No one was using the supply chain management system!!

One morning, an employee mentioned there were rumors that the port would be closed due to a dockworkers strike. I asked if anyone knew how much material we had coming in. No one did. I asked if anyone knew how much was actually at the dock. No one did. I asked how much stock have we paid for that hasn’t been delivered yet. No one knew.

I was shocked – no one knew what was going in our supply chain. It was all there in the system but no one bothered to look. Clearly they didn’t look at the data everyday. I asked why they weren’t using it.

They said it was all wrong and has been since the day the system was set up, so no one uses it. I asked how they managed the supply chain and they said they’d call friends at the dock and ask what they have, then call the customs agent and ask what is coming in. I asked if this meant our physical stock records on the computer were wrong and they said yes.

Our accountant sent out a report without verifying it

We got the monthly accounts from Quickbooks and it showed a much larger profit than we had expected.  We estimates profit and cash weekly, so this was a real surprise - a pleasant one I had to admit. I didn’t really give the matter much more thought because the variance was positive. If it has been negative, I would have been all over it.

Then, driving home I began to wonder how we could have made so much profit. The next morning I went in early and started looking at the reports. Sales looked right, but the margins were way too high. We normally have around 40% gross margin but these accounts showed it a 56%. I kept looking. Most of the expenses seemed to be normal with the exception of the sales discounts, which looked really low. They were below the normal 15% level. Suddenly it dawned on me: somehow the discount had been added the to gross margin.

I called in the accountant and asked what was going on. He looked at the accounts and said they were wrong. I was right there was a misposting. I asked why he hadn’t checked the accounts and he said he didn’t feel well and had gone home. When I asked who he sent them to, he answered the bank, board, and all our investors. I told him we needed to recall them ASAP and make sure this never happens again. I told him next time he goes home without signing off on the accounts at the end of the month, he needs to tell me.

We didn't have an accounting system in place from day one and now things are a mess

We reached $1M in sales by bootstrapping and working long hours. We didn’t have a lot of processes in place and our systems were fragmented. We couldn’t tell what was going on. We all agreed that we needed new systems. We asked around and found a lot people were using XYZ Clouding Accounting for their accounting. We thought it was a good system but we had multiple sites and wanted to open a new business in another country. We also needed integrated stock systems, etc., so we chose ZZZ Cloud Accounting.

We didn’t have any problems setting up the system. Problems started with data entry. We entered all the data we had from our existing systems. Since the data sources weren’t integrated and reconciled, we immediately ran into problems. There were large discrepancies with the stock (finished and raw materials). We couldn’t reconcile the bank statements with the balance sheets, and sales and discounts looked off.

We quickly concluded that the data we entered was flawed and there were problems  going back to when we started the company. The company that sold us the new software said we should stop what we were doing and create a ‘newco’ which would use data from today onward. We should then go back and sort out the old data even if this meant having a third party reconstruct the accounts, etc. We followed their advice. It took months to sort out the old data. When we did, we found we were losing, not making money. We had discounted 70% of our product, not the 50% we planned, and our overhead was understated  by 20% because we have not entered the invoices for electricity and local taxes. All of this meant we had to postpone any fundraising and revise our pricing.

Our raw materials on hand quadrupled while our sales had only doubled; I had no idea why

The team said we needed a bigger warehouse. The stock of raw materials was growing as we grew and the finished orders were piling up in the loading bay. We had racks from floor to ceiling.

I’m a great believer in analytics, so I started to find the data I needed to see what was going on. When we rented the warehouse, it was supposed to handle three times our existing volumes, so something was wrong. I looked at the relationship between raw materials and sales and this showed that we had increased the raw materials on hand by four times and sales had only doubled. But it was the finished stock that really scared me. We had 12 weeks stock on hand – our bench mark was 45 days. How had this happened?

I knew we were using more cash than we planned and this explained why. Before I lost my temper with the team I realized it was my responsibility for finding these things and asking the right questions. I was distracted by other parts of the business and not paying enough attention to the inventory and stock.

We still have no idea how all that stock went missing

At the end of every quarter we did a formal stock count. When we were a real startup, we were always able to reconcile the stock and find it. As we grew, there were some discrepancies but nothing major. The differences were so small that we simply wrote them off.

Last quarter, the first stock count showed that more than 15% of the stock was missing. We counted again and found the same thing. We looked all over the warehouse and couldn’t find it. We now had six people working in the warehouse but they all said they didn’t know where the stock was.

We examined all the invoices and delivery notes and found that they hadn’t been reconciled for over a year. The accountants used the invoices to create the accounts and value the stock. The delivery notes were in piles in the warehouse office. Upon closer investigation it emerged there were no delivery notes for a number of high value items. We called the supplier and they said they were delivered. They provided signed notes to show when they were delivered. All were signed by the same warehouse operator.

When we asked him, he said he didn’t know anything about missing stock. There was nothing else we could do as there was no hard evidence of fraud. We tightened our controls and reconciled all the paper work. All was fine at the next stock count. To this day we don’t know what happened.


The website I built had too many bugs and Christmas sales were a disaster

I really didn’t like the website. It didn’t have enough functionality.  It was three years old and looked outdated. I made it myself because it was too expensive to have it done professionally. The time was tight though; the Christmas sales season started, which was an added stress.

In the beginning, it was relatively easy. I was putting up new products, updating stock numbers, and making sure new orders were sent out. Friends tried out the updated site and all the functionality worked when I tested it out.

The site went live on November 10. Sales were good, but some of the products couldn’t make it through checkout. I also couldn’t update stock levels. By the end of the week, I couldn’t tell if product availability was accurate. We were out of stock, but people were still able to order on the site. I panicked and started to make adjustments manually.

As sales increased, it was chaos. We lost control of our stock, didn’t have an updated catalog, and couldn’t adjust invoices for discounts. We made hundreds of manual adjustments and planned to sort out everything after the new year though the problems were getting worse everyday.

We fell way short of our sales targets. By the middle of January, we realized we didn’t have any real idea of our inventory. We had customer returns that we couldn’t process and people were contacting us to say their Christmas gifts were never delivered.

We never should have launched so close to Christmas. We should have tested the new site more thoroughly and made sure the payment systems were robust. We learned that no matter how good our products were, we needed to have world class support systems. This mess took us six months to sort out. We lost loyal customers and we almost ran out of cash.