So you have a brilliant product, you know the target markets, you have a plan to engage those target markets, you have oodles of start-up cash, but how are you going to get your product to the market?
The business planning priorities for startup businesses are often in the order of product development, financing, marketing and finally ’oh…wait a minute, who’s dealing with logistics?’.
Logistics planning for startups should never be an afterthought.
Logistics planning should be a fundamental part of the business planning process from the get-go. Your business won’t survive long if you can’t fulfil orders to your new customers at the right time, to the right place, and in the right quantity. Online customer reviews that complain of failed deliveries or incomplete orders will very quickly negate the hard work you’ve put into brand and product marketing.
Here’s 6 logistics and supply chain questions that you should be answering at the business planning stage of your startup:
Where will your products be stored and despatched from?
This is a critical question, and one you should be asking long before the go-live date. Of course, it depends on how you plan to scale the business. Do you want to rent your own facility and employ your own staff? This may be the best course of action to take maximum control of logistics at startup, but facility leasing is usually 3+ years. What if you outgrow the facility in that time, or what if you don’t hit capacity and are left paying fixed overheads that aren’t being utilised?
A good answer to this is to engage with 3rd party logistics company or fulfilment house. Speak with them early in your development process and get them excited about the potential of your business. The advantage of using an external 3rd party is they will bring expertise, both to logistics and order management. It is also gives you a variable cost base as most 3rd parties will charge you per order for pick, pack, storage and despatch.
How will your products be delivered?
In addition to warehousing, it is likely that you will need a 3rd party for the transportation of your product. Select with care, as with all businesses there are some great companies, but many have different strengths and weaknesses in different market sectors.
When selecting your transport provider, it’s not purely about price. You need to understand if they have experience within your industry, or that they have experience delivering to your target market. Where you’re delivering direct to consumer, you also need to understand the provider’s cut-off times for collection and delivery. Principally, the later the transport provider collects from you and the earlier they deliver to your customer, the better.
How much inventory will you need?
Unless you have drop-ship agreements, or customer order lead times that align with your procurement lead times, then you’re a going to need inventory to fulfil customer orders. You will, of course, have no history of sales on which to base your inventory levels. Tricky.
Without sales history there is no scientific method of determining your inventory levels. At this stage it simply has to be a best guess that corresponds to your start-up financial forecasts. However, in order to mitigate order failure and holding too much inventory, you should seek the best service deal you can from suppliers. With each supplier you need to agree the lowest minimum order quantity (MOQ) at the shortest possible lead time. Think ‘high frequency, low volume’ throughput and don’t be persuaded by bulk discount deals which may leave you with obsolete stock.
How will you manage inventory?
It’s not just at the start you need to determine inventory levels; you need a continuous process for determining how much stock you have, how much is on order, how much is in transit and what you’re likely to need to fulfil future orders.
The temptation for many start-ups and SMEs is to buy an ‘off the shelf’ inventory management system. However, it should be remembered that a system will force you into its own process that may not necessarily fit with how your business evolves.
At startup it’s sensible to have a simple spreadsheet solution, along with an agreed process, that periodically allows you to update your forecast and recalculate the target inventory levels. It’s worth noting that it’s not unusual to find retailers with a turnover in the hundreds of millions who still use spreadsheets. The reason is simple: they’re highly adaptable, low cost, easily accessed and most people are very familiar with using them.
How will you deal with nil-picks?
If a customer orders 3 products from you, but you only have 2 in stock, what will your process be? Will you despatch the 2 and send the 3rd separately when it’s in stock? Will you hold the order until all are in stock? Both of these methods have repercussions; if you send the 2 and then have to send a second shipment for the 3rd, then the additional shipment cost will be money straight off your bottom line. If you hold the order until all 3 are in stock, then you risk the customer cancelling the entire order.
There is no right or wrong method to choose, but you must be clear on your approach and understand the full implications to both customer service and your profits.
What are you going to do when your suppliers fail you?
No business is perfect, and at some point one of your suppliers will send you the wrong products or the products will be sent late. Unless you have a mitigation plan in place then your supplier’s failure will become your failure.
You need to have, where possible, multiple supplier agreements in place, with very clear service level agreements. In addition to this, you need to hold contingency stock. It’s critical to have a ‘buffer’ protecting supply to your customers even when your inbound supply has been interrupted.