How SKUdrop Changed Our Business

In our Amazon business, we used to order products quarterly from the manufacturer, then book a shipment and send it to a third-party logistics provider in California before it could be shipped to Amazon. This process was inefficient, led to overstocked and understocked items, high storage costs, and too much money held in inventory.

But with SKUdrop, a storage facility in China that provides freight forwarding and connects to Amazon's API, we've been able to change all that. Using SKUdrop, we can ship our products directly to Amazon, which has reduced our storage costs, inbound shipping fees, and inventory levels. As a result, we've been able to increase our profit margins.

Use code SKUDROPDB in the profile section of SKUdrop to get free subscription for 12 months save USD120

Transcription:

Welcome to this week's webinar and a service that has changed our business which is SKUdrop.

Many of you heard it through Jamie and Michael in the EndGame Network, and Southern Seller Fest.

I spoke at Southern Seller Fest about how to get free inventory financing, which was not really about financing, but improving your supply chain.

If you improve your supply chain you don't need financing and the business would finance itself.

People always concentrated on the price. What people forget is the time and they're saving cups of coffee here and there and they forget time that they are saving. They're holding hundreds of 1000s of dollars’ worth of inventory. Now most of you have probably got $100,000 worth of inventory, many 500 and some millions of dollars’ worth of inventory.

 

I get calls from people all the time asking my recommendations for finance, businesses growing: I need finance, yeah, where are we going to get it? We need some money for the next order. And then trying to borrow money on an inefficient business model. They think that they'll be able to pay it back in three months, but they won't basically have that debt forever in their business because their business is inefficient. What I'm going to show you today is you don't need that finance, you already have that money and you might be just not using it properly.

 

So we were one of the first people to use SKUdrop. And with a lot of these things, I like to use it myself and see the results before I recommend it to anyone. And we were one of the first to use it in November. We had a bit of a slow start using it because of the inventory and Amazon inventory restrictions. But now we've sent over 30 cubic meters of stock through and today I'm just going to put everything in cubic meters. So you will have to work out how that works for you in terms of your price per unit. But I thought cubic meters is a good way to start. So we've said 30 cubic meters through SKU drop over 42 shipments. So we've got some pretty good data on both costs and timing. So how does it change our business? Well, the big one is we're going to have the amount of inventory that we need to serve as the same number of sales. We've increased our profit margins by reducing our storage costs and inbound shipping fees and we've become more flexible.

 

So what is SKU drop.

 

So basically, it's a storage facility. And I grabbed this from SKU drop’s main page, because basically it’s summarized pretty well. It's a storage facility in China that enables you to ship directly. So they take care of the freight forwarding directly into Amazon cost effectively. Plus, it's got some great software that tracks your inventory levels connects up to the Amazon API, makes things really easy. I'll show you how easy it is in a bit.

 

So let's talk about our old system first. And probably a lot of you are doing something similar. So our old system was with order quarterly from the manufacturer to get some volume discounts, but mainly to fill a container so that we can end up with some decent prices there because the LCL rates were kind of getting expensive along the way.

 

So we contacted our freight forwarder to get prices on the container, there would be some back and forward a few days, the freight forwarder would then book a shipment, then it would book a container, and that container would sent to a three PL in California, because we couldn't send in 63 cubic meters into Amazon as Amazon just didn't allow us to have that type of storage. We would then send the inventory from the three PL into Amazon subject to the capacity limits. It wasn't very good. Partly, we did that because that was the way it was done. That was the most efficient way that we could see doing it at the time, but it had some real problems.

 

The first problem was that we had this large cash outlay; so for full container for us, the product costs were about $75,000 US; the freight costs would be between $12,000 to $30,000 for a container. It's a bit less than that now for a full container but that was the price at the time. It is still $75,000 USD which is $110,000 AUD just for the products. Then part of the process was that we had to guess what our sales would be in four to six months. So we're kind of looking a long way in advance as to what products are.

 

When you got one or two products it is ok, but when you've got 20 it becomes slightly more difficult. Because we're looking a bit far out, we'd say, Oh, this is what we're going to send, but because the time delays are so long, will send some a bit longer. So we'll send a little bit more just in case it goes really well. So we end up with overstocked in some products and understocked in others. Trying to predict our sales order six months out was really difficult. That affected us because we had some overstocked items in Amazon that affected our inventory limits. We also couldn't get products in that was selling. So we lost sales and we also had high Amazon storage costs.

 

Due to the having to use a full container, we had to use a 3PL, and there was additional time delays with three PL actually receiving the stock and getting it ready so we could actually send it out from there. What was really expensive was inbound shipping fee from Amazon, for example sending it from California to California was actually pretty expensive. So we ended up with too much inventory and too much money held in inventory. We also ended up with the wrong mix of inventory, because we're looking too far out. The Amazon inventory limits were killing us. So we are now down to 42 days worth of stock in Amazon. There's pretty much still a little bit of balancing to do there. But it's pretty much clear before we would have had 80 to 100. And Amazon just weren't letting us extend live stock.

 

So under the new system with SKU drop, we now manufacture monthly. Rather than looking at what the sales are expected to be in four to six months, we're saying what our sales are expected to be in three or four months’ time, much easier to predict.

 

We're shipping to Amazon weekly and we aim to keep 42 days of stock in Amazon FBAs. That is kind of what we've found to be the optimal level of inventory so that the inventory was spread amongst as many different FBA warehouses so when something was bought it was get it now or tomorrow type thing which improves your conversion rates and sales.

 

So the formula we use to send each week is based on our current sales level. For the week, our units in Amazon and the units in transit and the expected sales in six weeks.

 

In essence, it comes down to if your sales are stable, you are going to be sending in what you sold last week.

 

So our objective is to get 42 days in Amazon in shipment. Almost all of our stock that we're cleared out of our California warehouse is now held almost all in China in that warehouse. And later on that only come when SKUdrop start sending to Europe, etc, that'll become a really beneficial thing, just having all our stock in one place. I'll deal with that bit more in a second.

 

So the benefits of the new system are reduced level of inventory. Now it has dropped by 35%. We've still got a little bit of the old system in use and some overstock in a couple of areas that we had.

 

Basically, we expect to reduce to about 50% of our existing levels of inventory. So we used to have $500,000 worth of inventory to serve sales in the US. Now we're going to only need $250,000 worth of inventory to serve as the same level of sales.

 

So our inventory levels are returning to balance. Because we have better systems as to forecasting inventory, forecasting sales, and how much inventory we've got. We're not over stocked or under stocked whilst buying some of the smaller products. We may have to do a little bit more of a production run just to get minimal quantities ready, but otherwise we are pretty good.

 

So our manufacturing now cost $25,000, it used to cost $75,000. So that basically equals one fortnightly payment from Amazon.

 

So I've got one fortnightly payment which covers the inventory and another one spare for emergency items.

 

We have low risk and I'll deal with the risk soon. There's low risk because we haven't got as many issues. We haven't got that concentration risk.

 

The cost of sending one carton to Amazon is the same as sending one container. So that's on per Carton basis. But basically, the cost per unit of sending just one container, one carton to Amazon through SKU drop, is the same as sending a full container from China to the US to the three PL and out. We'll deal with that in a second. We've also got less steps in our supply chain because we are basically sending it from a manufacturer to SKU drop, and then straight into Amazon. So it gets picked up and put down less times. It's simple and there's less time in admin.

 

So let's deal with the prices.

 

I had a look these are our prices. This is what we got charged in August 22. We sent a container into Amazon into our three fulfilment centres, the containers cost at the time were $8,000. That's probably come down to $4,500. It may now be a bit cheaper.

 

The freight costs ex duty were $3900, 3PL unloading fee and packing, then the monthly fee from 3PL plus storage was $2200. So $15,000 per 63 cubic meters to a container so the cost per cubic meter was $241. I then had a look at my Amazon inbound shipping fees. These were $138 per cubic meter. So the total costs on these August figures were $379 per cubic meter.

 

The current costs is going to be a little cheaper around $323.

 

My current costs in SKU drop are $294 per cubic meter

 

This is our SKUdrop from when we sent in our first ones. It was kind of expensive.

 

It was $500 a cubic meter which came down a bit in December to just over 300, which jumped up a bit in January (because we're running out of some stock and I sent some products by fast boat so SKUdrop gives you the option to send the products by slow boat, medium boat fast boat and various options).

Basically I've tried a few to send as fast boats and since then I've just been using the cheapest option which is now down to $294. I saw one of them was down to $170 per cubic meter. So prices are really starting to come down now .

 

Let's look at the transit times. So China into California and 3PL and this is when we did it last time it took 50 days, so it's basically 44 days in shipping time and four to six days to get unpacked at 3PL into their pallet racking and ready to be send out

 

 

California to California and Nevada was taking 44 days but took 45 days in quarter four which is now down to 20 days. This is still California to California. Basically the issue is our UPS going to come and pick up the product also dealing with a 3PL to send it.

 

Let's say now we get an answer back, they don't pick up as they didn't get the email till tomorrow. Couple of days or three to pack up to put it together – it may get lost in the system. So basically it is taking 28 to 20 days for SKUdrop. The first ones we sent out we're taking 57 days, a bit slower than the route most recent ones we're doing. We've had a look at this from the time I created it in SKUdrop to the time it is fully received in Amazon is taking 42 days. So and that's using the slow boat

It is really quite comparable when it used to take 70 days to 42. So it's now just faster to get that product into Amazon.

 

The other problem we had is actually getting those from 3PL into Amazon.

We log on to Seller Central
We then create a shipping plan.
We agree to the inbound shipping fees from Amazon
We generate the labels
We download them
We download a CSV file of all our products and cartons in units
We email that to the three PL with the labels on the list of products.
Three PL confirms the order the next day,
UPS picks up the carton sometime between now and tomorrow.

We do all our products on the basis that every Monday we just look at what stock we've got to send in. I think created a little video about it hopefully it'll work. So this is the actual process we had for sending the product into Amazon. I'm going to play the video it's very quick and hopefully it'll work.

 

So what we've got is the dashboard SKUdrop and what we're going to do so it says number of products we've got here, which is going to send products to Amazon. And it says available cartons when we just put in how many cartons. We're going to send 117 cartons of that one to another. And for this one down the bottom here, we're sending in three cartons, create shipping plan within seller central site, at this point it then says this is where it's all sending it to we hit calculate shipping estimate and it then gives you a series of prices based on time various things. You can go fast boat, super quick etc, I usually just do the lowest to highest price. So we're at $451. This is by regular UPS and truck. I don't need to get them in because our system is set up now. The most expensive if you're in hurry is $963 which is double the price.

 

That's it it's done I don't have to do anything else so it ends up being much faster to get your product into Amazon.

 

So that was the process that took a few seconds to do, or rather fully done two minutes. The shipping plans product is on its way to Amazon and they will give you advice that your product has been shipped. It has labels on its way that weren't put as tracking codes at a later point when the product arrives. They've got an air freight option as well if you want to get them there it is super quick so we've marked up something and one of our products sold really quickly. We did send like two cases by airfreight, a couple by fast boat, and then the rest by slow boat just to get that product backing.

 

Okay, so let's look at the risk. There is a freight risk. So all your inventory is in one container on one ship, which is your sales for the next three months. If something happens to that ship, for example delays, customs, other numerous things that could go wrong, then your sales are really stuffed now. Everyone had that during COVID. So there's a freight risk there.

In our situation, we've got six weeks of products on six different ships in 6 different containers, all going in at different times.

There's a forecasting risk: what are your sales going to be in four to six months out. It's really difficult to tell.

 

If your sales drop or are not quite as what you expected, then you're really stuck with too much inventory. It ends up being expensive, especially when you're stuck in the Amazon trying to fix it.

 

Product risk:

Your product has a defect and you've sent everything all the way to the USA. How do you get it fixed? Is too expensive to ship back to Amazon to China and get it remedied? Well, if all your products are in China, and you've got good relationships with your suppliers, which you should, you can say to them, oh, this is a problem, we need to get this fixed, whether they need to fix it or you need to fix it. It's only to get all your product back to the manufacturer, it's only a couple of hundred dollars. We're reasonably close to the SKU drop warehouses in Yiwu. It costs about $450, which is what my supplier charged, seven, maybe even less, but $450 sent a full container worth of product from where our supplier is south of Shanghai to Yiwu. It doesn't cost that much to send your products within China.

 

And then you got this financing risk, you've got this payment of big lump sum, big production costs, your freight costs upfront. So we've just made that much simpler and reduced all that risk. So we're no longer sitting with all this stock. Now. Oh, my goodness, my stock has been held up. I haven't got any sales. We have diversified all these things.

 

So the real benefits time we've sped up the supply chain and now we're turning over our inventory faster.

 

We've lowered our inventory. So we've got a 35% decrease in inventory. After four months, it's going to be 35%, and after six months 50%. And the reason being is we're still switching from some stock that we held in California and 3PL, but some overstock there, we're just moving that out.

 

When they do, they're looking at us having the same facility available for shipping to Europe. And that will be a game changer, because then you will be able to set have one central base of stock, and then send stock all around the world to wherever it needs to be. And you won't have to have a whole bunch of stock sitting in Canada or Germany that is not selling. You just send what you need for that particular time.

The flexibility of manufacturing monthly enables us to match supply and demand. If we have a product that is selling really quickly, we can catch up with sales the next month. We do need to make some more of the product this month. Because we have that flexibility, there are costs, they're comparable to sending a full container, even if we're sending just two cuts, which was impossible to do beforehand.

 

With regards to the Amazon storage limits, we now have more capacity, or alternatively the same capacity, but we are using less space. So with our Amazon capacity at the moment, we are only using half. I don't know what other people have got there but we can double our inventory levels. Even if we double our sales we'll still be fine.

 

If we double the size, we shall even get more inventory levels. So we've got more capacity base there. The risk we've now got re freight in six ships over 6 weeks, not three months of stock in one ship. Our cash flow smoothed out so we have more available cash. We're less cash tied up in inventory. When we look at this 50% decrease in inventory from $500,000 to $250,000, this is just cash available. It wasn't there before and now it is, so you can do with it what you want, eg pay yourself salaries, etc, etc. As we become more cash capital efficient, we can grow faster. We don't need to borrow or have needed to borrow on our businesses at all anyway, but we could substantially increase in size and wouldn't need to borrow.

 

They've given me a code in SKU or our affiliate code. If you use SKUdropDB if you have an SKU account please use it when you set one up. If you enter that affiliate code in there, you will get free subscription, which is about $9 - $10 a month. So you get that free for a year. To repeat, it is just if you have already got an account, you can just drop that code in there, and you'll get a free subscription to SKUDrop for the next year.

 

My new objective is to keep these webinars to half an hour just so you don't need to listen to me for hours on end. Now we've got questions, so let us begin the question and answer time.