E-commerce Pitfalls: From Wholesale ERPs to Choosing the Right System

Transcript:

Jared Ward: 0:25
Welcome to my first solo episode of Ops on Filter. I'm Jared. I'm the founder and CEO of Luminous. Luminous is inventory and supply chain for the modern e-commerce company. Today I wanted to for our first solo episode where you get to hear the ramblings of a madman. I wanted to dive into a topic that I'm very familiar with, which is ERPs and back-end systems. So the state of the market, the state of the union who is this podcast for? Like, who is this helpful for? Yeah, I'm kind of just rambling on what Bluminous is doing and why I started it, who we serve. My hope for this episode is an e-commerce operator or founder can see themselves in my story and get some value out of why they feel how they feel when it comes to operating their business.


Jared Ward: 1:17
Why did I start Luminous? Well, I started Luminous because I saw a massive gap in the market and I experienced what that gap meant for e-commerce operators and founders. So I actually came from a sourcing supply chain background. So I ran a sourcing division for made in chinacom and we basically I would find e-commerce companies who had trouble setting up their supply chain and they were my clients. So I would, I would take on their purchasing, their factory setup, contract negotiation. I tried to save them money. I tried tried to move them from China to Vietnam just back in sourcing services, if you will. So I started getting exposed to the problem at depth while I was sourcing for all these different companies and I was exposed to a lot of different points in the e-commerce ecosystem. So I worked with Amazon sellers. I worked with 3PLs. I worked with brands that were super simple. They would just like replenish to a 3PL and maybe replenish Amazon FBA. They didn't do their own fulfillment in-house. I met with platform sellers and I helped source clothing for them, for example, like jadecom, a couple of their sellers I helped source for them. I sourced for complex brands that did in-house fulfillment and sold on a wide variety of channels. That's when I started to notice first off that there was a gap. So, after meeting with all these different sellers, and again since I was handling the sourcing and procurement so, for example, I'm working with a company that sources you know they need me to source cans for their drink.


Jared Ward: 3:17
Okay, well, you know, the conversation would typically go something like this All right, do you have any current quotes for your cans? What have your purchases been so far? How many units are you going to move this Q4? What's your current lead times? So basic questions for like forecasting or really just planning the demand of your product so that I can have an idea of like what you know, what quantities are we dealing with?


Jared Ward: 3:46
What was wild to me was every single one of the companies that I worked with none of them could produce a forecast. And if they did that, or if I just asked them for basic things like you know, how much do you purchase? Last, the same thing they'd like go through their email and search their emails to find this purchase order or really like a pro forma invoice from the factory. Like they weren't even keeping track of the purchases themselves. I'm sure it was logged somewhere in quickbooks as a bill, but really their accountants just worried about that when it came to anything inventory, ops, forecasting it was a black hole. None of these brands could actually forecast for me and I always found that so alarming because I was dealing with anywhere from $3 million to $50 million a year brands or companies and so all of them were doing serious volume.


Jared Ward: 4:47
And that's when I noticed I was like huh Cause in your mind a lot of times you think, okay, $15 million a year business, they've gotta have a system Like if I asked them, how many units are you gonna pull in Q4? They have to be referencing, like you know, some module in sap or netsuite or like you know any erp or any system where it's just super dialed like, yes, this skew, we're going to move this much, we have this much on order. Right here we run a quick report this is how many we bought in 2022. Uh, that wasn't the case. So that was the first time my expectations were shattered of okay, you know any, any brand company doing like three to fifty million dollars a year. It does not mean that they have a legitimate back-end system for their business to reference everything, literally reference everything. How many years did I purchase? What am I forecast to sell through? How many are in the warehouse right now? How many are at FBA E-commerce companies? The vast majority of them don't have a system in place for that.


Jared Ward: 5:55
So I found out for BlackSync. That's where I started to understand that, okay, there's a gap here. I don't fully understand it. I just know that there's a gap here. I don't fully understand it. I just know that there's a gap and I kind of just kept operating that business for a while the sourcing business. I would just help clients source their stuff. I would come up with my own forecast. A lot of times made some really good connections. There are people that I stay in touch with to this day.


Jared Ward: 6:25
I eventually moved on from that sourcing division to a company called Qualtry. So Qualtry is a local Utah company. Qualtry was one of my clients that I had sourced for. So I had helped them find better pricing with cutting boards, with miscellaneous things. They sold a lot of products.


Jared Ward: 6:47
So I went to Qualtry and it was part of my first proposition to them where I was starting Luminous. And so I came to Qualtry and I told the CEO. I interviewed with them. They already knew me. They already knew that I could save them a lot of money just through my sourcing manufacturing connections. I'd already demonstrated that before and so I went to them and I was like hey, I'm done with this phase of my life, I'm ready to move on to my next one. My next one is's Luminous. And so I. The proposition was like hey, just bring me on as your director of supply chain, let me source for you guys full time. I'm going to save you guys so much money, get things super dialed, cause at that time they didn't have anybody like really focused, like any executive focused on that pillar of the business.


Jared Ward: 7:43
That's where I first started building Luminous and it was from the perspective of a modern, multi-channel e-commerce company. So that kind of lays the groundwork for how Luminous was built. That right, there is why we're different than most companies. So most backend systems or software that get built, they get built by engineers. They're familiar with the problem but they're not close to it. Or like, for example, there's a lot of systems out there that were built by engineers first who you know they. They built a backend system because you know they worked with a 3PL, or they worked with a manufacturer and they had to build like custom modules and like ah, I could resell this to e-commerce companies. Or there's so many stories out there of like somebody who fundraisers and you know they're like a, they're a purchaser or demand planner for a big company, like a Fortune 500 company, and they built out these amazing models and that's the backbone of their forecasting tool that they build and they go down and market themselves. E-commerce Luminous was built out of the trenches of modern multi-channel e-commerce the trenches of modern multi-channel e-commerce.


Jared Ward: 9:08
Qualtry was probably the most complex company that you could dream up to build a solution around. So Qualtry, we sold across like 10 different channels. We had a wholesale arm of our business. So I break down complexity at different pillars. Number one is your channel mix. What is your channel mix? Okay, so we sold across like 10 different channels, so a bunch of different platforms. We had multiple Etsy accounts, multiple Amazon accounts, multiple Shopify stores and we had a wholesale arm of our business, multiple platforms like Groupon as well Janecom, and again wholesale, which Forms like Groupon as well Janecom, and again wholesale, which is. That is, an underestimated arm of the business that drives so much complexity for e-commerce companies. That's a crucial one. And your backend system that you use. If you have a wholesale arm of your business, do not underestimate that. It will screw you because so many of these systems don't account for wholesale, or at least the way modern specialty wholesale is done, and I'll dive into that a little bit. But that was our channel mix.


Jared Ward: 10:10
The next pillar is fulfillment and warehouse ops. So do you have a warehouse that you operate? The third thing is your purchasing and manufacturing. So are you purchasing raw components that get manufactured into a finished good? So, for Qualtrade, yes, and not only were we purchasing raw units that are being manufactured into a finished good, we were a personalization company. We were a personalization brand. We'd really aggregate a bunch of different brands and channels and we were the manufacturing and the fulfillment that was driving that. So it was so unbelievably complex. The company that Luminous was built for a $15 million a year e-com brand that sold across 10 different channels, had a wholesale arm, purchased raw goods. Every single one of them went through a manufacturing process, a personalization that was sent direct to the consumer and, on top of that, forecasting, reporting. All that. Like we bought from overseas suppliers, raw materials got consumed and shipped out to the finished customer. So raw materials got consumed by our machines and then they got shipped out to the finished customer. So raw materials got consumed by our machines and then they got shipped out to the final customer. So that was where Luminous started. We started in the trenches of Qualtry and I think that's shown in the product.


Jared Ward: 11:39
Another part of the modern e-commerce company is it's not just okay. Do you check these boxes right? Do you upkeep? Do you sell across multiple channels? Do you have a wholesale arm? Do you do in-house fulfillment? Do you purchase raw goods that you have to demand plan? Sure, there's those check boxes, but the most important check box for modern e-commerce is are you having like two or three people manage all of that? And if the answer is yes, then welcome to modern e-commerce.


Jared Ward: 12:10
It's like we handle every single point of the supply chain, every single complexity, from a wholesale or distributor, importer or a retailer. We handle all of that complexity. Oh and, by the way, we run super lean. So we do all of that shit with two to three operators. Yeah, that was Qualtry, the person managing all of that. There was somebody who's managing purchasing and sourcing just one person for over, I would say, like three $4 million of purchasing. There was one main person, the COO, who was managing the entire warehouse and all the operations that went into that receiving, manufacturing, shipping out, and then there was one person managing all the wholesale side of the business.


Jared Ward: 13:02
So all of these things are super complicated and they require a certain breadth of features. For a system to even be considered by a quality or a moderate e-commerce business, you have to have a certain breadth of features and on top of that it needs to and this is where a lot of operators miss on their tech decisions is it has to be able to be, it has to be built to be operated with one person. Worst case scenario, like one person needs to be able to run all those functions that I just said and have the ability to scale up into. Like sure you know, one day you could have a whole purchasing team on Luminous, but more often than not, tools can almost always be ran with like 5, 10, 15, 20 people. The question, the important question for e-commerce is can I do all of these functions with like one person? The answer to that is normally no.


Jared Ward: 14:06
That's what started this systems issue at Qualtry and that's what really sparked this conversation of okay, what is Luminous? What are we going to do? How are we different than other systems? And, as I was, I really took that opportunity to research as many systems as possible, and that's where I came into contact with Big E, or Keys, netsuite, acumatica, dynamics 365, more lower down-market tools, point solutions that do one thing pretty well. And, yes, it was built for like an e-commerce company with not many people. You know things like SKU Vault, finale Inventory there's literally hundreds of down-market inventory tools, and so what I noticed was it was kind of a common theme when I was going through and demoing every single one of these systems.


Jared Ward: 15:11
So, first off, with the big ERPs, they can solve all of your problems. They can do everything. I mean, these tools have been being built for decades. Netsuite can technically do everything. The problem, though, is NetSuite, acumana, dynamics 365, sage. These were built for teams that have a purchasing procedure like something like this. A purchasing procedure like something like this Okay, so I have a whole module dedicated to demand planning. Okay, so I have a whole team who their task is to keep the demand planning module in NetSuite accurate so that my purchasers can go and write purchase orders, you know, and that's gonna be like a five ten step process writing one purchase order. And that's going to be like a five 10-step process writing one purchase order, splitting shipments, keeping track of COGs, having a totally different contracts team, like a team that puts the contracts, attaches it to the purchase order and it goes through a million different approval processes. Netsuite, acumatica, dynamics 365, all of these big ERPs were built for massive teams and if you're a team that has one purchaser, it's not a good fit and NetSuite will tell you like no, you know, we have other clients who you know they just have a one person purchasing team and NetSuite's a great fit for them.


Jared Ward: 16:40
How, if a small e-commerce company uses NetSuite and they say they're happy, there's one of two things happening. One is just a general tolerance Like my purchase process is 15 steps long. It's ridiculous, I'm just tolerating it. Like it takes way too long. I spent way too much money on this implementation. Therefore, I'm not even going to look at other solutions. This is just like this general tolerance, because you're just handcuffed. You're like I spend so much, I'm locked into a contract like what is whoa. It's not even worthwhile for me to complain. Even if I do complain, netsuite's not about. They're massive. Why are they going to listen to Joe Schmo, purchaser over here? Okay, so, like I said, either you are just tolerating the complexity just because you've paid so much money, you're in too deep and you're locked in the contract so you can't really do anything about it. That's one quote unquote happy customer on NetSuite.


Jared Ward: 17:37
People who are just happy customer on NetSuite, people who are just tolerating the 15-step receiving process, the 20-step fulfillment process, or they customized it. So in NetSuite and big ERPs you can customize your flow. You can take that big, massive purchasing process and simplify it down to a couple steps, but it costs a lot of money. And that's where so many people are like they just don't get it, where, yes, netsuite or Acumatica, they can come and quote you like a base price of $3,000 a month, but what they're not telling you is it's a big ass system that can do everything you need it to do, but once you customize it to do what you need it to do, you're going to get a $100,000 bill or more.


Jared Ward: 18:33
This is what turned me off to the big gear piece. First off, obviously, the cost it's made for massive companies. I think all of that would be fine if NetSuite was building towards mid-market e-commerce. They're not. Their client concentration is not that NetSuite had a broad tool. They have multi, multi-million dollar a year contracts with massive companies. That's where they're going to focus. Why would they focus on mid-market? They went down the market as an experiment to see if they could sell e-commerce companies and simply because mid-market e-commerce has nobody that's actually solving this problem effectively. They had success. But you're starting to hear NetSuite horror stories now from when they went down market sold people.


Jared Ward: 19:27
And the fundamental issue is NetSuite's roadmap, their ethos. It's not for mid-market, it's not for these e-commerce companies from, you know, 1 million to 100 million dollars a year in revenue. They truly are built, structured and purposed as a company for massive, massive companies. You know, multi-billion dollar companies or nine-figure brands. That's not most of e-commerce. Most of e-commerce, even if you're $50 billion a year, even if you're $100 billion a year brand, you don't have massive teams. You have, most of the time, even with a $100 billion brand, you have less than 50 employees. So that was the biggest issue at Qualtry.


Jared Ward: 20:17
When I was looking at the big players, the big ERPs, I noticed that really fast. I was like square peg, round hole, no thanks. On top of that, I wouldn't talk to a bunch of people that implement NetSuite. That's an interesting experiment right there. Not a single person who's implemented NetSuite in e-commerce. You know a down market e-commerce company has said you know what it was really smooth, went really well. We loved it. Not us. People have never heard those words uttered. In fact, I can confidently tell you anybody who's implemented Big ERP at a small e-commerce company. They say the same things it sucked. The general thing that gets said is it sucked super expensive way more expensive than I thought Like, oh well then why don't you change? Well, we're kind of stuck. We're stuck in a contract or we've already invested so much into it there's nothing really more that I can do. My hands are tied. I've never heard anything different than that ever. So I think that's a good summary of big ERPs for e-commerce and the conclusions that I drew after demoing and after researching and talking to so many people who had gone that path. Okay, so now more down-market tools. Okay, so what's like down-market tools? After researching and talking to so many people who had gone that path, okay, so now more downmarket tools. Okay, so what's like downmarket tools? What I mean by that is okay.


Jared Ward: 21:52
At that time we were on ShipStation, google Sheets, quickbooks and, sure, like Asana, other project management tools, but so the downmarket route is basically implementing an inventory tool or an ops tool that, like it, could do some of the things you needed to do, but not not everything. We actually ended up going that route. First, actually implement skew vault. I'm using this, this tool, to supplement my inventory and warehouse operations. It costs between $100 and $2,000 a month and it can do most of the things or some of the things that I need to do, but not everything. And, by the way, it doesn't really integrate with everything very well. It's not super customizable but, like I will at least keep track of inventory.


Jared Ward: 22:43
So we went that route and it was simply cost. It was netsuite quoting us at a hundred thousand dollar minimum implementation. Um, between five and seven thousand dollars a month. All in so a lot of money and at that time time we couldn't have afforded that because there was too much downside with that path. If it didn't work then we were screwed and we would have had to dump more money in and we would be stuck in a contract. Just a horrible prognosis for any e-commerce company in our situation. So we ended up going the down market route.


Jared Ward: 23:20
After I demoed a bunch of tools like Sin7, finale, sku Vault, sku BANA, I ended up going with SKU Vault. The cost was around like $1,500, $2,000, I think, all in after like all of our seats, after exercising all the seats that we had. So why did we choose SKkuVault? Well, again, going back to our attributes, real fast, Qualtry we were on ShipStation, google Sheets, quickbooks, super complicated, sold across like 10 different channels, warehouse operations, light manufacturing, the whole shebang. So SkuVault seemed like a basic inventory tool that would do the job. Seemed like they could handle kits and bundles, which we had a lot of. It seemed like they had pretty decent auto-depletion that could just hook up with ShipStation. It felt like, okay, this is a tool that we can just dip our toe in the water and it will serve us and give us some value. That ended up being very wrong and give us some value that ended up being very wrong.


Jared Ward: 24:24
And with a company with the attributes like Qualtry, there's so many considerations that you just don't think about until you're implementing. So, for example, two biggest issues with skewball Number one. Number one was just user interface. It's really difficult to navigate. It wasn't straightforward. Uh, just finding a product and the bins that it was at, the bins that it was located in and or like how much is in storage? Man, it took like six steps to find that a lot of times, like the basic user interface was really difficult to navigate. Um, that was the first thing that I noticed. But we again back to this concept of toleration. We tolerated it, we were like, okay, it's all good, whatever.


Jared Ward: 25:04
The second thing that I would say was our biggest issue was kits, kits and bundles. So this is again if you are a kit or bundle heavy company, you need to dive into some of these complexities. So for us, kits, we did virtual stock. Virtual stock is the highest quantity component is the available inventory push to your channels. So, in other words, it's instead of instead of actual stock. Like you have 27 in stock. All it's saying is okay, in this kit, I have this and this. Okay, and this, I have 10 of this and two of this. Well, I'm going to be pushing, I'm going to be pushing, I'm going to be pushing two. So the lowest available of the components is what's pushed I think I misspoke before, actually, I'm sorry. The lowest available amount of one of the components is what's pushed. So virtual stock, there's like a round trip, there's like a data round trip. That happens because normally the sync, like it, updates the virtual stock every 15 minutes and then it gets pushed back to Shopify.


Jared Ward: 26:17
So the problem that was happening with Qualtry is man, this component was in 100 other kits and oh, by the way, we also sold this thing individually. So what would happen is we would get especially like busy seasons we would get a bunch of sales which would take. So a sale would come in. You know like five of these within one minute. You know like five of these within one minute and normally that goes to committed or like allocated or pending. Some inventory systems call it, which depletes your available. So the problem with kits and bundles and system and virtual stock is we would oversell all the time and that's the whole point of it. An inventory system is supposed to stop you from overselling. Keep you in in.
Jared Ward: 27:07
It wasn't doing that, so we were just sitting there, stuck, we kept overselling, and it's because how they did virtual stock, it wasn't fast enough for multi-channel e-commerce and so after literally months of trying to fix it like I mean we had an account manager. I hardly talked to him, like it was very difficult to get him on the phone. You have to schedule him a week out. He didn't really understand our ops, so I was calling into the call center all the time and none of the people at the call center they were really smart, but they weren't on the ground floor with inventory ops. They were just experts in skew vault and how to jerry-rig the system. They weren't operators. They actually understood the problems I was running into. So, again, bad user interface.


Jared Ward: 27:51
Kits would not work correctly, or at least as we needed them to work, and then also wholesale. We had a totally separate wholesale business and skew vault could not consume that data in a compelling way. So we were just left, sort of. I mean, it's just the wholesale business was just this thing that happened in the corner and we were just closing our eyes and like I think we're gonna do this much this year and inventory wasn't really consumed really effectively. Like you had to do a I can't even remember the process at that time with skew vault. Like the manual order in shopify that went to ship station, that you pushed to skew vault, that you had to manually deduct. It was wild and it it never ended up getting done. It's just kind of like wholesale is only like 20% of our business or like maybe even 10%. And yeah, for those three things. That's why I say, like this conversation matters Upmarket ERPs.


Jared Ward: 28:56
They're too expensive, it's always going to be more than you think and then you're going to get stuck. So for when new tech comes out that can effectively service you the way you want to be serviced Sorry guys, you're stuck. That's a hard contract to get out of with NetSuite. Then on the down market side, you're like okay, it can do these three things. They're saying they can do numbers four and five. I'm not sure. Let's find it out. Well, guess what? At Qualtry that was like six months of time wasted just to figure out like, oh yeah, they can't service us. All of that.


Jared Ward: 29:28
To say back-end systems matter. It's the difference between spiraling out of business or just totally stagnating, staying at $15 million a year, or actually achieving your full potential as a brand. I sincerely believe that an e-commerce company, their ability or inability to implement a system of record or a backend system effectively, is going to be in the difference between them, between them reaching their full potential or just stagnating, just kind of never getting past that phase. And I have a lot of empathy for them because I was there and I was in their shoes. It's like how do you choose? You're in between a rock and a hard place. Do I choose the cheap thing that won't really serve me at the end of the day, or do I choose the massive thing, massive commitment that could literally put me out of business if it's not implemented correctly, and then I'm stuck. I get it, guys, like that sucks.


Jared Ward: 30:27
And that's where Luitus comes in. We are the first system on the market that can give you a NetSuite-esque offering, meaning we come in and solve your problems and we're not just a system like this massive system that you customize for a lot of money. No, we were built in a certain way where we can handle your breadth of features that you need, and we were purpose-built for the modern brand, meaning whether your purchasing experience is with one person that also runs the warehouse, we were built for that. If you scale into a five-person purchasing team, we can handle that as well. That works. But the ethos of our company we are built for modern e-commerce, all those attributes I was talking about wholesale arm, multiple channels, being able to link into your existing ecosystem.


Jared Ward: 31:30
Hands-on support, not just like an account manager you get to talk to every month A system built for operators by operators, and we are here to help brands achieve their full potential. That's why I'm doing this. I sincerely believe Luminous. If we effectively solve this problem, we get to help thousands, hundreds of thousands of brands achieve their full potential. And it doesn't matter if your full potential is a million dollars that's great, I'd love to help you. It doesn't matter if your full potential is a million dollars that's great, I'd love to help you. It doesn't matter if your full potential is $90 billion here.


Jared Ward: 32:10
Not every company in e-commerce is a billion dollar exit. In fact, I would say the beauty of e-commerce is you have the opportunity just to take off little pieces, little chunks of the market, and Luminous is the first system that our entire organization is built to serve you, no matter what your ceiling is, whether that's like I said, whether it's five million dollars, a shilling or 50 or 100 we're here for it. You don't have to tell us that you're going to be a billion dollar company for us to serve you like. We're here for it. So, anyways, hopefully these ramblings were helpful to somebody. Uh, we'll see if we we do another one of these solo podcasts, but, um, yeah, thanks, guys, and we'll see you next week. Bye.