Sweetwater Sound, LLC didn’t waste any time preparing for this year’s fourth quarter. By the end of May, the nation’s largest online seller of musical instruments and professional audio gear was already finalizing orders and distribution plans for the coming peak sales season.
That was at least two months earlier than is typical for Sweetwater — in fact, the earliest that the company had ever prepped for year’s end in its 43 years of existence.
Sweetwater dug deep into its partnerships with vendors to make sure that its distribution center in Fort Wayne, Indiana was equipped with all of the merchandise it hoped to sell in the fourth quarter, says Phil Rich, senior vice president and chief supply chain officer. It doubled down on planning, storage and transportation, “all the way from the front end to getting the customer the box,” he says. “We’re looking at all our parcel rates, every possible way we can execute in Q4.”
Sweetwater moved quickly this year in response to multiple uncertainties caused by the COVID-19 pandemic, including shuttered factories, worker shortages and supply chain gridlock at ports and over the road.
The company does relatively little direct importing, although it deals with at least one foreign-based vendor with a U.S. distribution hub. Regardless of the domestic nature of its supply chain, it can’t escape the ripple effects of disruptions at overseas factories and congestion at major ports.
The overall supply chain strategy is subject to constant scrutiny, says Rich, adding that Sweetwater considers itself “a kaizen company, always improving every day, inch by inch.”
Key to Sweetwater’s success is maintaining close ties with its top 20 vendors. Rich says the company insists on one-to-one connections at every level, from production to sales, category management, inventory, logistics and even chief executive officer.
That said, the task of fulfillment used to be left up to category managers and transportation providers, who made key decisions on assortment, planning and forecasting, then expected product to “magically show up” in time for the big selling season.
These days, the relevant parties are in constant communication on production levels and timing of orders. “We’ve had to scramble,” says Rich. “Every one of our category managers had to become buyers very quickly.”
One result of the change in strategy has been an increase in inventory on hand — roughly double the level of safety stock compared with past practice, Rich says. Many other merchandisers have made similar moves in the face of uncertain supply lines, only to encounter a shortage of warehouse space. But Sweetwater benefited from a stroke of good luck, in the form of unintentionally perfect timing.
In February of 2020 — one month before COVID-19 shut down global commerce — Sweetwater expanded distribution space at its Fort Wayne campus from a pair of 44,000 square-foot warehouses to a single facility of more than half a million square feet. “It was in the planning stages for three years,” says Rich. “The fact it happened to open at that time was really a blessing for us.”
Since then, Sweetwater has expanded by another 50,000 square feet in Fort Wayne, and is opening a new fulfillment center in Glendale, Arizona this summer. From those locations it can easily cover the country, without having worry about where it’s going to store the extra inventory that’s needed as a hedge against uncertain demand.
While Sweetwater’s purchases consist entirely of finished goods, it hasn’t been unaffected by the global shortage of microchips, which are essential elements in products such as electronic drum sets and digital mixing consoles. As a result, the company has had to make some tough decisions about which product lines it can reliably offer. “Our backorder overall is far greater than pre-pandemic,” Rich says.
The supply crunch coincided with a spike in sales during the lockdown, with demand for instruments and audio equipment soaring as homebound consumers turned to Zoom and other online apps to communicate.
“Our business just absolutely exploded,” says Rich. “Two things tend to do well and stay afloat in tough economic times: alcohol and musical instruments.”
Rich is expecting a strong fourth quarter, but believes the company’s ultimate success depends on how well it communicates with vendors upstream and customers downstream. On the supplier end, “you have to be closer to your vendors than you’ve ever been. It’s the new face of agility in supply chain and merchandising.” That includes helping to shape key product strategy decisions to ensure that vendors remain profitable.
Staying close to the customer is equally important. “In the last 18 months,” Rich says, “we’ve taken all of our supply chain knowledge, summarized it every single month, and communicated in great detail to our sales force so they can have a highly credible conversation with our customers. That’s the real key — if customers don’t have faith in what you’re doing, you’re not going to have them.”
Timely, incisive articles delivered directly to your inbox.