Inventory management and fulfillment strategies differ from e-commerce, and personalization at scale adds new complexity to the model.
Managing inventory for a subscription box is like Goldilocks’ porridge quandary. Order too little and the business can’t deliver its promised goods to current customers or add new customers. Order too much, and it eats away the margins.
The complexity of managing subscription box inventory greatly depends on the business model, accurate forecasting and the level of customization.
Inventory and the subscription box model
While each model has multiple subtypes, the curated model has the most room for differentiation.
According to a 2018 McKinsey report, 55% of subscription boxes use the curated model.
Standard curated boxes: All customers receive the same items each month. This simplified approach is the easiest to manage in terms of inventory, but also fulfillment.
Customized boxes: Each customization element adds a new level of planning intricacy. A box with apparel may involve sizing or color choices. Quilty Box offers customers a choice of fabric colors or design styles. “It’s harder to plan for that,” said owner Patrick Claytor, and the model is closer to e-commerce in terms of inventory planning.
Sequential boxes: While also a curated model, a sequential box can be easier to plan than a customized one, as each customer gets the same items, but starting in a different month. Examples of sequential boxes are those for pregnancy or newborns or a lesson planning box.
The other main category of subscription boxes is the replenishment model, with the classic example of razor replacement shipments. The replenishment model is 32% of the subscription box market, according to McKinsey.
Forecasting: The secret sauce
Forecasting subscription box inventory needs is more important than for e-commerce, said Amir Elaguizy, founder of Cratejoy, a subscription box platform for marketing and operations.
Owners must track new subscription sales and churn rates. Additional marketing can help increase sales to counter the churn rate, or the company can tweak the box offerings in response. Forecasted projections over the long term are less accurate than shorter-term projections, varying by 20-30%, Claytor told sister publication Supply Chain Dive.
It’s better to be sold out for the month than have leftover inventory.
Forecasting is important because subscription box companies order their products three to eight months in advance, said Claytor. Smaller vendors may need that additional time to make larger batches of products. Companies relying on the replenishment model, offering the same goods each month, can afford shorter windows of three or four months, as inventory is more easily controlled.
Claytor also owns Big Sky Fulfillment, which fulfills subscription boxes for 50 companies. He said he likes to receive product in the warehouse six weeks ahead of the ship out date, giving the companies time to exchange products or change that month’s box marketing if needed. Big Sky Fulfillment typically schedules kitting for two to three weeks in advance of shipment to ensure it has the proper quantity of each item.
When it comes to tracking individual inventory items, as opposed to subscribers, ShipMonk clients can use the inventory management portal with SKU-level details across platforms, helpful for those who also sell via e-commerce. Cratejoy’s technology system includes website design, sales, and many back-end functions, but not inventory management. Many of its clients use Google Docs or Excel sheets, Elaguizy told Supply Chain Dive.
Fulfillment for subscription versus e-commerce
For subscription boxes, warehouse storage is by pallet location, not bin or shelf, said Sides. “If only doing subscription boxes, we receive [the inventory], we put it in pallet storage, and pull it when needed,” he said.
Big Sky Fulfillment initially designed its warehouse for subscription boxes, and then made changes when it added e-commerce companies as clients. The e-commerce section has more packing stations and additional shelving. The subscription box fulfillment section is separate, as the kitting process requires a larger assembly line space. If boxes are the same, each worker on the line puts one or two items in the box as it moves down the line, and a scale confirms accuracy. Customized boxes require the packers to pick items from bins.