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Growing Lean
Unlocking the Mysteries of Supply Chain Management with Aaron Alpeter
Get ready to unlock the mysteries of supply chain management with our distinguished guest, Aaron Alpeter. As a seasoned supply chain expert and the founder of Isbaco, Aaron distills his vast experience, from his education in supply chain management to his leadership roles at Unilever and various successful startups. Imagine having a roadmap to navigate the complexities of supply chain management - Aaron shares his understanding of the Pareto Principle and the pivotal role of Sales and Operations Planning in ensuring a thriving supply chain. His insights are not just theoretical, but are backed by real-world scenarios, providing you with practical strategies that lead to success.
Now, picture this - a supply chain so efficient that holding inventory and stocking out are no longer your constant nightmares. That's the promise of AI in supply chain management. As we delve into this exciting topic, Aaron sheds light on how AI is transforming business operations, from managing inventory to avoiding hefty fines by effectively navigating retailer routing guides. He further shares his company Isbaco's ingenious approach in aiding startups to scale and exit successfully. This episode is a treasure trove of information for businesses eager to understand and harness the potential of supply chain management, punctuated with Aaron's expert advice. Listen in, as we unravel the intricacies of supply chain management and discuss how AI is reshaping this critical business function.
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Hey there, folks. Welcome back to the growing lean podcast. This is your host, ethan Halfide, sponsored by lean discovery group and award winning software development firm. I'm here with Aaron Alpeter, who is a supply and chain specialist taco aficionado, swedish speaking. He's the founder of isbaco, which helps physical good startup start, scale and exit. Welcome, aaron.
Speaker 2:Thanks for having me, ethan.
Speaker 1:Yeah, happy to have you Love the audience. A little bit more about yourself.
Speaker 2:Yeah, simply put, I'm a supply chain guy, so I think I've loved supply chain since before I knew what it was. I studied supply chain at school and was lucky enough to work at Unilever for the first five years of my career, and then I wanted to get into startups, and so have been a C level executive at a number of very well known startups and have had a great ride along the way.
Speaker 1:Awesome, so tell us more about that actually. So the C level executive at what kind of startups supply?
Speaker 2:chain, of course, yeah, yeah. So Hubble contacts was the first company that I joined and that was a fantastic experience. I joined when it was just an idea. I remember sitting with the founders eating some fried pickles at a restaurant in Port Authority in New York and they just asked how do we supply chain? And I kind of was taken back by that question and talked about you know how, you know sourcing a factory and setting up all the freight forwarding and the regulatory environment and finding you know how much inventory you should hold and fulfillment centers and kind of everything goes into that and a short story line of wanting to work with them and was there for about a year and then have been able to work with companies like the Farmer's Dog, the Flex Company, mir, as well as dozens and dozens of other one.
Speaker 1:On startups Wow, awesome, awesome. So now you kind of brought down the background of you specifically. Now, what's the background of Isbaco? I understand it comes from your expertise and your background, but why did you think Isbaco was the best solution for the people currently out there?
Speaker 2:Yeah, you know, I noticed this interesting phenomena and it really started to play out when I was at my first couple of C-suite postings is that these companies desperately needed operational help, and they would. They'd say, okay, we need to hire a CEO or director of ops or VP option like that and in reality, they needed somebody to do something very specific for a specific period of time, and so maybe you need a manufacturing person to come in and help bring your product to market, set things up, negotiate with the factory, but then afterward you know that manufacturing was kind of said and forget it. Right, there's still work that need to be done, but now you need them to do something around fulfillment, or you need something somebody to do something around planning or customer service or you know whatever else was there. And so I noticed that there was inefficiency with how startups were bringing ideas to market where they needed expertise, but they didn't need 100% of that expertise for years on end. They needed a series of experts that could come in, solve a very discreet problem and then be able to swap out for something else while still maintaining continuity, and so that was really the genesis behind Isba.
Speaker 2:I think we were one of the first, if not the first, companies to have this fractional COO offering, and, effectively, the way that we work with brands today is that we'll always start off with a very well-defined project.
Speaker 2:We've got folks in our team who have run factories themselves, who have been founders, who have sold companies, who you know are all different types of food and beverage, apparel, consumer electronics, medical devices.
Speaker 2:So we have this deep bench of people who have done what you're trying to do before, and what we do is we take a couple of those experts, deeply embed them inside your business, to knock out that first project, but then in most cases we'll flip over to some sort of retainer, and our whole ethos again is that start, scale, exit. That's also the way that we want to work, and so we come in, we stabilize the messy parts, we optimize the gray parts and then, as soon as we know that there's repeatable work, we want to work with that brand to hire a full-time person that is going to be completely dedicated to their business. On their payroll, we'll manage them for a period of time before handing the keys of the supply chain back over to that startup. And so, really, our goal is not to be there forever. We really want to leave behind a very, very strong internal supply chain team by the time we're done.
Speaker 1:That's awesome. So I actually want to do a bit of a deep dive In your opinion. What is like so you're familiar with the Pareto principle, right, like you know, you do 20% of something and it leads to 80% of the results Within supply chain management, or getting it right, like getting that supply chain right. What is like the Pareto's principle of it? If anything? What's like the hardest part? This?
Speaker 2:is the single biggest thing, and you could probably you know we could in the interview after this, but the single biggest thing that people need to get right that will determine if they're successful or if they're not successful is around the concept of SNOP planning, sales and operations planning, and it is more than having a forecast. It's actually a way of doing business, a way of thinking. In a nutshell, what you need to have is you need to have a meeting of the minds from your marketing team, your supply chain team, your finance team every month where you talk about what you want to have happen and how that differs from what you think is going to happen, and then compare that with what actually happened. And doing that one thing unlocks so many different doors because, again, just sticking with supply chain, if we look at this and say, all right, we think that we're going to double month over month for the next two years. Well, that tells me that I may need to go find a new factory nine months from now. Well, guess what? It may take six months for me to onboard and find a new factory, and so I can start working on that before it's a problem, as opposed to always being late.
Speaker 2:There may be other considerations where we look at this and say you know what? We can't grow that fast because in order to do so, we're going to burn cash at a higher rate than what we're comfortable with, and so let's actually not do that so that we don't run into a funding issue, and maybe we're okay with slower growth. And so there's so many different things that come out of being able to do that, even halfway right, whether they be staffing decisions, inventory decisions, how much you're going to spend on tech. All those things kind of come down to just doing that one core principle.
Speaker 1:Well, Well said. I mean, there's so many dependencies in the physical goods space, like physical workspace locations, and then talent, right working capital and everything like that, and then you have to order the product, manufacture the product and everything related to that, which is so far out of my purview. But it's fascinating to understand the difference between scaling a digital company versus scaling like a physical goods company. It sounds like the best way to put it is that there's just way more dependencies. Is that correct?
Speaker 2:It is. I would say, too, that there are some principles that come over to completely digital company as well. So, before you build a product, you're scoping out the feature set, you're thinking about what people are going to use, you're making a hypothesis on what the future looks like and you're making a bet on how much you're going to invest from a cash perspective in this case, in engineering hours instead of inventory into that hypothesis. And so it's not just for inventory, right. Everybody has finite resources, whether it's time or cash and being able to think about all right, what's the MVP that we have to get to, what's the MVP milestone we have to get to for this? Next thing is important as you're building a tech product, you may decide to do things differently if you know that it's going to take three years to build versus three months. Right, and what kind of payback you're going to be looking for to unlock additional funding.
Speaker 1:Absolutely. So now, with something as complicated as supply chain management, as an expert, what is your overall business strategy? Right, like you come into a business, they're having one or more of the most common problems within supply chain management which maybe you can speak to. What is your overall business strategy for helping them?
Speaker 2:Yeah. So I'm going to take a step back and talk about Isba in general, because what we've done is we've built a portfolio of supply chain services and supply chain tech companies that altogether help brands start, scale and exit, and we actually have four different brands underneath the Isba group, if you want to call it. The first one is Isba Consulting, and the whole focus of that is bringing in high caliber fractional expertise that can help brands improve their profitability and their cash flow. So this could be something where you have an unexpected leadership change and you need a VP of ops COO level person to step in and stabilize the situation and get through a crisis. It may be SOP planning, we talked about. It may be finding fulfillment centers, it may be finding factories, all those sorts of things that go into that. So that's company number one.
Speaker 2:Company number two is Sourceify, which helps brands lower their cost of goods sold, and so the way that this works is let's suppose you've got an item that you're producing and it costs you $10 to make.
Speaker 2:We've got a network of about 3000 factories around the world. We'll go find it for 850 and then sell it to you for 860. And so a completely different business model from Isba Company. Number three is a software product that we built called Capable, which helps brands hold their three PLs accountable, and so there's a free Shopify app. You basically connect to your store, you upload your fulfillment contract and then we compare every order for when it should have shipped according to your service level agreement and when it actually shipped, and we're able to help you figure out if you had a good partner or not. And then, lastly, is the Isba Exchange, which brings everything together, and it's the internet's largest database, open database of three PLs, and so everything there is completely free, indexable, you can search it, and so if you say, hey, I need to find an apparel fulfillment center that's happy with doing under 500 orders a day in Southern Virginia, we can bring up a list of three PLs that you could connect with directly there.
Speaker 1:Nice. And for those who don't know what is three PLs stand for, Is that private label?
Speaker 2:Yeah, third party logistics provider, so fulfillment center warehouse.
Speaker 1:Okay, there we go, awesome, Awesome. So all right, I know COVID kind of shook up the supply chain, right. How have you adapted to those changes and are they lasting, or is everything back to normal?
Speaker 2:What's normal. You know, covid was a really interesting period because the problems that you have in supply chain are the same now as what you had back then, but what was different was that the magnitude was emphasized, right Like things became a much bigger problem when they might have been a smaller problem, and then the speed at which things were changing were so quick. So some common issues that you always have with supply chains we'll just take inventory, for example is there's this constant battle between holding as little inventory as possible and stocking out, and you know, if you are fulfilling all of the orders on time, most big companies will say, hey, you're holding too much inventory, hold less. And then, when you are holding, when we are cutting orders, to say, hey, you know, you should be holding a little bit more inventory, stop cutting. And so ideally, you want to hold no inventory at all. Right, because that is going to give you the fastest cash conversion cycle, and that's what you want to do.
Speaker 2:That is normal. That's how it's existed for the previous 30 years. That's what's going to look like the next 30 years. But what COVID did is you had all of these variables that popped up where you weren't really expecting things to go wrong, like people just didn't expect that. Hey, you know, maybe my factory is not going to be able to produce, or the fact that I can't cross a border, or the fact that I don't have drivers or people to work in the warehouse all of these things kind of exacerbated. And you know, in supply chain it's a lot of like managing risk and there was a lot of low level, low probability risk that we thought before COVID that became medium to high probability, that had an enormous impact, and so there's a lot of recalibration of what people were doing.
Speaker 1:Awesome, awesome, wow. And then you know, okay. So I'm fascinated with AI, right, we're building a lot of AI applications for companies and I'm jumping ahead a little bit here. But I do want to understand, I do want to pick your brain. I every day, pretty much, I'm signing up for a new AI tool because there's some exciting use case. In use case, it's automating something like calendar AI. I can talk to you about that offline, but how has AI impacted your supply chain and what's the scope in general?
Speaker 2:Yeah, so it's impacted a lot and also not a lot at the same time. So, and so what I mean by that? There we're still in the first inning of the AI enhancements that we're going to see, and there we're not at the point where you can plug something in and out. You know, out pops the supply chain and things just work, and frankly, I don't think we'll ever be that way. I think what we'll find is that we're going to get better leverage on the existing talent pool that people have, the existing tools that people are using, and so maybe, rather than hiring four planners, you hire one right. That's where we're going.
Speaker 2:You know there is a lot of work that's been done for many years in machine learning around route optimizations, of figuring out which path the truck should take. Ups and FedEx, famously, have had software for decades at this point that reduces the number of left turns that they make right, because you know you have to wait for the light change. That's like they route it so that you always turn right. In most cases, they can do it, and so what you're going to find is that AI will be more of an augmentation for what people are doing, and they'll be the first things will be impacted will be the things that happen behind a computer. So things around forecasting, things around planning, you know, order management. Those sorts of things will be the first thing to get hit by AI. And obviously the analog things driving trucks. Even though we've got self-driving technology, I still think from regulatory perspective we're a long way away from having that sorted.
Speaker 1:Yeah, hmm, well, okay. So if we think it's a long way from being sorted, you know I see the implications of it right now. But let's talk about okay I'm going to put you on the spot a little bit because I know that you're you know you have so much domain expertise with supply chain management. But if there's a speak to a specific problem that you had that you were helping another company solve within the supply chain, let's talk about purview. How do you think AI could have helped with that? Like, how did you overcome that and how do you think AI could have helped?
Speaker 2:Yeah, so one of the best applications I've seen so far is just around knowledge arbitrage. So I personally think that you know what is going to change very quickly is that you know whether it's consultancies or businesses that just happen to know more than you and that's kind of how they're making money. I think that those are gonna go away or not be as prevalent, and so you know. A really great example that that makes a lot of startups or just folks stressed out is what's called retailer routing guides, and so if I'm a brand, I'm expanding into Target or Walmart, there is a book of 400 pages that talks about all the different ways that Walmart wants you to label the product that you're sending to them, what you're allowed to do, what they can't do. It's organized by category and, more often than not, like there are some aspects of it that contradict one another. So page 85 may be different from page 472 and depending on how you read it, you may decide what you do. And these are big deals. I mean, not only are these big PO amounts, big dollar amounts, but getting this wrong can result in tens of thousands of dollars of fines from retailers, and so most brands go through the school of hard knocks to say, well, you know, we got fine because this was wrong, so let me not do that and see if I fix it and get it going.
Speaker 2:What we're doing, what we're leveraging AI for, today, is we have these routing guys and we have gone through and crawled All of those details and so now we're able to ask a question and say, hey, when I'm shipping dog food to Target, what is you know? What are the right ways for me to label this? And because of what, oh you know, ai is able to do? It's able to look at all of that information, synthesize it and they give me very actionable, very detail oriented things in order to Get it right the first time. So that is a good example of where AI is making a big impact today, and so I said it's making a big impact. That's awesome at not making a big impact. This is an area that you start to see immediate results love it, love it and then you know something that's.
Speaker 1:The supply chain, by nature, is a chain of people that do very niche things, that provide you know overall value to the system, right, can you? You know what partnerships and collaborations make the most sense for someone starting out like who? What would you call the person that's now starting out that has to master a supply chain? Sure, like a new e-commerce owner, something like that.
Speaker 2:Yeah. So if I was starting an e-commerce brand today and use for for CPG founders, so consumer package goods founders, I think, as a side note, venture capital is going to become not as Available for these types of companies in the future. So if you have an idea for a food product, I think it's going to be more difficult For you to raise money earlier on. There's just a higher bar and so, given that context and understanding that you're probably going to have to start by bootstrapping your business, there's some key things I would do first. The first one is Keep it as simple as possible, right. You don't need to be D to C and Amazon and retail and wholesale and farmers market all from day one. Pick one channel right, and, you know, don't be afraid to kill a channel if it's not giving you the result that you need based on the work you're putting in.
Speaker 2:The second thing I'd say is to stay local, right. I was just mentoring an entrepreneur here in Charlotte and you know she has these ambitions of being a national brand and kind of building a great company, and what I told her is well, rather than focusing on becoming a national brand, let's focus on being a regional brand first. Let's focus on being a local brand first and just try to simplify those things dramatically and work with, you know, a local manufacturer, work with a local warehousing provider, work with local retailers who can sell your product and get to a point where you could be anywhere within 45 minutes if you had to be. To just slow things down and simplify it, as opposed to maybe saying, okay, I'm gonna put my factory overseas and I'm gonna, you know, try to sell in the Pacific Northwest. If I'm living in, you know, florida, 80% of the headaches you're gonna have as an entrepreneur come in how you design your business and how you design your supply chain specifically.
Speaker 1:Awesome and you know it might seem like a very cliche question, but I'll tell you why I'm asking it. So I remember years ago, maybe around 2016, I was a personal trainer and I wanted to learn about e-commerce. So what did I do? I created a Shopify store called One Stop Fish Shop, just sold it like I probably broke every marketing rule because I just was a general fitness store and I drop shipped things through. There was a plugin called a Burlo and then that integrates with AliExpress, so then whatever stuff I listed on Shopify, it would drop ship from AliExpress.
Speaker 1:Right, there was a ton of issues with like the e-pack delivery and just super long like delivery days and stuff like that. Very expensive shipping, sometimes dependent on the product. What are your thoughts on drop shipping? Because I hear a lot of people in the younger generation like that's their way, like their get rich quick scheme, and I don't really think it's much of a get rich quick scheme. I think you really can become successful there and learn a lot about business and supply chain. What are your thoughts on drop shipping? Honest thoughts.
Speaker 2:Yeah, I think there is a space for drop shipping, but I think that the window of let me just put a website up and compete on AdWords that have very little competition those days are behind us. What people want now are not just brands, but they want creator content. They want some authenticity. So if you look at the brands that are being started today that are being successful, you have people who are, first and foremost, content creators that already have the ability to connect with people. They built an audience on TikTok or Instagram or choose whatever medium you have, and then they happen to be selling things in that nation.
Speaker 2:So drop shipping is a strategy, it's not a business. I think it's a great idea this concept of taking money in and then not holding inventory and having it dropped. I mean that is a phenomenal business principle. But again, it's a strategy, it's not a business. And so if someone's looking to start an e-commerce business today, the first thing they're gonna have to do is to figure out how they're going to attract that audience, because Facebook's oversaturated, google's oversaturated. You're going to have to have an enormous war chest to effectively rent space on Google through ads in order to acquire fishing lures or whatever you're working on, whereas if you had a TikTok channel where people knew you and followed you because you were the fishing lure guy, well geez, that's so much easier to then say, hey, here's the specialty thing that I made. You can order it for 10 bucks or whatever and then have that drop shipped.
Speaker 1:Absolutely, aaron. We're wrapping up, but thank you so much. This has been great and I want to give you some time. Tell the audience how can they find you, how can they stay in touch with you.
Speaker 2:Yeah, I'm pretty active on social media, so LinkedIn and Twitter, or whatever we're calling it. These days I'm a seven-call Twitter, but my email is arancom Awesome.
Speaker 1:Aaron, thank you so much for an amazing episode.
Speaker 2:Thank you, talk to you soon.