Purchasing, Inventory Management, Order Management, Data Warehouse
BFCM, Mother’s Day, Christmas
Founded in 2015, PAVOI has garnered over 50,000 5-star reviews on over 3,000 unique pieces, and is now the largest Jewelry merchant on Amazon. Their customers love the elegant design and affordable pricing, while offering recycled packaging materials which contribute towards their carbon-neutral footprint.
Maria Cuartas, PAVOI’s Director of Operations, spoke to us about how they’ve used Fulfil to scale their operations, and specifically solve the puzzle of inventory management that any brand operating at scale is faced with.
Effective inventory management can either be a growth catalyst or the Achilles’ heel of any scaling ecommerce store. Done well, you can expect to maximize your cash flow while minimizing storage costs, but missing the mark can mean lost sales and reputational risk. Factors like seasonality, growth, and product launches can all heavily influence the inventory management process, which needs to be closely monitored and controlled to be effective.
Any cash that is invested into inventory is a sunk cost, and inaccessible for other investment opportunities such as marketing or product development. Furthermore, every step in the process between purchasing and ultimate delivery to the customer is a cost center for the business. This includes transportation costs, storage fees for inventory on hand, and inventory shrinkage such as damaged or lost goods. Because of this, Maria and the PAVOI team are constantly aiming to minimize both the time from production to consumption and the amount of inventory held at each storage location along the way, without risking stocking out.
“At any one time we are looking to minimize the amount of time that it takes for a product to be produced, to when it’s in the hands of one of our customers.”
- Maria C, Dir of Operations at PAVOI
On the other hand, the risks of understocking and selling out are also extensive. At the most basic level, undershooting inventory management means selling out, which equates to lost sales. This is of course never an ideal scenario for any merchant, but for one like PAVOI with Amazon as a lead sales channel, this can be especially devastating with the possible loss of the coveted “Best Seller” badge and a de-ranking in the marketplace’s listings.
Therefore, there’s a small window of opportunity for every ecommerce brand to optimize their Inventory Management into the Goldilocks zone. Not too much inventory so that excessive fees start to eat into the bottom line, but not too little that there is risk of selling out and the complications that come along with that.
Inventory Management is a science, with a series of inputs and a set of desired outputs that represent a system that can be optimized. Thinking in this systemic framework, the inputs can be classified as Internal and External.
Internal Inputs are data that’s available to the merchant and within their control like Sales (historical and projected), marketing data (forecasted ad spend, campaign performance, etc), desired safety stock levels, and growth projections.
External Inputs are factors that must be taken into consideration by the merchant but are outside of their direct control - these are things like Lead Times, Manufacturer’s raw material quantity on hand, and transportation throughput at critical supply chain checkpoints like shipping ports.
For PAVOI, these inputs need to be taken into consideration when targeting the desired Output, which is a specific number of days of cover and/or weeks of stock for each of their 3,000+ products. This gives them visibility into how many days of inventory they have before they sell out of stock, or when they need to re-order from their suppliers to prevent this from happening.
Prior to partnering with Fulfil, PAVOI was struggling with a series of disconnected systems that housed the information that their purchasing team needed in order to attempt to manage their complex supply chain. While having the in-house expertise to be able to build extremely sophisticated inventory management optimization models, the data was not readily available for their team to be able to leverage. Specifically, product attributes such as category, color, size, and more were not tracked in a centralized location and unavailable to the data science team.
Any system is only as good as the quality of its inputs, and the PAVOI team did not have the tools at hand to be able to optimize the quality of the inputs into their inventory management system. This meant that they had to broaden the window of inventory cover and increase the Safety Stock percentages, to ensure that they could avoid a stockout situation. As discussed previously, this inevitably led to higher costs throughout the end to end supply chain such as additional storage fees for a higher volume of product on hand at any one time.
When using Amazon FBA specifically, Amazon gives merchants an allotted amount of inventory capacity that they are allowed to fill at any one time. However, Amazon will algorithmically adjust this threshold in real time, and often without any proactive notice. This can put merchants in a situation where they find themselves being overstocked at Amazon despite being within the threshold even just the day before, and no longer able to replenish items that may be out of stock.
Therefore, it’s a risk for any merchant to be using 100% of their allotted inventory capacity, but without an accurate inventory management system in place merchants are forced to use a larger percentage of their allotment to prevent stocking out. PAVOI often found themselves in this exact situation where they were at (or over) 100% of their inventory allotment capacity at Amazon, unable to actively replenish, and forced to pay overage fees.
After partnering with Fulfil, PAVOI was able to leverage Fulfil as the Single Source of Truth for their sales, inventory, and product information. They were also able to start to track a large variety of attributes that was previously not possible, and use these as inputs into their Inventory management optimization models.
As a specific example, PAVOI is now tracking product attributes such as:
Now, Fulfil is able to provide PAVOI with the data and systems that they need to more effectively manage their end to end supply chain, including all of the product attributes listed above. The result of this is that their forecasts have become accurate enough that they are now using <30% of their allotted inventory at Amazon at any one time, and able to be much more agile in their replenishment workflows.
PAVOI has leveraged Fulfil to support:
Inventory Management is a make-or-break aspect of any growing ecommerce business, but can be treated as a system which can be optimized with the right inputs. The PAVOI team has been able to leverage the Fulfil platform to enable their world-class supply chain team to not only have an accurate understanding of where their inventory is at all times, but also optimize the system at every step along the way from production through to fulfillment. This led to a 70% reduction in usage of their inventory allotment at Amazon, giving them much more flexibility in their replenishments while also reducing storage costs.
If you’re interested in learning more or you’d like to read our in depth guides, join our newsletter.