How Matt Reduced His Inventory Costs From 25% To 18% Of Total Revenue

NAME:Matt Hodge
LOCATION:Australia
LEVEL:8 Figures
RATING:
DESCRIPTION:

Matt has sold over $17 million as a top seller in one of the most competitive categories on Amazon.com. He knew how to start and grow a business. What he didn’t know was how to optimize his supply chain to maximize profits. After working with us Matt was able to increase his profit margins dramatically and save $100,000's per year in unnecessary costs.

TRANSCRIPT:

Hi there. My name's Matthew Hodge. I'm based in South Australia. I've been selling on Amazon since 2013 and as of early 2021, I've sold more than $17 million on Amazon. I engaged Daniel in 2018 to help streamline my supply chain in China. The whole process led to a deep transformation, not only in my business systems, but also my bottom line. At the time we had more than 150 SKU's where we're using a ground agent who acted as an intermediary between us and all of our factories in China. And Daniel's team were able to analyze bestselling products and conduct a thorough investigation where they were comparing sourcing options. Looking at similar factories, pricing, minimum order quantities, production, lead times, and so on. The investigation produced a report that showed we were paying slightly too much for inventory which I guess is known to happen when you've been with the same suppliers for a number of years, as we had and was also due to the fact that our ground agent was being paid on commission.

And so that meant that it wasn't really in her interest to be regularly renegotiating with the suppliers and bringing the cost down because it meant less money for her. But armed with the evidence that was in the report. I was able to get leverage in the relationship with her to compel her to see both the seriousness of the intent that we had to really take this on and drive these costs down but also the gravity of the situation. If in fact we were paying too much and it sort of had been happening under her watch. So that sort of spurred her to go on and visit a lot of the factories that were listed in the report as well as to go back and talk with existing factories as well. And even though in the end this endeavor did not lead to us switching existing suppliers or even ground agents.

What it did do was it led to an education and a deeper understanding in our existing supply chain. For instance, we learned that price is not everything and factories need to be compared on an apples for apples basis. And by that I mean you need to be looking at factory size professionalism scale, how long they've been established, their reputation and so on. Lower price really is not as important as a supplier who knows your product well and who's done right by you for a number of years. So that was really important to us. I also learned that you can negotiate with your suppliers but only if you're armed with great information. You can challenge them to value your business and not take it for granted. And you can use information like this to keep them on their toes and sort of keep them fighting for your business.

And so we did end up seeing some lower prices from our suppliers but more than that, we saw a greater commitment to a mutual relationship on their side which is worth a lot because that's what leads to Goodwill, which you need when things either go wrong or when you need favors like a rushed order through or you know, you need them to break down a whole container and relabel things on a public holiday, that sort of thing that does come up in this business and having that relationship really makes that difference. Finally, probably the most influential result we had was it led to reviewing our relationship with our ground agent. Now she was on 15% commission at the time which is not that high for a new seller, starting out, given how much they hold your hand and do everything for you in the early days.

But given that we'd been in business for a number of years by that stage it was too high and we'd never renegotiated. So at first we explored the option of actually bringing her services in-house to try to reduce the costs. But in the end, we realized that her knowledge of our business and our products and the supply chain as well as the demonstrated loyalty and commitment that she had shown to us over quite a few years was a true asset. That was worth something and shouldn't be discarded and that there were risks of discarding that as well. So we opted to renegotiate with her and were able to bring her down from 15% to 7%, which was massive. And if you don't ask, you don't get, so this whole sort of project lead us to have these conversations that we weren't prepared to have.

And weren't ready to have otherwise. All in all the decisions that we made from this exercise that started with Daniel's team led to our inventory costs coming down from 25% of our total revenue to just 18%. And when you're a multi-million dollar a year business, that is big, big dollars. It also meant that we deeply understood our own existing supply chain and it strengthened our relationships and our position with those suppliers. Finally, I just want to say that working with Daniel was a pleasure from the start which is not always the case in this business. He was a consummate professional. He was always responsive and committed to our cause, whether or not the decisions led to a bigger payday for him and his team. Yeah, I've got great trust in Daniel's knowledge of the Amazon business model. As well as in his integrity as an individual. Thanks.

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