I’ll never forget my first big inventory mistake. It occurred in 2006. I was working for LivingDirect, an online appliance retailer. I thought for sure I would get fired.
LivingDirect sold icemakers, air conditioners, refrigerators, and similar appliances.
I thought for sure I would get fired.
I’d been sourcing appliances for about a year and a half. Profits were good. I had made no significant errors. When you buy something for $200 and sell it for $500, life is pretty good.
We were expanding our product line to wine refrigerators, and we found a factory that made some slick models. The manufacturer used thermoelectric cooling, which had advantages such as low energy use, low noise, and no bulky compressor.
But the biggest plus was the high-end look with blue LED temperature displays. Back in 2006, this was unique. We figured we could make good margins from them.
My big mistake
I ordered a few samples. We tested them. They passed the quality and appearance tests with flying colors. The temperature displays were in Celsius, but that was because the samples came from a production that was destined for Europe.
Or so we assumed.
I ordered two containers at $50,000, to sell in the 2006 Christmas season. Our inspector checked the functioning of the LED displays. But he did not take a picture of a display or note the temperature range.
I approved the inspection results, and the refrigerators arrived in Austin. Excited, we placed a unit in our showroom, unplugged. About a week later, I received a call from one of our customer service reps.
Customer Service Rep: “Hey Peter, a customer says her wine cooler only goes up to 24 degrees.”
Me: “Silly customer. That’s well below freezing. It is physically impossible for the thermoelectric cooling unit to get that low.”
Customer Service Rep: “I dunno. She’s pretty insistent.”
Me: “We’ve got a unit in the showroom. Go plug it in and check the display.”
Customer Service Rep: “Hey Peter, this one doesn’t go above 24, either.”
Me: “Oh crap.”
My heart sank. I jumped up and checked the unit in the showroom. Sure enough, the temperature display ranged from 10 to 24 degrees.
Which is freezing if in Fahrenheit. Or, perfect for storing wine if in Celsius.
But Americans don’t use Celsius.
I shut the door to my office and looked through all the purchase orders and correspondence with the factory. I had specified the temperature range for the wine refrigerator, but I had not specified that the display appear in Fahrenheit. That’s when I realized it was all my fault and that I would be fired.
After all, the cost of the containers was $50,000 — more than I made in a year!
The recovery
It took me about an hour to calm down and go into problem-solving mode. I asked warehouse personnel to spot check the display on a few more units and confirm that the issue affected both containers. It did.
I marched into the CEO’s office and told him about the mistake. I said I was working on a solution, and took full responsibility for the error.
The CEO was quiet, which unnerved me. But, the damage was done. There was nothing to do but move forward.
I convened our marketing team, the CEO, and the president. We brainstormed. Two hours later, we had a plan.
We printed a Celsius-to-Fahrenheit conversion table. (The creative director made it look nice.) Then we changed the marketing and promotion text. We called the wine refrigerator, “Euro-style,” and marketed it with the tag line, “Why store your French wine in a Fahrenheit wine cooler?”
“Why store your French wine in a Fahrenheit wine cooler?”
We sold them. Every. Last. One.
Not a single customer complained. I did not get fired. Instead, I was complimented for thinking quickly and solving a big problem (of my own making.)
I reordered the wine refrigerators when we were running low. But this time I specified a display in Fahrenheit! We removed the “Euro-style” marketing collateral once we sold the last one with a Celsius display.
Lessons
Specify all details on purchase orders. Some companies even name individual components in the products. I’ve never done that. But if you aren’t specific, factory staff will interpret the order as they understand it.
Your inspectors must receive explicit instructions about what to check. Our inspectors tested the LED displays and took photos of the units. But I did not instruct them to take pictures of the display while it was on.
And don’t panic when problems occur. Operate in reality. Think about how to get out of the current situation.