Demand and supply planning for subscriptions ⎜ New Gen Architects ⎜ EP 151
Ryan Cramer: What's up everyone, welcome to my corner of the internet. I'm your host, Ryan Cramer, and this is Crossover Commerce. Presented by PingPong Payments. The leading global payments provider, helping sellers keep more of their hard- earned money. Hello, everyone, and good morning, good afternoon wherever you're listening and watching from. My name is Ryan Cramer and this is Crossover Commerce presented by PingPong Payments. This is Episode 151. You've made it to my corner of the internet, where I bring you the best and brightest minds in the Amazon and E- commerce space. That could be anything from marketing to product listings to supply chain management to anything in between. That is what this show is all about. So thank you for joining in spending some time with us today. Before we get started, hopefully, everyone had a great holiday weekend. If you're here in the United States, Labor Day weekend is when we are doing this. Excuse me, right after Labor Day weekend is when we're doing this. So we hope you had a nice restful, relaxing weekend. Now, it's time to get excited about Q4. I feel like this is the last holiday before even Halloween. But then even for most people in this industry, they're going to be talking about Q4. That's what we're going to be diving into today a little bit of part of. But before we kind of get too deep into everything, I just want to give a shout- out to the sponsor of this podcast and that is PingPong payments. PingPong payments is what drives Crossover Commerce. They help over now one million customers worldwide, transacting over$ 115 million- plus every single day in cross- border payments. Now, to date, doing$ 90 billion in cross- border payments. What does that mean to you the listener? That means saving more time, money, and effort. The topic we're going to be talking about today is going to be supply chain management and various aspects of it. But how do you help save money when you're helping and paying your supplier, who manufacturer VAs, any of your employees worldwide? You can do that and save more money by doing that. With PingPong payments is free to sign up, go ahead and check the link in the comment section or in the show notes if you're listening to this on your favorite podcast platform. That being said, again, subscriptions represent kind of about the topic we want to jump into today. Subscriptions represent a multi- billion dollar industry that is expected to continue to grow over the next few years. For companies considering expanding their E- commerce operations and adding a subscription sales channel, there are very few considerations that if you haven't considered maybe you should. That's what we're going to be talking about today. Subscriptions can be anything from goods to services but mainly, it can be anything from every quarter, every week or every month, you'd be getting something new. Either cultivated with a group of products or your own products that you might be selling with people. You see them all the time and I myself just subscribed to a craft box subscription for six months. Just something new and different that my wife and I could do on a date night. But that can be anything from new products that are upcoming brands or if you want eco- friendly. You can really have all these different topics that you can fit a subscription into. That's what's fascinating, is that not a lot of people are talking about that but we are today. That being said, I wanted to invite on our guest today. Her name is Dyci Sfregola, excuse me, of New Gen Architects. She has been in the supply chain professional problem- solver and studied in Argentina and Belize. Lived in Italy and Germany extensively in her company. She's actually a certified supply chain professional from ASCM, which she is a member. She's also a certified interplay model builder and trainer. But what she is known for is helping people problem solve. That is what if you're a listener to the show, I always say supply chain management is always a puzzle. It takes a puzzler... It's a puzzling situation but it takes a person who can see different topics and put all the pieces together. So you streamline, you save time, money, and effort. That's what we're going to be talking about today. So without further ado, I wanted to make a warm welcome to our guests on Crossover Commerce, Dyci. Dyci welcome to Crossover Commerce. How are you?
Dyci Sfregola: I am great. It's good morning for me also. So good afternoon from your side, good morning on my side.
Ryan Cramer: Good morning. Yeah, I was going to say it's early afternoon for me.
Dyci Sfregola: Thank you.
Ryan Cramer: That's all right because you're joining us from New Mexico?
Dyci Sfregola: Las Cruces, New Mexico.
Ryan Cramer: There you go, see.
Dyci Sfregola: inaudible where it is.
Ryan Cramer: I was going to say, so it's in the western part of New Mexico, closer to California?
Dyci Sfregola: North, southeast... It's northeast... No, excuse me, southeast because Texas is here, I'm looking at a map. This is Texas, this is New Mexico. This is the border of Texas and Las Cruces is down here, like 40 minutes inaudible.
Ryan Cramer: Okay, so southeastern part, closer to Texas, got you. Interesting. Well, thank you for joining us today. You have such an extensive background in this area, in industry but you're with your own company right now, correct? You're the co- founder. But kind of walk us through, why get into this space? I personally know the story and I asked you about this when we initially talked. But for those people who are out there and listening to this for the first time, why get into supply chain management? Kind of why did you get into this space yourself?
Dyci Sfregola: Yeah, definitely, I am happy to answer that. I love talking about this because I think that supply chain is very much a space that doesn't have a ton of new blood and a ton of representation. From people who don't fit the traditional profile of what a supply chain practitioner looks like. So whenever someone asks me, I always love to tell the story because I didn't necessarily fit that mold. It was never something that I thought I'm going to go into supply chain management. So I actually went to school very liberal arts- focused. Ended up getting a degree in Spanish linguistics and literature. Then from there, I went into sales and marketing. So that's what I was doing in Italy, I went into public relations for a little bit. Then from there, did some sales and marketing. Then I also did a stint as a flight attendant for Delta Airlines.
Ryan Cramer: Really? Okay.
Dyci Sfregola: So that was kind of like a piece of customer service. One thing I will say Delta has in a very robust, very good customer service training. I will not put any absolute statements to say Delta is the best airline because I'm sure someone will disagree. But having gone through the customer service training, a lot of that is what I fall back on when I'm working with clients. So anyway, 2016, I decided to go back to school for industrial engineering. So my dad is actually an engineer. He's doing his Ph. D. right now in electrical engineering. Yeah, I don't know why he would ever want to do that. But he really tried to get me an undergrad to go to engineering. You should do engineering, you're really good at it. I was never good at math, so I steered clear of math and physical science, et cetera. Then in like I said, 2016, I decided okay, let me see what my dad was talking about when he said that I would be good for engineering. When I think about engineering, I would not be good at engineering. But he, obviously, has a different perspective. So I ended up going back to school, I got a scholarship to come back to the States and go to school in Atlanta at Kennesaw State University. So I was choosing between Georgia Tech and KSU. At the time, I was not a traditional student. I was newly married, so I was a newlywed, my husband didn't speak English. He was waiting on a green card, we had just moved back from Europe. So I couldn't do like class Monday, Wednesday, and Friday from 10:00 to 10: 50 in the morning. That just didn't work for my schedule. KSU had more flexible like nights, weekends, once a week as opposed to trying to fit in Tuesday and Thursday, things like that. So I ended up going to KSU for industrial engineering and started working for a logistics company Athreepio. That focused on the small and medium business space. So that's when I first got my first dose of like logistics, transportation, the enormous cost that is on the P& L, that line item. Warehousing and pallets and containers and lanes and all of that. It was very interesting, kind of going back to your point of the puzzle. You're trying to optimize so many things. You want to minimize this but maximize that and your constraints are here but you can't do this in this way. So it requires a lot of just okay, where can I put this, where can I put that kind of thing. That was very interesting to me. Then in continuing to do more courses, you learn more about like quality and manufacturing and production, and six sigma. Just all of these very technical pieces and topics that still require a lot of creativity. Also, because a lot of these concepts and ideas were created decades ago. When you sit and you're in class and they show you like this is a video of Demean or this is what we talk about today. It's like 80s, 90s the way people dress, it's so I don't say old school because a lot of the concepts still work. The underlying laws of gravity still exists no matter how inaudible.
Ryan Cramer: Exactly, the concepts are there. But yeah, efficiencies are different, yeah.
Dyci Sfregola: Yeah. So there are some underlying principles that are absolutely still relevant. But we live in a whole different world than the experts and practitioners did decades ago. There was so much data, there wasn't all these tools, the world wasn't so connected. I could start a company today, E- commerce, knowing that I could literally have customers from the entire world. So it's a whole different ballgame now, so it just requires a new perspective on some of the old ideas. So that's why I really liked the idea of getting into the supply chain because I'm someone that learns very fast. Other careers or other jobs left me very much like okay, I did that, now what? Okay, what can I do now? Next.
Ryan Cramer: Move on. Yeah, once you get bored, you move on, exactly.
Dyci Sfregola: But with supply chain, it's not the case. I feel like I'm actually always a step behind. There's always something more I could be learning, there's always something else I could be doing. So that is my happy place. To feel like you can always improve and you can always continue to grow. But I say this, not in a cliche way but all business decisions at some point, manifest themselves in the supply chain. So like financial constraints, whatever your financial budgets are. That, at some point, manifests itself, either in how you design products, how you ship products through your network. Where you actually put the nose of your supply chain, marketing, promotions. All of that then affects inventory, your HR decisions. How are you going to train up- skill people? That, especially now is very relevant with all the new technologies and changing consumer behaviors. So every piece of the business touches supply chain. So when you talk about looking at like the high level and seeing how all the points connect. If that is something that drives you, then supply chain is very interesting. No day is the same, it's very fast- paced. When people understand their role in the process, which is not always the case. But when people understand their role in the process, you realize that you have a very important purpose in this whole thing. So yes, at the end of the day, you want to make money. You want to make money by selling to customers, you want to have good profit margins, et cetera. But when you're in supply chain, you literally directly affect that. You directly affect customer decisions of continuing to buy this product or going to a competitor. So when you're able to say I'm bringing value, you are bringing value by working in supply chain. So kind of all of those things together, being able to always learn and grow, being able to solve puzzles, connect the dots. Being able to just kind of always be on your toes and have fun and have a purpose, that is what really just drove me to stay in supply chain and say you know what? I think I found the thing that I'm going to dedicate hate myself to for the rest of forever because I'm never going to stop learning.
Ryan Cramer: Absolutely. I think for a lot of listeners who are out there, you've touched a nerve because a lot of people are already commenting. Then saying like hey, man you've hit the nail on the head. So I've thrown some of them up there on the video chat. But yeah, Dyci, I think you made an interesting comment, your dad said you wanted to get to engineering. My family also said that my dad's an engineer at Purdue University but he works on the computer side of things. But I think in the old... I'm going to compare this and correct me if I'm wrong. Engineering in the old way was how to get from point A to point B and kind of problem solve but it was mainly just math- focused. Hey, you're going to apply math every day of your life. But now in engineering, you can think of how to efficiently connect those dots and make it efficient. Almost like what you're doing today, how to efficiently piece things together. So in theory, you're doing engineering but on a global scale. Kind of on a more intuitive way of not just coding or any sort of electric. I'm not going to try to pretend that I know all the phrases for engineering but further in... Do you follow what I'm saying? You have to have this visionary concept of hey if I have to eliminate a piece of the puzzle and it's going to save me days of my product being on the water, that's a win. That's going to save my client money or it's going to save me time and efficiencies. It's kind of making things work for you and make it more streamlined. Instead of how are all these jumbled pieces... Actually, can get clogged up pretty quickly. So that means, I'm kind of curious, so you have your background, you got into it. You're continuously learning every single day. People in this space are always asking these questions or have frustrations and pulling out their hair of why are my goods taking so much longer? Why is things all of a sudden getting more expensive? There's all these different questions of now the spotlight is on this particular industry. Are you getting these questions too or is it always been kind of there and looming? Now, everything's just kind of hit all at once and it's kind of a perfect storm if you will of why everyone's paying attention now to the supply chain more than ever?
Dyci Sfregola: I think it's a little bit of both. So, of course, being in the logistics side of supply chain for the first couple of months when I was just getting my feet wet. There was always the question of especially working in shipping, as a free PL. The customers always asked where's my stuff? Our customers, like I put this order from the supplier, why isn't it here? Where's the truck to pick this up? Why hasn't arrived? So that internally for me, yeah, it's always been where's my stuff? I guess it's always late. But from outside of that context and outside of that world of just, for lack of term, Layman's terms, no, no one asked. As like my husband used to tell people I worked for UPS because that was the only way that he could connect what I do to what... He was trying to explain to people who had no idea what the term supply chain even meant. So he used to tell people that I did shipments for UPS or something. That was the way that he correct his brain around it. I actually remember a couple of months ago, I don't remember where I saw it. But someone said that working in supply chain is a thankless job because no one notices anything until it's not working. So as long as stuff is there and as long as the wheels are turning, people are just like okay, cool, that's what to expect. But the moment that stuff isn't where you think it's going to be, that's when the spotlight comes on and is where is all of my stuff? Why can't I get this at the store? Why is this now discontinued? We were getting windows replaced at our house and it's a 14- week lead time right now because everything is just slowed down. So there's definitely a lot more spotlight and it helps to provide spotlight also that now governments are... We need to do supply chain analysis and I want to know everything like why this happened and how we can prevent it in the future. There's so much talk about why everything kind of happened the way it did and is happening the way it is in the last year and a half, inaudible or so. So it's definitely been interesting from my perspective to hear all the different theories. So near- assuring, reassuring. No, people who say it that's not going to happen or by this time, we're all connected. You can't even think of how long it would actually take to change suppliers and manufacturing. There's just so many different pieces, tariffs, and just geopolitical things. Then aside from just people being at home and not necessarily wanting to go and work in factories and warehouses in the way that they used to. So it's one of those things, I was actually literally just thinking about this yesterday. I'm interested to see where the world is going to be in 10 to 15 years. This is one of those pivotal points just in human history where there's so many different pieces. We're talking about supply chain but like consumer behavior. Are people going to go back to the store or are they going to keep ordering stuff online? What's going to happen to commercial real estate? Are companies going to still be leasing office space or are they going to have these different hybrid work environments or remote only? Is it going to look for school and for families now going forward? This is a pivotal point, not just in supply chain but everywhere. So I was just thinking, I'm really interested to see where everything lands in the next 10 to 15 years.
Ryan Cramer: Right. It's one of those compare and contrast. I think the meme online, I love me a good meme. I'll say this, Dyci, and say if you looked back to when you were born, like I'm 32, I just turned 32 yesterday.
Dyci Sfregola: Happy birthday.
Ryan Cramer: Thank you. If you look back 32 years and you look forward 32 years, for example, it's kind of scary. What, that would be 2051 or something like that? Yeah, 2051. You think about that you're like my God if I look forward and wind back time back to the good old 1989 or you've looked forward 32 years. It's almost scary to think like that perspective of time. You're like I was so young and that seems so close to now. But then you fast- forward it 32 years, for example, it changes your whole perspective on the future. So that kind of being said, it's brought this highlight, this pain points kind of have manifested itself. Just, in general, you mentioned your windows it's six weeks lead time. I think when I went to the... We're getting our fireplace replaced. They were saying, hey if you get this one model or just any of these, they said don't even think about it getting that installed until 2022, in three months into 2022. It disturbs me, it makes me think that there's so much out of my control. How do we either feel more comfortable about what we can control in this space? Then maybe how do you kind of adapt? Maybe that's part of our topic today. Is planning for demand and supply, planning for subscriptions. Does that have a difference on what you're planning for when you're talking about subscription models versus bulk ordering items? Does that have a significance difference between the two?
Dyci Sfregola: It does. From a demand- supply planning perspective, if you kind of go back to basic core concepts, you're looking at comparing your push versus your pull system. Those two are planned very differently and they manifest themselves in different costs. Most importantly, planning. The actual planning process of who's going to be involved and when do I need to send the demand signal? What data do I need? The subscription side is more so your customer pulling from your inventory versus you just pushing it out. You don't just buy in bulk and then hope that people will order and then push out what you have in inventory. It requires a very concerted effort of bringing all of your different trading partners, whether they be internal or external. Within the network, everyone has to communicate. So I actually was just reading a couple of days ago, I believe it was a McKinsey study. When people are trying to decide how are we going to set up our network? Are we going to outsource this piece or do this piece in-house? Are we going to do push versus pull? Where are we going to do the push versus the pool? You have different nodes of your supply chain. So maybe you push up to one piece and then you pull the rest or you pull the whole way through, et cetera. But basically, the study said if you really look at the financials of companies who decide to do one way versus the other, there's no real difference. If you look at a bit of there's no real material, statistically significant difference in which one is better over the other. It all comes down to the actual operating processes and the people. So how are you communicating? How are you sharing data? Who's accountable responsible for this piece versus the other piece? When you are in supply chain, that has to happen. When you are trying to plan for subscriptions, even more so because now what you have to do and this is specifically thinking about this comment is for like curating. So you have three basic subscriptions. You mentioned that subscriptions are a multi- billion dollar industry right now.
Ryan Cramer: Which is crazy to think about.
Dyci Sfregola: Yeah. Well, it's crazy to think about how much it is now and how much it's projected to be. So in 2025, McKinsey projects like$ 400 billion. So we're at like in 2018 we were at 13, so we're sitting at 15, 18. So that's how much growth they're expecting between now and then, based off of market signals and consumer behavior. So if you think about how much opportunity there is. You have your subscription models, which are I have a Netflix subscription. I added Showtime to my Prime subscription. That's one piece of it. But the other you have your replenishments and your curating services. So I personally have a toothbrush subscription. You mentioned like your food, your meal subscription. On the toothbrush subscription and on the toothpaste subscription, I know, as a consumer, I don't have to remember to put toothpaste on my grocery list. I also don't have to remember to change my toothbrush every three months like the dentist told me. For just$ 10 every three months, that's going to arrive at my doorstep. That from a customer perspective is... From my personal perspective also, as an entrepreneur, a mother, a wife, trying to run my house. One less thing on my cognitive load, I will take it, especially for$ 10 every three months. They send you the battery, so you don't have to worry about putting that in. It develops a revenue stream that you as a company know what's going to be there. I know I'm going to have very likely this number of subscriptions for replenishment.
Ryan Cramer: Right. It's something you can bank on for revenue purposes.
Dyci Sfregola: Exactly. That's a little bit less complex, in my opinion, than curating. So if you have a subscription service, I was on a subscription service when I was pregnant. As a mom, you're trying to figure out okay month one, what's going to be the problem? Month two, what's going to be the... Month three, what do I need now? But the subscription box sends you a box every month. I think you mentioned earlier, it wasn't their products, they were curating these products that were organic. Hey, mom, in month five, you're probably feeling like this. Hey, mom, it's month two, you're probably feeling like this. We think you would love this. The joy of getting that box every month and opening it to see what fun, cool new thing is going to be in here now? That is a very good experience from the customer perspective. But what does that mean from a company perspective? There's a lot that goes into me opening that box and being so happy with everything that's in it. Even saying this thing, maybe that's not as interesting of what I would want. But everything else in here is so cool that I'm going to continue this subscription. You then have to invest in your curating team, someone's got to have a pulse on the market. It's like having a buyer. If you think about retail and who's deciding what's going to go on the Nordstrom rack, you have your buyers. I have a friend who's studying that in school and honestly until two weeks ago, I never knew what her job was, what she was trying to do.
Ryan Cramer: Rachel from friends guys, come on, that's so easy.
Dyci Sfregola: So you have to have the people who know what are the cool new products? What is our customer base looking for? How are we going to continue to include things in this box to keep our customer base? So you were previously maybe focusing on how do you get new customers but customer interaction is very expensive. You've been in sales and you've done sales training. They always tell you it's less expensive to keep your current customers happy than to have them leave and try to get new customers. So Churn in like six subscription cancellations, I think they're like 40%. So that's actually kind of high. So you have to continue to always be on top of understanding the customer experience and curating that experience when you curate your box of whatever you're sending. So you have to have the data inputs from the customer. They provide qualitative inputs to say I didn't like this, don't send me this next time. But you also then have to have a system to take that information from somewhere. So you have your customer service team that will gather that data but then from there, you have to actually do something with it. So you have to have a communication process to then say okay, thank you for that input customer service team. Now, marketing your curation team. These are the inputs that we got from customers last time around.
Ryan Cramer: Yeah, product purchaser, don't buy this line ever again because no one likes it or no one wants to purchase it.
Dyci Sfregola: Exactly.
Ryan Cramer: I think there's a good... Yeah, a good example of that would be I think Stitch Fix just as a soft goods perspective of they ask you all these different quizzes. They prompt you what is your style? What do you like, what do you not like? How often do you want your curated box? Again, they base it on seasonality if you have upcoming events. They keep it kind of fresh in that aspect. But once if you... They reward you by keeping more of their product that they send you. Then saying I just want one set of shoes and a belt or something like that. When you buy more, you're rewarded with more of a discount, and it's actually more cost- prohibitive to keep everything and not have them send it back. Again, the shipping and cost logistics to send things back it's more expensive nowadays. So they're trying to get you to spend more but also keep more. But curating, knowing what you're keeping, knowing what you like, how it fits you, things like that. You're constantly giving a feedback back to your product team, saying hey, maybe-
Dyci Sfregola: Maybe, in turn, you have to also give that feedback to inventory and the supply team because you don't want to Stitch Fix stylist, using Stitch Fix as an example. You don't want a Stitch Fix stylist to get a consumer profile and know that this consumer wants these items or these types of items and it's not in stock. Then you send something that you know they're not going to keep for the sake of just sending something because what they really want is not in stock. So you have to again, that communication, that planning. This is not something you can do in Excel, depending on the number of products, the number of customers. As you continue to grow, you have to think about the automation and the technology. The reason why I actually got into working with companies and startups that do subscription services and that do kind of rental services. You talked about keep. There's actually a metric when you're doing subscriptions and you're planning for demand and supply. What's your keep rate in this particular item? What's your keep rate in this particular product, family pants, shirts, dresses, whatever it is or success rate? I've heard it called two different things, keep rate and success rate. But you start to play in different metrics. So if you are going to plan those metrics, what is the data that you need to actually calculate what that number looks like? Then at that point, you have to decide what's our breakeven and where are we actually profitable? Like you said if people are sending it back, then we're not profitable because we've paid to send it to them. We've also paid to have it sent back to us. Then also, from an environmental perspective, you want to also stay on top of that. It's one thing to say yeah, I'm just going to ship stuff back and forward, I don't care about the money. But then you get into missions and wanting to be carbon neutral and things like that. The customers that have the extra cash for these types of subscriptions, care about that kind of stuff. I know that I personally have seen a big change in subscription services that do the meal planning, the cooking. I remember a couple years ago when I first got my box, it was full of just stuff. There's just so much stuff and over the years they've started to find like biodegradable packaging. There are all these instructions on how you recycle this piece of the packaging. Rinse out your plastic because some things have to be in plastic for them to be stable, they have to be in plastic. So rinse it out, recycle it, don't just throw it away. This like ice, it's what keeps it cool. It's not dry ice, it's a nontoxic gel that you can dump into the trash and then you recycle the actual plastic. So that has changed a lot over the years. So you also have to consider your packaging. One thing that I didn't like about the curated box for when I was pregnant was just the random... It's cute, you open it but it's like tons of just confetti.
Ryan Cramer: Right, there's a straw or yeah it's almost like it's Easter and you have all the-
Dyci Sfregola: Yeah, and you ordered inaudible list of this because now I have to... I remember going to the trash can like this, hoping that none of it would fall out.
Ryan Cramer: It will always make a mess when you try to dump it somewhere, just spill everywhere.
Dyci Sfregola: Exactly. So those are the types of things that you also have to start thinking about. Again, you want that consumer experience to be this is fun, I can't wait for my box to get here. What's going to be in it this time? But you also don't want them to feel like okay, what's all this packaging? Why is all this plastic? How do I recycle this? If I send it back because they didn't like this product. A lot of times their instructions, it just says use this box, send me back. Don't get another box, just use the same thing. But there's just from the packaging to the curation teams to these new data points that you need, the technology. Really excelling in the subscription space requires a lot of investment in people and processes and systems. If it's not right, you will end up bleeding money. To your point, you give more discounts, people buy more stuff. But at some point, there's also a breakeven on that. You see it all the time now if you go online. You can spend$ 25 to buy this one time or you can spend 23. 50 and do a subscription. But a lot of times those cancellations are so high. it's like I just wanted the discount right now for a couple of months. But now the experience isn't really what I expected it to be and I'm not getting my money's worth for keeping this around. That happened with my meal kit subscription. After a couple of months, the meals were just repeated, and we were getting these subscriptions because we didn't want to repeat the same meals that we were already cooking at home. So you have to stay on top of that and it's not just like I make blue pins, people are going to order blue pins. It's a lot more nuanced. So if you can do it well, it works out great. You don't have to worry about customer acquisition costs, you get your steady revenue stream, your customers are on set, forget it. You are even developing this loyal customer base and they're willing to now buy- in and help you with AB testing. They're willing to provide feedback, we want to try this new thing. They're willing to go into that with you, they're devoted to it. So it's great for both sides but you also have to put in the work. Even with Amazon, Amazon is allowing you to do subscriptions now but you have to be able ship to all 50 states plus Guama and Puerto Rico, and you have to curate everything yourself. So you still have to do all of the work and planning and communication with your suppliers, et cetera. So is it great? Absolutely. But nothing easy or nothing worth having is easy. You've got to make sure you're ready for it because, otherwise, you fail. A girl in our team was devastated. She had built up all these points with this company and she had a subscription. Then they stopped with the subscription service, they were acquired. Without them saying it, it was clear that they just didn't do the planning. The subscription service was very costly and they weren't getting any profit from it. So the company that acquired them just nixed it but they lost a lot of customers in the process. I think she told me that the consolation prize was, well, you can get a 20% off of your next order. She's like, " I've been building up these coupons for a year and I should actually have like two months of free services, not 20% off my next order." So you can fail as quickly as you can succeed if you don't do the investment upfront, of getting the processes in place. Making sure that everyone understands their role in the process. Me upstream, I have to understand how this is being used downstream to make sure that I'm doing it the right way.
Ryan Cramer: Yeah, I was going to say my question, I guess in that as we're discussing this. For people who are listening and joining us a little bit later. Again, we're talking about demand and planning for supply, planning for subscriptions. Should people look at this as a supplemental part of your business as growing that user base not as your main focus of revenue stream? Like you said, it could be costly. Maybe this is something as hey, I'm going to dip my toe in their brand or their product selection. Maybe like every few months or every month, people send you like five curated small items, no more than$ 1 amount. But unless they don't want to jump in fully but this would be something to get kind of that testing market. Is this something that people should look into as a supplement to that or is it smart to just build your business as a subscription- based model? Whatever you're selling and kind of like an offshoot from there, like buy one- offs that you might like. Does that make sense? Which direction should-
Dyci Sfregola: It does. Well, your question does make sense and I'm in consulting, so I hate to give the typical consultant answer. It depends.
Ryan Cramer: It depends. I always ask the question, it depends.
Dyci Sfregola: It does, though because you know what? One of the things that we do and I try to I don't want say caveat but definitely be very clear. Nothing that I ever say is like I don't ever want people watching or listening to go start doing that thing. It very well could not at all be relevant to your business. You should not do something just because everybody else is doing it. Subscription market is a multi- billion dollar opportunity if it is right for your business. If it is not right for your business, don't go into subscriptions. You don't have to go into subscriptions in order to-
Ryan Cramer: You're not going do it if you're selling refrigerators, Dyci. We're not going to subscribe to refrigerators new ones every single month. It would be great, right, you have to move it. It's a thing. Now, yeah, you're right, it really just depends. I guess that market valuation you have to depend on what's your cost of goods? Obviously, you'd have to look at how easy is it-
Dyci Sfregola: Your customer base, yeah. Even whether would it be replenishment or would it be curation service?
Ryan Cramer: Exactly.
Dyci Sfregola: There are companies that are subscription services, you mentioned Stitch Fix.
Ryan Cramer: But they've gone to one- off now, you can actually just go on to their website and you can go direct order.
Dyci Sfregola: You can now direct order, exactly, that's where I was going. But now, at some point, you might decide okay, we'll allow customers to also just order this one thing. Even in like a company that I worked for, they did rental services for tuxedos, so like men's clothing. They started as just like rental. So we get it to you, you send it back to us. It's actually a great model because you just reuse the inventory, you only have to fix whatever's damage or buy new stuff if it's damaged. But on that side, that's going back to the inventory system, do you push, do you pull? They then had this very real concern of you have to have enough inventory because when people inaudible.
Ryan Cramer: To fit all models of people, styles, things like that.
Dyci Sfregola: You always look at that, et cetera. So at the time, their strategy is we're just going to buy a bunch of stuff and then push it out to the customer. But then you have a lot of stuff that maybe isn't being used and a lot of your assets and your capital is tied up in inventory. So I digress. But they were doing the rental and then started okay, if you actually just want to buy it, now that you've worn it, do you want to keep it? Maybe you don't want to keep the tuxedo but you want to keep the tie or you want to keep the shoes. Stitch Fix does the same thing. You have your subscription but maybe you want an add- on. Maybe you want to buy something else or now maybe I just want to go buy a shirt. I'm just going to buy a shirt as opposed to waiting for something coming in my curated box by my stylist. But Dollar Shave Club that was just subscription, we're just going to send you shave stuff. So you really just have to decide where you want to fit in the market. If you want to put in the work of doing both or if you want to do one or the other. So I would say that's what it depends on, how much work do you want to put into it? There are plenty of examples that I can tell you that you do both. Rodan and Fields like beauty, makeup. Beauty and personal care is the big bulk of where subscriptions are right now. Maybe I just want to get a new lipstick or maybe I'm going to wait because they know my lipstick is going to run out, so I'm just going to get the same lipstick every time. So it's very much a personal choice for the company, I would say. It's an individual company choice of how much you want to invest time, money, energy in doing both or one or the other.
Ryan Cramer: Sure, that makes sense, and it's all very fascinating. Again, it can be very lucrative market or it can be a supplemental, to build your loyalty base. It could be this completely different offering, different companies that are like- minded like you. Have you even seen them putting products in that same subscription box but they pay you to put their products in your box? Does that make sense? It's almost like they're driving revenue models in different ways.
Dyci Sfregola: Yes. It's very interesting that you say that because I remember thinking when and I don't know if this is true, so don't hold me to it. I'm going to spread a rumor.
Ryan Cramer: That's what we're all about here.
Dyci Sfregola: I remember when I was a flight attendant and people would say like don't give the can because we pay for that. Then other people would say no, we don't. That is basically gifted to us because those brands want their product in the hands of all the passengers. So I don't know which one is actually true, maybe it's a mix of both. But I do remember thinking when I got my box and I will see all these new products. I always remember thinking I wonder if the subscription company is getting paid to put, basically, as sponsorship dollars. If I had a product and I want people to know about it, I can do different advertising. I can do a billboard, I can do an Instagram and a Facebook ad, I can do all of these different options. One of those options is I'm going to put marketing dollars and sponsorship dollars in paying these subscription services to put my product in their box. What that does then maybe I give them a coupon and that will drive customers back to buy directly from me. As the subscription service that's curating, they don't have their own products. I can't go to the subscription. So I couldn't go to subscriptions service and say okay, I want this new organic face wash for moms. I had to then go look for that actual company's website or look to see if I could find them in the local drugstore. That's how I was able to buy the product.
Ryan Cramer: Absolutely.
Dyci Sfregola: So yeah, very good point, lots of different business models.
Ryan Cramer: But you can get paid to even... Like you said, the coupon code, they might say like$ 50 off, knowing that coupon code only represents from that business. If they instead of a product, they can say like$ 50 off any of our products. You go to their website, you put in a code. I know for a fact that my marketing dollars worked because we spent anything of just put a code on a piece of paper. Now, people are spending maybe 25 less percent on our products but they're still buying our products that they might not otherwise. Again, it's an ad spend, it's a marketing spend in some of those boxes. You can get creative and say hey, learn about our goods and services. If you are a fan, you get additional discount. If you haven't, you're acquiring that customer, essentially just through a piece of paper in a subscription box. So there's all these types of nuanced marketing like we've talked about you and I, marketing- minded people. How to get people to buy directly from your website to gain access to them, knowing which outlets are working? It all kind of works together. We did have a quick question, I know we're already at the close to the top of the hour, Dyci. So we do have someone, a friend of the show who asked wouldn't push versus pull and this is going back to our supply- demand questions. Would push versus pull just have a different risk factor, which pull being based on current demand?
Dyci Sfregola: Yep, absolutely. That is 100% true, especially with pull being both based on current demand. So in any sense, you want to make sure that you are forecasting demand. But a lot of times if I think about a push system, specifically what comes to mind is like lot for lot ordering. Every two months, I'm going to order 6000 units because that's just what I do. You can't do that with a pull system because then you... It just doesn't make sense. So what you're doing is forecasting the... It's more closely related to just- in- time. How much are people going to ask for next month or two months, three months, whatever is, based off of my lead time that it takes me to get this product? That's how much I'm going to order. So, of course, yes, you risk that people want more, you don't have enough, so you stock out. That people want less, you have too much, and then you have to figure out what to do with it. So you might put something on promotion to try to get rid of that inventory. But with a pull system, like we talked about, it requires a lot more organized supply, sales, and operations planning process. I don't want to... Go ahead.
Ryan Cramer: I was going to say, is that more of what you're seeing? You're seeing a lot more smaller- based quantities more often? That are being requested from their suppliers, instead of like big bulk orders, saying I'm like 20, 000 units. More often that trickle effect of inaudible.
Dyci Sfregola: You have to weigh the holding cost with the shipping cost and the value of the inventory and how much of your capital is going to be tied up. But also, wanting to meet customer demand, so you might hear like service levels. Is a metric that might end up being tracked a little bit more often. It just requires a lot more true cross- functional collaboration. I say S& OP, sales and operations planning but also kind of like I don't want to say it because there's a lot of room for opportunity to interpret what that means. It's also not if I think of sales and operations planning and when I talk to companies, it's you don't really hear that term and see those processes in motion. Even the idea at some of your smaller businesses. For whatever reason, a lot of small businesses reserve those types of processes for big, large enterprises or companies. But the underlying value of the process is the same, whether there are four or five people involved or 400 people involved or 4000 different actors across the globe. The underlying processes are the same. So yeah, there are risks and pros and cons for both systems, absolutely. Again like I mentioned, you normally will have some type of hybrid system. Most companies have a mix of push and pull depending on the point of the supply chain. So vendor, raw material supplier, maybe your manufacturing, maybe not. Even in the case for certain companies, like you might sell other people... It's like the grocery store. I sell Kellogg's brand but I also sell my store brand. So I have to also plan my manufacturing as much as I have to plan orders from Kellogg's. So again, it's always it depends and you have to weigh the investment that takes the inputs and the outputs, et cetera. It requires a lot of advanced reporting to do it well and that advanced reporting requires a lot of data. To get that data to a point to where it's actually usable, you need a lot of systems, actual technology tools. So like you just keep going on and on, you need more, you need more, you need more. So then does your total cost of ownership justify making this decision to go into this market or to offer in addition to my subscription, we're also now going to do direct order? In addition to my direct order, we're now also going to offer a subscription. So that's one of the things that I find the most interesting with our clients and what we do. Is that business case development, an ROI analysis. It allows me to be very methodical and how we talked about previous like engineering. You are taught as an engineer to think very step by step, I feel like a lot more critical thinking. Taking those concepts and applying it to business, which tends to be traditionally a lot more gut feel, how's this going to go? Well, if you meet in the middle with applying those engineering processes and concepts to the business, what you get is hard numbers and analysis. That say low, medium, high scenario, you should pursue subscriptions, low, medium, high scenario you should not pursue subscriptions. As opposed to just my goodness, guys, I read$ 400 billion by 2025, we got to get on it. It might not make sense.
Ryan Cramer: Dyci told me to start it now. Well, yeah, with that being said. So, I guess like with the few minutes we have left before the top of the hour, what would you tell a client that's asking you, Dyci, what should I focus on for the rest of the quarter or the year, going into 2022? Is it diversifying and trying something new like this or maybe go into subscriptions? How do they look at the numbers and know that they're ready, potentially to dive into it?
Dyci Sfregola: How do you look at the numbers and know? That's a good question. I don't think that I have just kind of like one standard answer that I can-
Ryan Cramer: Right. It's almost like you know when you're ready kind of when you're done.
Dyci Sfregola: It's not when you're ready. But first of all, is what you're doing already done? The assumption is that you have a business, not that you're like sitting and saying Dyci, should I start a business?
Ryan Cramer: Right, two different things.
Dyci Sfregola: Maybe I did but assuming that you already have a business. Well, before you do anything, the first thing that I would say like even aside from the business analysis of should we invest in subscriptions? If you're in subscription, should we invest in some type of direct order to diversify? Is what you're doing now profitable and repeatable? Going back to those... foreign language. Okay. He just asked if he could have a vitamin but he already has vitamins.
Ryan Cramer: There you go. Well, hey, that's a nice thing to ask. Can I keep myself healthy, mom?
Dyci Sfregola: Can I have another vitamin? But yeah, are your processes repeatable, are they standard? Does everyone know what they're doing? If people don't know what they're doing now, they don't know why they're doing it now. You throw in another mix, then it's just going to be even messier. So if you want to consider diversifying and adding on this additional sales channel or revenue stream in Q1, then what you should do in Q4 is that piece of it. Start documenting your current processes. What's your current state versus your ideal state? I like to tell my customers to use the SIPOC framework. Again, kind of going back to like your more technical stuff, use a SIPOC framework. So your supplier, your input, your process, your output, and your customer. Who is giving me this information? What is the information? What is now going to happen that I'm going to do with this information? What is the output of what I just did and who is going to consume that? So if you can identify that and document it for everything that you're already doing. Like I mentioned, you're probably going to have to up your software game a little bit. If someone's going to come in with software or a developer, they're going to have questions about what inputs and outputs are? What business process am I supporting? You have to be able to give them something, so that they can look at it and say I need to develop the system or configure the system to support this business process. So document your processes, make sure that everyone understands... foreign language. Make sure that... He just needs to be acknowledged.
Ryan Cramer: That's okay. He's like mommy, you've hit your hour mark, it's time to play, mom.
Dyci Sfregola: Yeah, he is also. But make sure your processes are documented, make sure people know what's going on. Start to look at your systems and your data. If your data is already a mess, it's not going to get better because you're going to need a lot more data points. So before you even embark on determining like the actual ROI analysis, just get the house in order.
Ryan Cramer: Absolutely.
Dyci Sfregola: You also can't do the ROI analysis if your current data points aren't even... If you can't pull a report-
Ryan Cramer: They're not correct. Yeah, exactly.
Dyci Sfregola: Yeah, you can't pull a report consistently every Monday that's going to show you the same. The numbers, the values in sales will be different but the columns, everything else is going to be the same, every single time. You have confidence that those are correct? That's a whole separate conversation.
Ryan Cramer: We need a part two.
Dyci Sfregola: Do they make sense? So before you can even start to do the ROI and the business analysis, you have to make sure that the data is in the right place and the business systems are in the right place. Operating systems, not technology tools. That's going to help you understand okay, now what are all of the things that I need to buy and what's the investment that I would need to make? Even looking at your current team if we do get this tool because we need it because it's going to provide better data, well, do you have someone on your team that can interpret that data? So it's not just hey, here are some numbers. It's a lot of fixing things first or getting things in order so that you can then run the numbers and from there, you can decide. That takes a lot more time than you think because you have to do that, plus you have to run your business. So if you want to do this, you need to whole inaudible doing that.
Ryan Cramer: I was going to say if someone's listening to this right now, Dyci, and someone's like I need your help, how do people get in touch with you? What's the best way after all this and they're like I realize I need your help, I need help sorting these processes? What's the best way people can reach out to you, connect with you in that regards?
Dyci Sfregola: Message on LinkedIn. Definitely a message on LinkedIn or just email me, our URL it's dyci @ newgenarchitects. com. Just my name at the email, architects we build and engineer processes and systems, not buildings and bridges.
Ryan Cramer: There you go.
Dyci Sfregola: But yeah, so it's newgenarchitects. com and just dyci @ newgenarchitects. I'd be happy to talk to... No, regardless of where you are. It's very interesting stuff for me, so I do like to make time regardless-
Ryan Cramer: But like you said, you have clients but you also you consult as well, which is super fascinating. This is the space that I'm always like back here, I'm just like I'm going to listen the whole time. This is not me talking anymore, this is me listening and writing mental notes. It's such a fascinating, no matter which path you go down. It's always going to yield so many different factors like data points. How do you ebb and flow with different things? There's so many things-
Dyci Sfregola: That's why supply chain is so fun.
Ryan Cramer: There you go. Yeah, exactly.
Dyci Sfregola: That's why supply chain is so fun. But I really want to drive home that research has shown. It's not what you decide to do, it's how you decide to do it. So you can decide you want to do one, you can decide you want to do the other. But you have to just make sure that everyone knows what's going on, the business processes is understood. The communication and collaboration is happening, to make sure that whatever you decide is actually executed in a way that makes sense.
Ryan Cramer: Absolutely. Well, thank you so much for hopping on today. Again, now friend of the show of Crossover Commerce. We'll have to have you on just to talk part two and three and just go down these rabbit holes. I promised we wouldn't go down but there's so much to go through and to always kind of keep, like you said, learning, and stay in front of it. It's almost impossible to do but hey you're one of those few people I think that could handle it. So thank you so much for hopping on Crossover Commerce today, Dyci. It was very fascinating as always and thank you for the time. I know with a little one running around, it's always tough to just step away for this long, so I appreciate the time.
Dyci Sfregola: No, I appreciate you having me. I thought we would get through it.
Ryan Cramer: We're almost there.
Dyci Sfregola: Well, he made an appearance.
Ryan Cramer: He made it.
Dyci Sfregola: Yeah.
Ryan Cramer: No, it's okay. Well, I appreciate as always. Always having a surprise guest appearances is always nice on the show. So thank you so much again for your time and we'll have to connect again here shortly to part two or three here going into Q4 of 2022. So thanks so much.
Dyci Sfregola: Yeah, always happy to come back, thank you.
Ryan Cramer: Thanks, Dyci. Again, thank you again for everyone else who hopped on to listen to Crossover Commerce. Again, this is my show, my corner of the internet as I like to call it of the best and brightest in the Amazon E- commerce space. Again, we talked logistics, subscriptions I think that my biggest takeaway is going to be. This can be a big supplemental part of your income or it can actually be a big focus. We talked a lot about a lot of brands and businesses who make this the number one component of their life but it might be a little bit difficult to forecast for supply and demand. It can be something that you can have as part of your baseline and know what to expect on a month- to- month basis. But it also can be something that can be difficult for how do you keep it fresh, how do you use data points to help build the customer loyalty, brand loyalty, product, cultivation, and innovation? All these different things you can learn and grow through subscription- based service. So that being said and you're ready for that part of your business, go ahead and you can give Dyci and her team over at New Gen Architects a call or an email. You can connect with her again. Although all of her contact information is going to be on the show notes below. But if you like what you heard today or if you liked what you saw, go ahead and, of course, give us a big thumbs- up on all of our different platforms. As you can see if you're very familiar with the show, I have lots of cool little graphics. Now you can add to the streams. But give us a thumbs- up on all of our social media platforms on this episode, specifically on YouTube, LinkedIn, Facebook or Twitter. You can if you're listening to us, give us a thumbs- up as well on your favorite podcast platforms. That being said, I'm Ryan Cramer, this is Crossover Commerce. This is my corner of the internet. We'll catch you guys later this week. Again, we'll be live again tomorrow. Just a quick little teaser if you will of how a million- dollar brand becomes a$ 10 million brand with Chase Clymer of Electric Eye. We're going to be talking with him tomorrow live on all of our social media channels. So if you like what you have to hear, go ahead and tune in, and ask your questions. But other than that, my name is Ryan Cramer, this was Episode 151 of Crossover Commerce. Take care.
Ryan Cramer of Crossover Commerce talks with Dyci Sfregola of New Gen Architects one-on-one to discuss demand and supply planning for online subscriptions.
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