growing brand is to source all their materials and ingredients and then send them directly to the co-packer to manufacture and package. This can be a major hassle if you do not have the right processes and systems in place.
One of the most important parts is knowing what goes into the bill of materials across all SKUs and having an idea of what should be left over after production. That will show you the efficiency of the co-packer and insight into waste and loss.
Make sure you get reports on leftover raw ingredients and materials after production runs so you know the quantities you need to reorder ahead of the next production run.
Once you’ve reached the necessary MOQ’s with the co-packer it might make sense for them to help order from the suppliers. Just make sure to put in the contract the type of supplier and ingredient you need for your production.
Want to save this post for later? Get a free PDF copy right here.
The insight is necessary at the 3PL level as well. Hopefully, your software or spreadsheet integrates with the 3PL to be able to send orders and get updates on shipments.
Many small brands and small fulfillment centers will not have integrations. If that’s the case, it’s important to set up a shared doc, Slack channel, or Dropbox folder to make sure everyone is on the same page during fulfillment.
“34 percent of businesses have shipped an order late because they inadvertently sold a product that was not in stock”
Track real-time orders and set notifications as you are getting low in stock. This will allow you to communicate delivery timelines with clients that order after a product is sold out.
Find tools that make it simple to track the process not only on your customer-facing interactions but also on your backend operations and processes. Do not wait till it’s too late to implement. Start with software that understands CPG Brands on the SMB level. The legacy ERP systems that say they are built for young brands usually cost a fortune and take months if not years to implement.
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? Here are some key elements to include:
- Track inventory at all levels so you know your reorder points
- Track orders and margins to know the projected cost of subsequent production runs
- 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 is key to landing big accounts like Costco
We created Fiddle to streamline all of these processes for you. It’s the perfect solution for growing CPG brands like yours. If you’re interested in learning what we can do for your brand, follow the links below to learn more. Thank you for reading this guide!
Schedule a personalized, 1-on-1 software demo to see exactly how Fiddle can automate your inventory operations: schedule here.
Start a 14-day free trial and start using Fiddle on your own (no credit card required). Start right here.
Listen to our podcast for growing CPG brands: The Physical Product Movement on Apple, Spotify, or YouTube
Want to save this post for later? Get a free PDF copy right here.
