Demand First: Why Most CPG Founders Have Supply and Demand Backwards | Walid Nasserdeen | W.NDeen Advisory | Profits on Purpose

Episode Description

Walid Nasserdeen is the founder of W.NDeen Advisory and a fractional demand planning and S&OP partner for high-growth CPG brands. In this conversation, Nate and Walid dig into one of the most overlooked financial problems in the CPG space — inventory. From the hidden cost of excess stock to the revenue lost from stockouts, Walid breaks down why most founders are operating without a real forecasting system, what that's actually costing them, and how to fix it. If you've ever felt like you're constantly running out of your best sellers while sitting on dead stock you can't move, this episode is for you.

Key Takeaways

• Financial clarity unlocks operational efficiency by preventing poor decision-making and eroded profitability.

• Inventory management is a demand-driven mental shift that aligns stock with validated demand to prevent waste.

• The true power of demand planning lies in cross-functional communication among sales, marketing, finance, and operations.

• The real cost of inventory is often hidden in cash flow and capital costs, tying up cash in unsold stock.

• Forecasting doesn’t have to be complex or data-heavy, as simple methods often outperform advanced models.

• Software is a multiplier, not a solution, and requires reliable data and disciplined processes to be effective.

• Involving founders in inventory decisions catalyzes strategic insight and transforms business understanding.

See More from Walid and W.NDeen Advisory

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Listen to the full episode to discover how Walid's experiences can inspire and guide you on your entrepreneurial journey. Don't forget to subscribe for more insightful conversations!

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– Nate and the Profits on Purpose podcast team

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Transcript

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00:00 Introduction to Profits on Purpose Podcast
04:24 Common Misconceptions in Business Operations
06:40 Balancing Inventory: Stockouts vs. Excess
08:00 Financial Implications of Inventory Management
09:21 Understanding Carrying Costs and Inventory Risks
10:21 Establishing Effective Forecasting Processes
11:58 The Role of Software in Inventory Management
13:17 Defining Forecasting, Demand Planning, and Inventory Management
15:16 Methods for SKU Level Forecasting
16:06 Aligning Financial and Operational Forecasts
20:21 Managing Stakeholder Communications in Forecasting
21:22 Sales and Operations Planning (S&OP) Dynamics
23:46 Optimism and Realism in Founders' Mindsets
25:23 The Founder’s Role: Balancing Multiple Hats
27:39 Understanding the 80-20 Rule in Business
29:40 Cash Flow: The Lifeline of Business
31:58 Demand First: Validating Market Needs
34:41 Managing Minimum Order Quantities (MOQs)
38:59 The Role of Software vs. Systems in Operations
45:10 The Importance of Operations in Business Success

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Nate Littlewood (00:06)
Welcome back to Profits on Purpose, the podcast for e-commerce and CPG founders who are looking to scale their businesses, both profitably and purposefully. I'm your host, Nate Littlewood from Future Ready CFO, where I help seven figure e-comm and CPG founders make confident data-backed decisions that drive profitable growth and help them sleep better at night.

Anyway, today's guest is Walid Nasserdeen, who's the founder of W.NDeen advisory and the author of a best selling book on business operations and strategy called mind your business. He's actually got a copy of it just behind him there. Walid specializes in demand planning, forecasting and inventory management for CPG brands doing $5 million and up in revenue.

What makes his approach really unique is his ability to help founders move from reactive firefighting to proactive systems. And what I really, really love about his approach is that the frameworks and systems that he uses are grounded in real world experience. So he's previously worked with companies like Mattel, Tropical Foods and Pelican Cases. Walid, welcome to the show. It's great to have you here.

Walid Nasserdeen (01:28)
Thank you. Appreciate you. Happy to be here.

Nate Littlewood (01:31)
Of course. Well, I'd love to get started just learning a little bit about you and your background. Tell me about the career journey to date. Like how did you come to be in the operations and demand planning space and working with CPG brands?

Walid Nasserdeen (01:47)
Yeah. So my background is actually finance and economics. So I started off on the finance side on the analytics. So I had a shorts started at Merrill Lynch. I was an analyst and then through some like and A scene turnaround project kind of stuff just fell off with supply chain. Started off in an ice cream company as a finance guy. And then over six months, basically just turned into a supply chain guy ended up running their, their operations for a few years.

And then made my way over to Big Corporate with Mattel and Pelican. And that's where I kind of specialized into the supply and demand management, forecasting, inventory management, and that kind of stuff. And then I started my consulting practice about two years ago doing the same thing.

Nate Littlewood (02:31)
And you published a book a little while ago, which as I mentioned, you've got sitting over your shoulder there. I actually read that book a little while ago and correct me if I'm wrong here, but I think the general premise is that a lot of business owners kind of think that they know their business, but really they don't. And I guess what you, what you try to outline in the book is some key questions and concepts that people should be asking themselves.

Can you give us a bit of a rundown on what the book's about and what are some of those questions and frameworks you cover?

Walid Nasserdeen (03:08)
Yeah. So, I mean, you're absolutely right. The premise is basically like in business, have to learn to ask the right questions. It's not just about answers. It's about the questions you ask. And so I'm sure you do this with your clients. When you onboard a client, you have like a certain diagnostic test or questionnaire or something that they go through. And so these were kind of the questions that like have that would onboard clients. They would always say like, yes, we know this. Yes, we have this in place. And then you get like three, four months into the project.

And you realize that they either didn't have it or their assumptions were completely off. So it starts on the finance side with like cost of goods sold and things like that. And then it basically touches every kind of part of the supply chain, is like operations, finance. And so yeah, it's a nice little audit. And then again, it's just about the assumptions entrepreneurs tend to make about their business.

Nate Littlewood (04:01)
Okay. And in your experience from working with many of these brands and founders thus far, are there some common areas where people tend to be off track with this stuff? Are there some key questions that they most commonly kind of get wrong or think they have the answers to, but really they don't?

Walid Nasserdeen (04:24)
Yeah. And so the book is premise, it's called mind your business, but the subtitle is the five questions you think you know the answer to, but don't. And so those five questions are kind of those common words across the board. Most of these companies, regardless of size, whether it's, you know, a hundred, $200,000 startup all the way up to like, you know, a hundred million dollar companies. They all kind of have this, these blinders when it comes to certain things. And sometimes it's, it's not that they don't know it. It just can be really outdated where they don't have that.

They're always looking at it cost of goods sold is a big one. That's kind of where I always start It's known your actual kind of goods sold a lot of people either don't know it or it's outdated like the last time I looked at it was like two years ago when they did the product development Yeah, then like margins and things like that is usually the starting point where most people don't really have a clear grasp on it

Nate Littlewood (05:15)
Okay, gotcha. So what are some of the common problems that founders might be experiencing immediately before or around the time that they decide to reach out to someone like you and ask for help?

Walid Nasserdeen (05:32)
Yeah, so mean, layman's terms, the pain point that I actually solve is when you're a CPG company, you have two kind of main risks. One is being out of stock when customers come and order product from you. And then the other one is which they actually don't see it too much is the excess inventory, where you have so much inventory that it's time cash. And then when you talk about CPG space, you can be talking about expiration dates, you can be talking about do a lot of ice cream. So cold storage, so storage is very expensive.

And that kind of stuff just erodes your margins and that just kind of eats up your cash. And so those are the two main risks that I solve. that's why I'm that kind of like five million and above, because that's the pain point where those problems financially start to make it worth solving. It's not just, it's not a little pain, it's a lot of pain.

Nate Littlewood (06:22)
Got it. Got it. So would you say that when you look at the, you know, the clients that approach you, would you say that there's a skew one way or the other? Is there a greater split in terms of those who are having inventory shortage versus excess inventory?

Walid Nasserdeen (06:40)
So it's usually both. The founder will put more emphasis on the stock out. So the way I like to say that the stock out is like a car crash and nexus is like cancer. But a lot of the founders are usually sale centric. So to them, they're buying the inventory and they think they're like, yeah, we're going to sell it. It's not a problem. So it's usually both, which is you're out of stock on your best sellers and you're excess on the stuff that isn't moving. And so one of the main problems is

One of the questions in the book is like, what drives your business, which is just a basic 80 20 exercise. A lot of finders will treat all their skews kind of the same and they don't even run on the chain of the production side of the inventory. Like when they order, they just order, you know, a bunch of skews at a time instead of realizing like this is our ever and this is, you know, not really performing.

Nate Littlewood (07:29)
Okay. So it's not so much that they're chronically understocked on everything or overstocked on everything. I think what you're saying is that more common is you'll see brands that will have some combination of both. There'll be areas where they have too much and areas where they have too little. So on a brand that's doing, you know, five to $10 million a year, like what could this be costing them in terms of EBITDA or profitability?

Walid Nasserdeen (08:00)
Yeah, so I mean, on a five-million, usually the industry average, they'll say that you're probably losing between five and 8 % off the top line from stock outs. And you're probably eating up the margins around 30 % on the excess side. So for a $5 million brand, mean, we're talking over half a million dollars in lost sales. And that's just like direct orders that you can't fulfill. That doesn't include like customer damage or somebody who wanted to buy and lost, you know, they want somewhere else and you lost future sales.

So conservatively, you're looking at around 5 % top line and then usually around 20 to 30 % of the margins just on the excess side. And most brands will keep a lot of excess or a lot of inventory. It's not all considered excess, right? There is what we call an inventory health quiz, which is like, you could be overstocked on something, but know that the item's going to move out. But then you can also be overstocked on something that isn't moving. And that's what we're really, that's the damage. That's the excess part that just chews it up.

Whereas you have this supply and you don't have the demand to kind of push it out.

Nate Littlewood (09:04)
Okay. And that 30%, you mentioned that, that becomes apparent in the form of like financing costs or that's due to inventory shrinkage or what, what, what's the, the origin of that, you know, margin compression that you mentioned.

Walid Nasserdeen (09:21)
The carrying costs so something sitting in a warehouse you're paying the fees or over and over again So the carrying cost is the big gotcha And that's if again you can even move it out a lot of times what happens is we have this thing called the the 3d is when you have access inventory So it's discount donate or destroy and so a lot of times there's no there's no distribution channel So you do got a bundle with something else which are basically hopefully you may cost at it

or you donate it and it's a pure write-off or you destroy it, which again is just a financial exercise to clean the books.

Nate Littlewood (09:55)
Gotcha. Gotcha. Okay. So when a new client comes in and let's say they have a typical combination of some skews that are overstocked and some are understocked and they have realized that this is costing them hundreds of thousands of dollars a year. Where do you start? Like what are the most common root cause problems that you're helping these folks tackle?

Walid Nasserdeen (10:21)
A lot of it is just the lack of process around the forecasting itself. So it's the buying process of just being reactive. So they'll buy when they're out of stock. then, know, again, it's a lot of it is what we call like conversational forecast. So it's they went to a trade show, they spoke to somebody that said they're interested, they got excited, they put a big order in, you never met a next day.

So it's just a basically putting guardrails around like, how they buy and what the triggers are to do those buys. And then it's a clean exercise. So I always start off with an inventory audit, which includes things like skew classification, 80 20 rules, which driving the business. And then we, when you have a forecast, can now based off that forecast say, okay, well, based on our forecast, this is how much inventory we hold. We're like, call it days of stock. So we have like 20 days of stock or 30 days of stock.

And then based on the lead times, usually with the CFO, we would decide what the acceptable days of stock is. And then anything under, we would consider access and try to put a plan together. And then anything under, would be a buy signal.

Nate Littlewood (11:31)
Gotcha. Okay. And do you look to implement tools and processes through software or is this the sort of thing that people can manage without any special software? Tell me a little bit more about how the, you know, how your solution or your system or your process kind of unfolds once you've identified the problem and you're now looking to kind of implement, you know, a fix to it.

Walid Nasserdeen (11:58)
Yeah. so the software side, isn't really that important to be honest. You either understand the math and the statistics or you don't like I have a statistical background, so I understand it for someone that didn't, it could be useful, but they was still need to understand the basics of how supply and chain works. Really what it comes down to is just, having the communication. A lot of times sales, isn't talking to marketing, isn't talking to operations.

So the biggest thing I do is not just creating a forecast, but it's actually getting everybody in a room to discuss that forecast and say, okay, this is what the data is saying. I know this is the first time you've seen it, but this is what the data is saying. This is what the company thinks we're going to do. And now let's see what that gap looks like and have a conversation around it.

Nate Littlewood (12:44)
Yeah, got it. Got it. Okay. And there's a few different kind of terminologies here that people talk about, including, you know, demand planning, inventory management and forecasting. Can you just talk through each of these and put, you know, put some definitions and language around them? I'd also be interested in hearing your thoughts on, you know, if there's a certain way or order that we should be, you know, tackling these things.

You know, does one need to happen before the other, for example?

Walid Nasserdeen (13:17)
Yeah. So forecasting is first the way I would, I would paint the picture is forecasting is the science demand planning is the art and then inventory management is the result. It's what it's the end result of all that. And so forecasting is, the statistics. It's the, this is what we've sold over the last six months. This is what we're pacing to. This is our moving average. And it's a very statistical kind of game. Then demand planning is where you start having these conversations around marketing, the economics, we're changing prices, we're writing this promotion, we're running this commercial.

It's where you start layering in all the things that are in the statistical history. And so that's the demand planning part of it. That's usually very collaborative. That's when you're talking with the other leads, the sales lead, the marketing lead, the finance team. And then the inventory management is more about risk mitigation. So just because you're forecasting something, there could be,

different levels of risk to this forecast. And so inventory management is where you're putting these buffers in place where it's like, okay, this is our forecast. But, you we also want to have this kind of buffer or this kind of safety software. We think this might happen, but we're not sure. let's, you know, and that's through the strategy part comes around. you see a lot with, season L businesses and then like things like new product launches where inventory management is more important than the forecast because you don't have a lot of data. so it really depends on where you are.

product life cycle, but they all three are their part.

Nate Littlewood (14:48)
Gotcha. Gotcha. So on the forecasting side of things, there's a lot of levers behind that and a lot of things changing. I'm just kind of thinking about this from a CFO perspective, which is how I normally tackle these sort of problems. But I'm often looking at things like ad spend and looking at customer acquisition costs, the split between new and recurring customers.

For some of my clients, I build in seasonality drivers, if that is a major part of the business. I don't really get too much into SKU level forecasting, which I suspect you do a lot more of, but I would expect that once you do get into SKU level forecasting, you need to be thinking about what is the historical trend of this SKU?

gaining market share as a part of our total sales or is it shrinking? Is it a seasonal skew? Is it something that's going to be put on sale or promotion? Is it discounted, whatever? Tell me a little bit more about some of the methods and financial math that you might use to put together these forecasts, like the models behind it.

Walid Nasserdeen (16:06)
Yeah. So why the things I like to do, and again, my background is finance. So I understand how the CFO looks at everything. And so a big issue in most of these companies and the bigger you get, bigger the problem gets is usually you'll have a finance, financial forecast. And, um, it's usually coming from either a stakeholders leadership, a board of directors or something like that. And it's usually pretty ambitious. And like you said, it's not out of skew level. So there's no run.

that's really auditing it to see if it even makes sense from an operations side. Like, can we actually make this kind of product? Do we have the labor? Do we have the manufacturing? And so what happens is you get this very ambitious forecast and because it's at the highest level, it's typically never really challenged. So what happens is companies kind of just shove it down. The sales team will just kind of align at the customer level to whatever, you know, the financial forecast is.

And then I guess operations, everybody is like, okay, well, we have to make X amount of money. What are we actually producing? Are we producing A skew, B skew, whatever? And so one of the things we do on our side is we call it skew classification, which is basically like looking at each skew and ranking it in priority. So you have your A skews, your B skews, your C your D skews. C skews and D skews are usually just an inventory management exercise. We really don't even forecast them.

Nate Littlewood (17:19)
Okay.

Walid Nasserdeen (17:27)
It's more about like min-math where it's like keep X amount on stock and we hit a certain level, just buy a certain amount. And so it's a very low maintenance kind of thing because it doesn't drive a lot of business. Some of these SKUs, like I have brands that I work with where they have like 30 SKUs and I should say they're $10 million with 30 SKUs and 8 million comes from one SKU. And so there's no point in putting so much priority on 30 SKUs when you have one SKU that you really need to manage.

And so that ACE view is really where it's like the communication, the team and, seeing where it relies. And then the question is, what is, and this is the biggest issue that doesn't get addressed is how do you actually have a conversation around what the product plan is in the financial forecast when there is a gap. So if I'm doing a statistical forecast, because what I like to do is I forecast three different ways independently, and then I see how close they are together.

So I'll do a financial forecast level and I'll based on the finance, I'll do a, and then I'll do an independent forecast on the skew level and then I'll cover it in dollars, roll it up and see how close those two are. And if, if my product isn't selling a certain sell through rate to meet a financial forecast, someone has to have that conversation. Let's say, we're, let's say we're one skew company. Hey, based on what we're selling, we're pacing to a million. Our financial forecast is 12.

Is there something going on that I don't know about a new promotion or something that we haven't discussed that's going to bridge that gap? A lot of times it's not. So it's like, okay, well what's, what's planned then? And having those conversations. And the problem is that the lower you go down the totem pole, usually it's the less the authority the person has. So the financial forecast is probably coming from the C-suite and then you got a sales forecast. It's coming from like a VP or director of sales.

And then by the time you get down to like the planning is usually just a production planner or sales analyst or something like that. And so they are already really challenged. So that's kind of the difficulty in it, but that's, that's where we start off is by actually prioritizing what the skews are. And then a big thing that I do that most companies don't do is actually give operations and understanding of what the finances look like. Because what happens is when a production team or our supplied team

season orders, they just see how many units they need to buy or produce. So they could have two orders of 10,000 units each. And they don't know that this 10,000 unit order, it might be $10 million. And this one's 500,000. They just see 10,000 units. So it's giving them visibility to like, how do you prioritize and how do you make decisions that affect the business and communicate across the channels.

Nate Littlewood (20:21)
Gotcha. Gotcha. Interesting. So you touched on some really interesting stuff there. One point about how there's often people at like different levels within the organization and different levels of seniority own different types of forecasts, which can make, guess, you know, negotiations and giving feedback difficult. You've also mentioned that there's kind of an operations perspective on this. There's maybe a sales perspective. I guess there could be a marketing perspective and

There might also be the CFO slash finance perspective on it all. Tell me a little bit about how you manage these communications. Like in a situation where we do have three or four different stakeholders, each with oversight of a different part of the business, who are all coming together with the goal of agreeing on a set of forecasts. How do you design that meeting? And what are some of the common issues that you run into when you're having?

those conversations.

Walid Nasserdeen (21:22)
Yeah. So one of the things I specialize in is we call SNOP, which is sales and operations planning. And that's basically an alignment meeting between the different departments. The way I like to the picture is you have sales and marketing, and then you have finance and operations. Sales and marketing are always overly optimistic. So sales thinks everything they're doing, you know, that every customer they spoke to is going to buy off the shelves. Marketing thinks every promotion they're going to run is going to be the next big thing.

And then you have finance and operations, which are the conservative side. So operations like we only got X amount of labor, X amount of machine time. What are we doing? And then finance is like, well, who's going to pay for this? Like, do we have POs and what's the, what's the reason? And so it really is just mitigating those four groups and understanding that they each have their own agenda. They each have their own kind of lens that they view the world. And then what are their, what are their measurable? Where are their KPIs? And so the way I like to put it is like, how do you speak?

What I want to do in their language. And so a lot of times with the supply chain, they don't understand how to speak to finance. They don't know how speak to marketing and sales. So that's something I spent my career learning to do. And then it's just understanding that, you know, even though everybody has their own agenda and their own kind of like measurable, it's what is the common ground between them and everybody at the end of the day, you know, what's their bonus, they want their sales, they want to, but they have different.

different risks, right? Like sales doesn't necessarily care about inventory because they, at the end of the year, when they have a bunch of inventory, no one's going to sales and like, you're going to lose your, your bonus because we have inventory. They're going to be like, you either hit your mark or you didn't. Right. But unfortunately sales drives a lot of the inventory buying. So it's just how you, how do you have the conversation around, this is the risk to the business. And at the end of the day, if you don't have the stakeholder support, it's a hard conversation.

But it really is just aligning that and then it's a trust thing. Like once someone is, we actually have, you're not just having a conversation, but you're like, listen, here's our sales. This is what the sales look like. This is the data. This is the gap that's missing. Let's see if we can explain it. But once everybody is not forced to just take a number and then actually have a seat at the table to have a conversation, it makes the trust more, it makes the trust better, makes the forecast that people can align with. And then it kind of makes that conversation easier. It's never easy, but it's.

Nate Littlewood (23:55)
Yeah. Okay. Okay. Cool. So I work with a lot of, you know, earlier stage brands. You mentioned you kind of don't get interested until like, you know, 5 million level. A lot of my clients are, you know, somewhat below that. And they're not yet at the point where they have full or dedicated sales, marketing operations, people, obviously, you know, they have me, so they have some type of finance support.

But it's very common that the founder will be wearing multiple of those hats. Now founders, love them to bits, but one of the good and also terrible things about founders is they tend to be very optimistic and they usually have this over-optimism bias. They like to focus on how wonderful things are going to go and how much they're to sell and how much they're to scale and blah, blah, blah, blah.

I'm wondering if you have any tips or advice for founders who are in situations where they themselves are actually wearing multiple of these hats, right? They are the salesperson, they are the marketing person, and they also have operations oversight. Is there certain ways that you could kind of manage the meeting that you referenced before, at least get the benefits of that meeting when it's a founder who's actually wearing, you know, more than one of those hats?

Walid Nasserdeen (25:26)
Yeah. So most of my brands is the same thing. The founder is the main person. I'd treat them like if they were, because most founders, and I learned this from my &A days is whenever we would buy a company, usually the founder became head of sales, right? They made it. So I always just kind of looked the founder as the head of sales. And so I treat them like that. A lot of it really is them never really, and this goes back to the mining business. They've never really dug into their business.

They've always been that person out there. like selling, selling, selling. And they never really dug into like, what are the skews that are moving? Where are the profit margins? How much are they actually making? What skews are driving the business? So what are, how much do they actually sell last year? So as I come in my first 30 days, I do a supply chain audit where I basically look at the sales data, look how clean it is. run a report. I do the inventory now. So I start showing them these numbers. They start to understand, okay, like this is what's working and this is not.

And then you have kind of like a framework to have that conversation where it's like, have 10 skews. You're buying all the cemetery. That's great. But these three skews, they're not moving. These ones are. So you could spend a million dollars on inventory, but instead of spending it evenly across all your skews, let's, you know, place the bet on these two skews, which are really moving. And these ones are just kind of like sticking up your cash. And so, that's really where I started is just actually putting into more of their data and having, you know,

Part of my job is to understand the person's business so that when I come, even as a consultant or a fractional operator, I have a seat at the table and when I say something, they trust me. So I need to look at the data and understand their business well enough where I can actually like come to them and present something. And that trust is kind of like where I have to build the framework. And it's like, here's where your business hit. Let me show you. And now based on that, if you understand, if you see what I see, it makes it lot easier to kind of out what.

know, like what's working and what's not. It's very eye opening. The 80-20 rule, I suggest to all my clients, is running an 80-20 rule against your inventory and your sales and even like your marketing spend. It's really eye opening for most founders.

Nate Littlewood (27:39)
Yeah. Interesting. That's, I mean, I'm familiar with 80-20 concept, but for the benefit of those listening, can you just clarify what you mean by that and how it would work in this context?

Walid Nasserdeen (27:52)
So the 80-20 rule or Pareto principle basically is like 80 % of your output comes from 20 % of your input. So an easy explanation would be like, if you had a restaurant and you had 100 items on the menu, you're probably making 80 % of your revenue off of 20 of those items. The other 80 items are just kind of there. So it's really defining which best sellers are and what's making your business the most money, and then prioritizing those accordingly to protect the business. Got it.

And you'll see that across multiple things. If you have 10 employees, know, most of the work will be done by two of the people. The other eight just kind of like fly. If you have 10 customers, most of your sales will be two customers. The other eight will kind of like fill in the rest. And so you'll see that in every part of your business. So it's a great exercise to kind of run.

Nate Littlewood (28:43)
Yeah, yeah, I see. Very nice. So I want to ask from where I sit wearing the CFO hat, you know, I see a lot of the financial consequences of bad operations, right? It comes to the surface in the form of stock outs. We have excess inventory tied up. We might have too much debt as a result. There might be inventory write-offs and, you know, inventory true-ups at the end of the year that we need to do.

So I, you know, I, I'm, I'm very aware, obviously not as close to them as you, but I'm very aware when there are operational problems in a business. I'm curious what your perspective on finances as an operations and supply chain guy. how do poor financial systems impact your job as an operations guy?

Walid Nasserdeen (29:40)
Yeah, cashflow is the lifeline of a business, right? And I think one of the things that shocks most CPG brands that are new to it is what that life cycle looks like. So I don't think they all realize that you have to pay for inventory upfront. And then if you're not moving that inventory fast enough, if it's sitting in your warehouse for three to six months, that's three to six months before you get your money back on the investment you spent. And so I think it's understanding that kind of cashflow. And then

Again, it doesn't matter how efficient your operations are if you're not making the margins that you need to make, which again, the cost of this whole thing is a big thing with my clients. And so the finance side is very important. There's no point in running a business if you're not making money. And then it's like, okay, now we're making money. We have good margins. The way I put it, and it's pretty common sense, but for some reason, it executionally doesn't seem to resonate with people as...

It's supply and demand. That's what I do. Supply and demand management. I view the world through supply and demand. all I know. But demand comes first. Supply is just fulfillment of demand. So a lot of times when you're talking about excess inventory and all this kind of stuff, it's people, the assumptions that there's this demand out there. And so they started building up this supply chain, buying inventory, doing all this kind of stuff. And they never really validated the demand and the demand isn't there. And so it's going out and making sure that demand's there.

And then part of that making the demand there is making sure that you have the right market price. It's, you know, your price meets what the market wants. And then once you have that and the demand and the pricing and the costing and stuff like that, you know, much it costs to fulfill. Go out, the demand and then fulfill the demand by building out your supply side. And I feel like most people kind of have that backwards. So it's understanding that and that's all finance. That's every business. have someone that I mentor who's not in the CPG space or they're a photographer.

And he's been stalling to start his business. And it's like, what are you waiting for? He's like, well, I need, you know, seven grand so can go buy a camera. And I was like, that's a supply side issue. Why don't you instead take your reputation as a photographer? Book a wedding that's six months out, get a down payment, and now you have the demand. Now you take that deposit, go buy your equipment and you have, know, so it's demand first.

Nate Littlewood (31:58)
Yeah, absolutely. So true. Yeah. I see that all the time with founders and actually spend a lot of time talking to founders about the risks and uncertainties that we have around bringing a certain product to market. And, you you obviously have to source it. You have to manufacture it. You have to finance it. You have to ship it. But often the

greatest risks around actually launching a thing is figuring out, as you say, like how to sell it. And I have found this, you know, putting tens and sometimes hundreds of thousands of dollars into new product line and getting all the inventory when we haven't actually validated the demand yet. And there isn't a lot of certainty that we're actually going to be able to sell this product. And I'm actually chatting with one of them at the moment about a potential new product launch and saying, why don't we just like mock up a

product listing, you've got some samples of this thing already, let's put a page up on Shopify, verify that people actually want this product and that we can sell it. If we happen to get some orders and we don't have the inventory yet, like it's not the end of the world, we'll either refund them or we'll send them a different product. Maybe we'll give them a free upgrade. It's not a problem, but you can do that sort of thing for hundreds or a few thousand dollars and it's so cheap and so quick.

And it oftentimes addresses the biggest risks in product launch, which are very rarely about manufacturing in my experience.

Walid Nasserdeen (33:35)
Yeah, absolutely. And it's funny because the bigger you get, the worse it gets. So at the larger companies, what happens is when they launch a new product, they have to have a certain financial threshold to to warrant it. So they'll just kind of make up a number just to get it approved by the board. I like, oh, yeah, we got this product is going to do 10 million. And they never really batted it, but they just wanted to get it approved. And then once the product is launched, they kind of their hands so they really care what it did in post launch.

Nate Littlewood (34:05)
Yeah, wow. That's kind of opening up a whole can of... Sorry.

Walid Nasserdeen (34:11)
Yeah. Now the same way, we have smaller brands that really can't negotiate MOQ. They basically just get stuck to whatever the MOQ is with the manufacturer.

Nate Littlewood (34:20)
Yeah. Actually, MOQs is an interesting topic. Let's chat about that. And you're quite right. You know, a lot of brands I see, they kind of just take whatever the manufacturer offers them in terms of MOQs. And a lot of times that means this, you know, buying tens of thousands of units that they haven't figured out how to actually sell yet.

have you seen any particularly useful or, you know, do you use any particular strategies to try to manage MOQs and get them down and in doing so kind of reduce the early inventory risk?

Walid Nasserdeen (34:56)
Yeah. So a lot of it is, is, depends on what stage they are, but hopefully that when they, what the manufacturer, you could actually search for like manufacturers that will do a small batch sizes. there's some that specialize in small batch kind of things. So I've always recommend they find that a lot of it is. that's never even when we talk about comments, that's something I never thought I would have to get into. Cause I just assumed that people were. But.

Nate Littlewood (35:22)
No, don't.

Walid Nasserdeen (35:25)
One thing is like, if you have similar products, a lot of times you convince the manufacturer to spread it across multiple skews. so like, you have, we either kind of the same way, but they're different flavor profile, you could convince them, instead of doing 10,000 each to do 10,000 across the three. So that's usually a big one that most people never even ask is like, can we spread the MOQ across multiple skews? And then if the margins are healthy enough,

It's economy of scale. Recognize that you want to get to a certain point, a certain price point. But if you have the margins to pay a little bit extra and not have the inventory risk, it could be worth it. we have to pay a little more to have a smaller factory rent.

Nate Littlewood (36:10)
Yeah, totally. Totally. I find that a lot of founders when they're thinking about ramping up and buying inventory, I'm not quite sure if this is the right way to describe it, but what I see is that people focus too much on the P and L, right? They think too much about the unit economics and, I need to buy whatever 50,000 units so I can get a better price because then my margin will be better. But in doing so they often.

don't focus enough on the cashflow impact and the balance sheet impact. It's like, yes, you could save a few bucks or maybe you'll have 3 % better gross profit margin by buying 50,000 units. But you know what? You don't actually need 50,000 units. You only need five. So we've got a gigantic amount of inventory here that you don't really need. And yes, you may have made your profitability look a little bit better down to say maybe the EBITDA level.

But there's this huge cashflow and balance sheet impact to what you're doing. And that's going to come back and, know, bite you in the backside later on, or, you know, further down the income segment. And I'm, I'm often coaching founders on the need to just not be so myopically focused on the P and L impact of their decisions. But there's these other two financial statements and often they're the ones that are going to get you in trouble. in, know, when things go off the off track.

Walid Nasserdeen (37:36)
Yeah, it's funny when you say that the first thing I think of is I have a brother who has a big family and he's always shopping at Costco. He's like, you should shop at Costco. I'm like, I'm a single guy. I don't need two years worth of cereal, right? To save a couple of dollars to buy one. It's the same thing. It's like they hear, you know, 22 cents instead of 25 cents, but they don't realize that that 22 cents, the carrying costs, the inventory, the operational cost is just, it's not worth it. So again, I always, and

This also goes to the margin thing. It's like a lot of them don't consider things like distributor and stuff like that. So I always just like how healthy is your margin? And if your margin is healthy enough, you're better off just paying a little bit more. And then having that conversation with the coman, which is like, as we scale up, I do want better pricing. And that's also where like forecasting and stuff comes like that, where now you're giving visibility to them so they can manage their business better. And because of that, they'll give you a better price point.

Nate Littlewood (38:32)
Got it. Got it. Cool. So, well, we were talking earlier about, you know, the systems problem versus software problem. And you mentioned that, you know, the software is often not actually that important. How many of these businesses or your clients are you just managing with simple spreadsheets and, know, how far can you actually get with Excel or a Google sheet and

Is there a specific point in time where you might need to upgrade to something more sophisticated?

Walid Nasserdeen (39:07)
I'm going to say no, but I'm put a caveat next to it. That's it. But I'm a master in Excel. So I've actually built out entire warehouse systems and inventory management systems in Excel. So, and I'm a master statistics. So my skill level allows me to supplement what a system might otherwise do for a normal employee. So I'm going to put that caveat behind it. But the truth is no, like unless the only time I've really ever forced a system for a client.

is if there's some kind of quality control, like for food, you gotta do recall. And you just need a system that's able to trace ingredients to production so that if we ever do a recall, we have that in the system. So traceability, quality control, things like that. And then the only time I've ever used a system in my career, and it was helpful, is when I was at Pelican, I managed 5,000 SKUs. That level of SKU...

Nate Littlewood (40:00)
Five thousand? Yeah.

Walid Nasserdeen (40:02)
And so that would just, it would just crash Excel to the point where like, okay, let me get a system. But then I would take out, as I mentioned, the ABC skews, like I would take out all my AB skews and do it in Excel. And I would just use the system for all the, all the dummy skews. right. So I don't think so. If, if we're just talking about forecasting and inventory management, not really. but if you're talking about things like quality control or traceability, then that's where the system starts to.

Nate Littlewood (40:18)
Right.

Walid Nasserdeen (40:31)
It's good as a data management system. It's not good as a statistical machine learning AI, all that kind of stuff. It doesn't really work like that. And even if it does work, you rarely come up with, you'll rarely find a company where the data and the history is clean enough to take advantage of the system. And then even then the way that CPG brands grow.

the future so unknown when you're doing like promotions and commercials and things like that, that it's not going to be you would basically have to train the machine so much to the point you might as well just do it yourself. so I have this problem with a lot of my online clients with Amazon. they because even Amazon will have like a little forecaster for you. But even Amazon doesn't recognize Prime Day. So what happens is you have this huge shoot up on Prime Day. And now it's telling you to order a bunch of inventory and Prime Day isn't going to happen again.

And so you have to recognize these kind of caveats.

Nate Littlewood (41:31)
Yeah. Yeah. Wow. That's, that's interesting. I didn't realize that Amazon did that. So they're using the prime day spike in their whatever rolling 30 day average and saying, Hey, sales are going through the You need to restock. But it's like, no, not unless you can have a prime day every week. Yeah.

Walid Nasserdeen (41:48)
Yeah, so they don't, they just do like a three week moving average kind of thing, which is usually pretty good. Like that's, that's, you know, the funny thing about forecasting, especially with our businesses, sometimes, and this was the system thing is sometimes people over engineer it. And so when you get into forecasting, you kind of realize that we call it the naive forecast. So naive forecast is basically just what you did last year.

So the gold standard is what you did last year or some kind of moving average or just like a 10 % or whatever across the board. Like those three, when you go to like forecasting competitions tend to win out over most of the most advanced stuff. Now, if I was working for Tesla or SpaceX or doing engineering, statistical modeling and all that kind of stuff is very important. But if we're just talking about like how many peanuts we're going to sell next week, it's not that deep.

And that's where the inventory strategy kind of like comes along. So yeah, the software, the AI, all this kind of stuff, it's over-promised and it's really unnecessary to be honest. It just complicates things.

Nate Littlewood (42:55)
Okay, well that's good to hear. Good news, I think. Because a lot of have a tendency to kind of think that this is a software problem and they want to throw expensive SaaS subscriptions at it, pay 500,000, sometimes multiple thousands of dollars a month to try to solve these problems.

Walid Nasserdeen (43:16)
Yeah. Like I will say, it's kind of like the way I like to think about it is that it's a car and a driver. if a lot of companies that will, get systems and set up like bringing someone like me on, we usually come back in like six months and be like, the system is doing what we needed to do. And it's like, well, the system can do what you do. You still have anybody internally that knows how to use the system. And so what happens is you'll see a lot of companies that every two years they'll change systems because they don't think the system's working.

Walid Nasserdeen (43:45)
But it's not that the system isn't working. It's just you never, the data is dirty. No one kept it up to date. Like the person managing it was taking shortcuts or whatever. Even at large companies with like, whether we have SAP and I pay $10,000 a month. It's like the data, no one's managing it. It's not clean. People are scoffed taking things together. And so it's, if you're going to have a system, make sure you have the resources to manage that system and then recognize that the system is an entity. It's not a replacement. It's a multiplier. So if your operations are kind of sloppy,

You're going to multiply the complexity with the system instead of just cleaning the system. At some point, if someone brought me in and we got everything dialed in, I would want to put in a system just to get time back. So now instead of spending five hours doing something, we have a system where we could just run a report. so now you're spending more time on analysis than you are data cleaning. So there's, you got to get to that place first before it makes sense.

Nate Littlewood (44:41)
Yeah. Well, well, this has been really interesting conversation. mean, inventory and cost of goods sold is, as you would know better than most, one of, if not the biggest expenses for a lot of these brands. And I think there's often a temptation with founders to get distracted and marketing and widgets and fancy AI and analytics tools and whatever. you know, the, the, the riches are often doing, doing the boring stuff, right? And getting things like operations and purchase orders, getting that right.

I think that's where a lot of people gloss over frankly, and don't spend as much time on this stuff as they should. It might not be as sexy as playing with the next AI or marketing tool, but this is how you really build one of these businesses to profitability by understanding this stuff and doing it well.

Listen, I really appreciate you sharing all your thoughts and perspective. It's clear that you have an incredibly deep experience on this topic. And for folks who are interested in maybe, you know, learning a bit more about you and perhaps chatting about, you know, the possibility of working together, where should they go? Where's the best place to find you?

Walid Nasserdeen (45:58)
WNDeenAdvisory.com is the website. Walid Nasserdeen on most social media, LinkedIn, best place.

Nate Littlewood (46:06)
Okay. Cool. Perfect. Well, I'm going to include all your social links in the show notes below. So if anyone wants to check that out, they'll be able to click through from there. But once again, been a pleasure having you on. Thank you so much for coming on Profits and Purpose and we'll be in touch. Thanks man. Bye.