Tech Talk: Shoestring Commerce

mike lewis

• May 27 2009
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• 6 comments

Everyone’s looking at their operations these days - searching for ways to run leaner, ring dollars out of every process, boost margins, and increase the ROI of every activity.  While adding new technology may take a bite on the front end, on today’s business playing field, software systems are changing the game by boosting efficiency, reducing mistakes, and automating time and wallet sucking processes.

Shoestring Commerce is a Denver based software company that designs hosted ordering and inventory management systems for action sports retailers and manufacturers since 2004. The system is designed to  save money, improve efficiency, and overall operational effectiveness.

“The number one benefit we get from Shoestring is the accountability we have on our vendors,” says Sean Robinson, owner of Denver’s Emage Network skate and snow shop, and one of Shoestring’s first partners. “It helps us know what’s supposed to be coming and when, what we got short shipped or over shipped on, if proper discounts were applied, etc.  Most shops don’t realize how often orders get shipped way before or after the scheduled shipped date, how much their orders are getting shorted or padded, or if the discounts they were promised even get applied. When we write an order in Shoestring, the receiving process is much more simple, fast, and consistent.  We already have all our pricing and categories set, so when the product shows up we just select what we actually received and it imports right into our POS system.”

The system is also designed to help manufacturers’ processes.  “This system makes order entry so quick and easy that our sales team can spend more time doing what we should be doing - selling!” says Celtek VP of Sales and Marketing. “The Shoestring product lends legitimacy and professionalism to our small business. Our order system is better than some of our big competitors!”

After hearing these reviews, we caught up with Shoestring President, CEO Sean Kennedy to find out more about the system and how automating your processes can help give you an edge.

Tell me about your business model and history.

Shoestring is dedicated to removing all of the unnecessary costs from the supply chain and feeding those savings back to the retailer and the supplier. [We] started building software in early 2004 that would address the inefficiencies we saw in the indie retail sector.  I had worked with another company that provided EDI for the smaller manufacturer and thought that looking at the problem from the retailer’s perspective, rather than just the manufacturer, and foresaw the need in the marketplace.  We signed our first retailer client, Emage Networks (a Denver skate/snow shop), who happened to also have built their own POS system and were about to package and sell that system.  We formed a partnership and the retailer supply chain product took off from there.  We just recently turned our attention back to the manufacturer, launching our first client, Celtek, in February.

What are the biggest benefits of automating inventory management and reorders?

Core retailers have gotten consistently better with inventory management, tracking their sales and their customer buying habits through their POS system.  What is often neglected is how the product got into inventory in the first place.  Receiving directly from an order not only drastically speeds up the process of getting product into inventory; it also exposes the weaknesses in the supply chain.  Are you getting all of the sizes you ordered?  How many shipments are you receiving that big pre-book order in?  How badly are those shipping costs cutting into your margins?  How close are your suppliers to hitting the promised ship date?  Are you losing sales because product that should have arrived didn’t ship?  Answer these questions and share the results with your suppliers.  They’ll either strive to improve, offer you discounts or both.  After all, these suppliers are interested in you selling their product and this is a good way to turn the relationship into a collaborative effort based on solid data.

How many clients do you have in action sports?

About half of our 65 plus shops are in the action sport industry.  We have shops like Cowtown, Emage Network, Radio Board and Milo Sport to name a few.  We also have Celtek on the manufacturer side and a couple others that are in the contract negotiation stage.

Why should I, a hypothetical retailer/manufacturer, fork out the cash for this right now when my sales are down?

There’s always two ways of cranking up your overall profit: increasing sales and cutting your overhead. In the best of times, most of the focus is on broadening the sales universe and opening as many new channels as possible, but when things get tight you can still up your bottom line by looking inward.  This means cutting costs, and if you can use technology to cut your costs over firing employees everybody walks away happy.  If electronic order processing can cut costs by 80 percent, this is a very easy way for a manufacturer or retailer to save some significant cash in tough times.

Eighty percent? How so?

Let me be clear about the 80 percent quote: Forrester [Research] said in their report that electronically processing orders can cut costs for the manufacturer by 80 percent.  How does this add up?  The lion’s share of the work in processing orders is still data entry, these orders coming in by phone, fax or Excel file have to be manually entered into whatever system the manufacturer has on the back end.  If the manufacturing can get the retailer to do this work for them by using the web portal, which also has availability info, or by using the order form that we provide that can be uploaded, you are cutting out all of this manual entry.  The other cost savings comes in by eliminating data entry errors and the subsequent mis-ships.  If the retailer is doing the work on the portal or the order form, you have totally eliminated the human error on the manufacturer side caused by re-keying all of this data in.  The OIA did a study in 2003 or 2004 that found that each mis-ship cost an average of 89 dollars to fix, and that was five years ago.  So you can see how this stuff adds up pretty quickly.

On the retailer side the cost savings are a little more subtle. A study done by Martec in 2004 showed that COGS accounted for 45-80 percent of all sales across the board for all retailers. For smaller retailers this number is much closer to 80 percent then for the BOX shops which are down around the 50 percent level.  Why is this? Different overhead structures, volume discounts, and national marketing campaigns play a role, but hands down the biggest reason is efficiency. The BOX shops are fighting tooth and nail to get a tenth of percent more inventory turn or getting that hundredth of a percent in gross margin return.  Most independent retailers out there don’t even calculate these metrics primarily because they don’t have the data to track it. Our software gives smaller retailers the same tools and data to become as efficient as the BOX shops.

In order to achieve all the benefits of the system do both the retailer and manufacturer have to be on the system? How does it work if only one partner is?

The reality and the challenge of the supply chain is that everybody is using a different system.  We assume that the majority of our client’s trading partners are not using our software.  On the retail side this means that the retailer will send a PO to a supplier in that supplier’s format or as an HTML email that the supplier can then easily enter in to their system.  One of the biggest benefits for the retailer has been being able to place orders directly from the manufacturer’s catalog, and the manufacturers and reps have been great in providing us with these order forms/ catalogs that we read into the system. Counting our archives, we’re sitting at over 2,100 catalogs in the system.

On the manufacturer/supplier side we provide the wholesale portal that any retailer with a dealer agreement can log on to and place orders, or they can use the order forms that we provide.

When both sides are using our software that’s when the magic happens. The latest pricelists are made instantly available; inventory availability in real time shows up in the retailer’s system. This full trading nirvana opens up so many new possibilities. Imagine this scenario: A retailer places an at once order in his own system directly from the supplier’s catalog. The retailer knows that he will get the entire order because the supplier showed that it was in stock. The supplier fulfills the order and ships it while sending an ASN (advanced shipping notice) to the retailer’s system. The box comes in, the retailer checks the contents then clicks the ASN to approve. Everything automatically goes into inventory and immediately starts printing custom labels. A rep from that same supplier then walks in to discuss next season’s lines. The rep pulls out her iPhone to check what is in that retailer’s inventory for her brands as well as how her brands sold for the last three seasons. When the rep starts showing the line, the conversation is about why this shoe will sell so well for that retailer, not just the generic – ‘this is gonna be the sickest shoe this year.’ All of a sudden both, sides are actually working together to sell more product based on real trends and real data.

This technology is right around the corner.

What technologies do you see on the horizon for helping retailers?

Mobility is huge.  With the best programs moving to the cloud, retailers can now run their stores from the beach if they wanted to. I have also seen retailers sell product to people from their phones, just randomly on the street. This also applies to buying, we want all of our retailers rolling to SIA next year with nothing but their phones and being able to walk out of there with 90% of their ordering done.

An example from Shoestring’s online usage report.

How are sales with the economy?

Sales on the retail side of things have slowed, but the outlook for our manufacturer products is good.  Our software offers efficiency, which in a down market can be a very attractive way of cutting overhead.

How much does the system cost? I’d imagine it’s scalable – what is it based on?

The system starts at $150 / mo for manufacturers, $50 / mo / shop for retailers, and we are now selling the system included in a $99 / mo POS that is developed by Company Be.  The system scales based on number of dealer accounts for suppliers and number of shops for retailers.