Progress Update No. 01 - Switching Suppliers

How It Was Before

This was one of the first products I launched. It's a vegan-friendly version of Omega-3. Traditionally, Omega-3 capsules are made from fish oils which clearly aren't suitable for those on vegan/vegetarian diets. This one is made from algae oil which is 100% plant-based.

Product-wise, there weren't really any customer issues with it. In fact, it currently has 300+ reviews which are overwhelmingly 5-star. While that's great, you unfortunately you can't leave things there.

On the back-end, there were some challenges that I just about overcame to get this product live and working.
Namely:

• high Minimum Order Quantity (MOQ)
• long lead time (i.e. the time from placing a purchase order to receiving the goods)

High MOQs

When you're starting off, your first orders are likely to be a bit dicey with your manufacturer. On one hand, you want to order as few units as possible to minimise risk, but  your manufacturer wants you to order more for it to be worth their while.

The trouble is that often when you want a certain level of quality or more specific requirements, you need to go to suppliers who will do it but demand higher MOQs. You can find suppliers offering to do small runs, but these usually offer little flexibility and you'll have to make concessions on the product spec. No one said this was easy!

For this batch, the total cost was something like £32k.
That's for ingredients, manufacturing, packaging and copacking.

Long Lead Times

The very first order had a lead time of around 6 months(!).
This was exceptional though because of COVID.
I was, however, looking at lead times of 8-12 weeks.
Longer lead times can be managed. But just know that it will:

1. Make demand planning harder
2. Tie up your cash for longer (not good for bootstrapped businesses)

Was The Problem Really That Bad?

Before, I thought it wasn't (which is why I went for it!).
However, I've come to appreciate the importance of balancing supply and demand. It's ok to stretch yourself to meet an MOQ for maybe the first order or so, but after that you have to get demand up to speed. If you don't have a realistic plan to get demand into balance with supply, then I'd suggest finding another way. You'll have to change anyway so may as well save the time/effort.
The imbalance will only cause problems.
You'll feel the pressure of stock that takes too long to sell through (especially if it has an expiry date). And your suppliers will grow weary of your tiddly purchase orders and vague promises of larger ones in future.

And on the cash side, if you're bootstrapping then take this seriously! It's usually not the kind of problem that you can leave and it'll "figure itself out at some point". Cash is your lifeblood. When the bank account hits zero, the game's over.

There's certainly a lot to consider when mulling over your first few Purchase Orders, which is why I've done a whole post on it here:  How Big Should Your First Purchase Order Be?‍

How It Is Now

After a lot of time spent talking with various suppliers I now have a situation where:

• MOQs of around £8k
• Lead times of <6 weeks

(Wow, look how it's changed!)

This takes a lot of pressure off of demand planning and allows me to tie up far less cash with each Purchase Order (PO).

Lessons Learned

I've covered more lessons I've from my first few Purchase Orders in this dedicated article.
But the main lesson I'm taking from this is that Ops/Finance are best handled by the pessimist in you.
Assume that there will be delays (upon delays), that it will cost more than you thought and that you'll sell less than you hoped.

I'm used to a Marketing environment where you have your optimistic hat on. If you're the same, I recommend that you get a new hat, or at least borrow one from the cranky Finance person you secretly judged for being so negative about everything. If they can give you their input, you should be so lucky. You'll certainly need it! 

‍