Why Serialized Inventory Is the Backbone of Rental Businesses

Karri: Hello and welcome to the Recommerce Podcast, the podcast where we talk all things Recommerce and circular businesses. Today, we are diving deep into inventory management in rental businesses and focusing on serialized inventory and why it's a necessity in rental businesses. As always, I'm joined by Tuomo Laine, the CEO and co-founder of Twice Commerce. Welcome.

Tuomo: Thank you. Hopefully not always. I think last time we had a discussion that we are inviting some people to visit, so yes, let's see what we can do about that.

Karri: But let's start by just defining what is serialized inventory.

Tuomo: In simplest terms, serialized inventory is an inventory tracking system where every item is uniquely followed throughout its lifecycle. So even though you would have five iPhone 12s, each one of those iPhone 12s is uniquely followed and tracked across their journey from when they come into your inventory, move through various maintenance and repair operations, all the way to being sold or rented out. So every item is uniquely tracked.

Karri: And I guess this also means that it's kind of separated from the catalog products, or the products that are maybe visible in your online store or available for customers.

Tuomo: Yeah, in most cases, if you are selling, let's say, refurbished products, you're not selling them with the same granularity as you are tracking your inventory. So you might productize on a level of "iPhone 12 in good, okay, and bad condition." But behind the scenes, you might have 150 articles in your stock items in your inventory that all then fit into these three categories under which you sell.

Karri: And I assume that when everything is tracked individually, you are also able to maybe change this. So you're not like hard-coded to say, "Hey, this iPhone is in bad condition," but you can have some logic behind the system that, for example, let's say, a score from 0 to 30 is bad or something like that. And you can go even more granular on an item level.

Tuomo: Yeah, and I think it's super important, especially in recommerce use cases, to be like inventory first, and then almost like catalog second, whereas in linear commerce, it's catalog first and inventory second. So let me open up a little bit what I mean by that. So in linear commerce and standard commerce, your catalog is probably the most important thing that you're working with, and then you just tell how many stock items you have for each one of those listings you have. Now, if you then say that, "Okay, in reality, you do something like you refurbish a phone from, let's say, okay condition to good-as-new condition with spare parts," in that traditional linear system, you would go to your catalog and change the stock levels one down and one up. But you lose a lot of information there, like what was the item that actually got bumped up to the next level? And all of that, whereas if you're operating in an inventory-first world, as every item is uniquely tracked in this serialized approach, you see that all of the data is recorded per individual stock item. And then the catalog just reflects the situation of your inventory. I hope that makes sense. But there's kind of the inventory-first approach, which makes sure that you store all of the lifecycle events per stock item. That when you operate with those and you change something, like you refurbish an item, if it qualifies for a better listing, you're kind of still able to see all of the history of that item at the inventory level.

Karri: Sounds very interesting. And I hope that these concepts may be open up a little bit when we go further. And let's start by going through the overview. Why is it so important, especially in rentals?

Tuomo: Yeah, so especially in rentals. If we think about some of the challenges in inventory management in rentals, usually the first one is, "What do I have available at any given time?" So it's kind of the worry of not double-booking items. You want to rent out as much as you can, but there's a limit to your availabilities based on your inventory. So in the most simple inventory of one item, you can still have, I don't know, 10 bookings if they don't overlap on a booking level. And following that one item inventory, you could do that even on a calendar. If you imagine a hairdresser, kind of, if you're operating as a single hairdresser, you're kind of the one inventory. So if you just have a calendar, you make sure you don't get double bookings, everything's okay. Now, if you start to have 100 items, a single calendar, you would have to have 100 calendars per each item. And then the job of making sure that you don't get any double bookings would mean that you start to go through those 100 calendars and seeing if there's availability for each one of those. Of course, that becomes unfeasible in many cases. So that's kind of the main job in rentals when it comes to inventory management is to make sure that you can easily see what is available at any given time and to automate the booking process without worrying about double bookings, even on a level that you can do like in-store sales and online bookings and third-party marketplaces, everything at the same time.

Karri: And probably also like any changes to any specific item can have huge effects in this world when you might have the same item assigned for multiple bookings in the future. So during summer, let's say, it breaks down or something like that, it's not just now this item is not available, but you actually have consequences on the future bookings.

Tuomo: Definitely. So yeah, it's kind of the consequences or what's the follow-up of any given event. So you have the happy path recorded. But then as you said, something breaks down or maybe a customer is saying that, "I'd like to buy this bike if possible." So in order for you to kind of do the evaluation of whether that makes sense, you would need to kind of see how many bookings these items have for the future. Can they be replaced with another item in your inventory? Or would you even be maybe willing to lose those bookings? Because you might get a better return from the item sale. So whatever the kind of case is, you need to understand the consequences of any disturbances to that kind of recorded history. Also, you mentioned that kind of this recorded history for every item. So it can be things like bookings, but it also can be things like repairs or number of usages, how many dollars this item has earned. So all of the kind of important things that allow you to look into your business and understand the profitability of your operation. So how much have you kind of invested, for example, into an item until it has paid itself back and all of these things.

Karri: Maybe as a comparison to a linear business, you can think that the business insights or how is your business doing, profitability and all of that, maybe in linear commerce it's in the SKU, the bulk level. Like, how many of these items have I in stock, have I sold, and so on. But in recommerce and in rentals, all of that data is actually inside each of the items because one of the similar items might have had 10 maintenances and the other one maybe zero or something like that. So they actually have very different history and different margin profiles.

Tuomo: Yeah, definitely. And when you go to the moment where you're going to say that, "Okay, let's figure out if we were to, let's say, sell half of the models that I have," of course, you want to understand a bit that how much each one of those items might have been used to define which of the items you actually sell rather than looking at aggregate data on a SKU level. So that extra visibility to a serialized inventory allows you to just make better decisions at multiple touchpoints. But to be kind of from the other angle, you might also want to still do aggregate analysis. You might still want to say that, "Okay, even though I have that individual serialized inventory, I now want to see the overall sales of all of the kind of bikes that are of this brand and this model or this SKU code that I use." That can still be done. It's not a problem. You can kind of still record shared information across, or shared identifiers across different articles. But it's just making sure that you also have that unique identifier there.

Karri: Okay, so it's more about aggregating the data from those similar items or in some way similar, like they can be in a category or an actual model or anything like that. But of course, the aggregation is still quite important to see the big picture.

Tuomo: Definitely. So an individual serialized item is the kind of entity that collects all of the data, but it can have shared kind of data or identifications with other items also that you can use when you group by or you build your pivot tables or whatever you do, you can use those to kind of then aggregate data across individual items.

Karri: I hope this is already clarifying the whole idea behind serialized inventory and why it's so important in rentals and recommerce specifically. But maybe one more time, going from the other direction, is if you don't have it, what becomes hard or impossible in some cases? So if you're trying to use some linear traditional commerce platform that is based on SKUs, not serialized inventory, what is what is breaking down? What are you going to most likely struggle with when you are running your operation?

Tuomo: Maybe a simplified version is that if you don't have an individualized inventory, so you have a traditional linear inventory, double-clicking deeper into insights becomes harder. So you operate on that aggregation level. So if you have, let's say, just bikes aggregated on a standard catalog on a SKU level, you would like to see, for example, what's the profitability of this one specific bike, or how much maintenance this one bike has got. And you can just cannot basically double-click. You can maybe see how much maintenance this SKU has gotten in general, but you can't see kind of how much this single item or single serialized item has received. So I would kind of simplify it that unless you have an inventory system that supports serialized inventory tracking, you just have to operate in a quite lukewarm, aggregate insights rather than getting to the actual point of every item.

Karri: And if we're talking about bookings or this type of, like, having multiple events per item, is that somehow still possible if we're talking about that you have, let's say, bicycle quantity five? Like, can you define how they are used in the future?

Tuomo: Yeah, I think that becomes also hard, that the actual bookings do not connect to actual articles. They kind of operate on that catalog level, even though you would have some kind of a, let's say, booking engine in connection to your catalog. Another challenge that might happen is that unless you have a specialized inventory system tracking individualized articles, your catalog cannot be really dynamic or flexible. So you kind of, it's kind of impossible for you to say that, "Well, I have a bookable catalog listing called 'Premium eBike,' to which I count all of my models and brands and all of that." And it's kind of a more of a generic listing. And then at the same time, you might have individual listings for each one of the brands, like where a customer can actually select per brand and per model. So that becomes impossible because if your inventory tracking is based on listings and then just giving a stock quantity for them, you cannot have that shared availability across listings. Whereas if the source of truth comes from your inventory tracking system that is built with this individualized or kind of an item-level tracking capability, this one item can serve an unlimited number of listings, because it's kind of itself protecting the fact that I don't get double bookings in the future.

Karri: That's probably something that's really crucial also if you are using that commerce platform to actually share listings to third-party services as well. Like, when you are in your own world, when you have one product is one inventory article or one product is five inventory articles. But when you start to have listings on marketplaces or anything like that, that's kind of already breaking that chain. And then you need to have some kind of background magic that sounds quite complex. If you suddenly have listings or bookings coming in, and then you have to, like, after merge say, "Okay, I'm actually meaning it's this item," and then that item has to be updated to the listing on your website.

Tuomo: It's breaking down. In practice, it becomes impossible to do scalable multi-channel sales. That's also the challenge that we've seen, or with what our customers, when they reach out to us if they have existing solutions, they might have solutions that are great in individual item tracking. But they're great inside one channel. So it's part of their existing online store or if it's a point-of-sale system that they have. But as this kind of individual item tracking or this inventory tracking has always been built with the kind of idea of being an extension to an existing thing, it rarely has been built in a way that it easily can become the source of truth for multiple channels. So that's really kind of the, I think from a rental company's and a rental entrepreneur's perspective, it's extremely important that your inventory tracking is built in an individualized way and in a way that it's in a system that can be connected to multiple channels. Because from your perspective, your income is based on the utilization rate of your inventory, and you want to kind of be able to point as many booking channels as possible to that inventory without any limitations. And that could be done if you have that item-level tracking. But it usually means that this service cannot be built for just one channel only.

Karri: Absolutely. That sounds like something that might get you off the ground, but when you are looking to expand or grow your business, that's something that you're going to probably struggle a lot with.

Tuomo: Something that we've seen with customers that have started off with something like a basic system, it is kind of what you said there that first you had just like a paper and pen operation if you started by walk-in customers, then you upgraded to some kind of a system because you needed to get stuff to online. And then when things start to kind of break down is when you start to want to connect your availabilities to multiple sales channels. And that's usually when customers come to us and say that, "Okay, this is my problem. I'm able to somehow handle walk-ins and maybe I have an allocated fleet to online bookings, but that I use with forms or whatever. And I'm willing to overbook. I'm willing to overbook, like, 10% or whatever. But now I'd like to expand and then it starts to break down." And also the fact that another way of how rental companies grow is just growing their inventory. And if your inventory tracking is super hard to kind of expand, like if it's hard to add new items into your inventory, the growth becomes kind of hard also, because they don't automatically connect to all of these channels. In the worst case, you go to each one of those channels to update the availabilities.

Karri: Absolutely. That sounds like a lot of work and something where you will at some point make some crucial errors. And I think overall that form is quite interesting. I noticed especially with our Wix rentals app, the most common use case is that it's an existing rental business that used to have this, what we call like dumb forms that is basically just a contact form. And then replacing it with our inventory and rental app. And I never actually thought about it. But that form is basically just turning that online booking into a walk-in, because you're not promising anything. You're just like, "Hey, what are you interested in?"

Tuomo: Yeah. And then you're kind of exactly like you would be for a walk-in. It's like, "Oh, let me check here and here."

Karri: So that's that's very interesting actually, something that I just connected the dots.

Tuomo: Exactly. Yeah. So it's like, I think the progression for your professional sales comes from, like, "Okay, maybe first just having a website that says where your address is so people can find you. Then the next one is having a form so people can even pre-contact you. The third level would be that your catalog is visible there but not bookable for whatever reason, so people can make more informed contact forms. And then the really kind of the where everyone should be is that they have a bookable catalog there that is connected to your availabilities and people can actually do online purchasing and prepay for their orders. I think that's the, that's really the kind of best position to be, that you are actually selling online. But for many, for us, it's been we've been figuring out why isn't it so that rental companies would already be there. I think it's the source of that problem is actually the fact that their inventory tracking is either in a one extremely closed vertical solution, or that it's run on pen and paper and Excel, or that it's even running in some kind of old on-premise server, kind of, you know, with Windows XP, like user interface, that's I think the worst situation to be.

Karri: Yeah, yeah, absolutely. And most likely these are the situations that when you are making decisions on which software or what type of solution commerce OS platform you are actually using, these are the ones that might work for now. But at some point, they will be an issue for you. If you are not selecting correctly, and it's probably at some point gonna not allow you to grow or go to these third-party sales channels and so on. So probably these are the investments or those decisions that you might want to actually take a little bit of time and kind of understand like where could my business be in a six months or 12 months or five years of time.

Tuomo: Yeah, it's something also that we took a hard look at into our new platform that we're launching soon is that if I go back to my earlier quote that what are the things that define like enables rental companies to grow. It's either connecting to more channels so that you get more bookings to your inventory, or growing your inventory, or maybe a third one, update your pricing. So whatever solution you select, you should kind of evaluate your capability, those three capabilities as kind of a signal to how easy it is for you to grow your business. If it's extremely hard for you to add new items there, if you need to contact someone to do that, or kind of you're not independent in just growing your inventory and adding new items on the fly even, it's a warning sign. If you don't feel that it's relatively easy for me to start connecting new sales channels to my inventory, whether it's via API or pre-built integrations, that's a warning sign. So if it's only like you're locked into one channel or similar. And then maybe even the pricing one, if you update your pricing. But you feel that if I update the pricing, I have to go to like 500 different places to do it rather than just bumping up your price for the item that you have, that might be also a warning sign. So the three capabilities that I would say that you need to make sure that you feel comfortable is that how easy it is to add new items, how easy it is to connect new channels, and how easy it is to kind of update pricing or other details.

Karri: Absolutely. I'm probably also related to the pricing is the capabilities to have this dynamic pricing so it's not just like one price that is always valid but it can be higher on weekends, higher on during summer or something similar.

Tuomo: Definitely. So can you kind of start optimizing pricing based on the learnings that you get from your operation? Probably one more place where rental operators might, let's say, regret not having serialized inventory is at the end of the life cycle or at the end of the rental cycles for that item is like when you are most likely you want to resell that item to maybe someone who rented it or just have like a dedicated section on your online store or store where you are selling items that you are no longer using for rentals and in that place understanding what is the value and what is the difference between this item that I'm selling and this item and like those profiles, those probably need a lot of data. How many times has it been used? How many maintenances? Is it actually just maintained or some of the parts replaced and it's actually almost in a brand new condition where you can ask a little bit more than the next item.

Karri: Yeah, and also I think it comes to like how easy it is for you to spin out that resell listing. So for many rental companies, they might have had a catalog full of bookable booking items, like, "Okay, it's booking a bike," and then maybe having options of the duration. But the listing itself has been quite generalized. So now as they're looking to resell their fleets, it's not a booking thing that they're reselling. It's actually a physical article, and you need to be able to spin out a unique sales listing as easy as possible. A sales listing that has enough information from the history so you can price it most optimally. You might want to have unique product images on that, like article-level which is super important. And then the same rules apply, that you might want to list it out in multiple channels, your own website, but also a marketplace or even just make a spin out a Facebook Marketplace ad for it. The key thing being that the same rules apply that the better sales listing you can spin it has been out and the more you can kind of connect this listing to multiple marketplaces or sales channels, the more likely you are in receiving a good sale for that.

Tuomo: What about other like operational aspects where the serialized inventory is super crucial? So if we think about like the journey of an item in your inventory, it starts from actually having that item and being able to put it into your inventory system and then maintenance and repairs all of that. So maybe a couple words about like the operational aspects of and how serialized inventory can help there.

Karri: Yeah, definitely. So I think at the end of the day, it comes to that like, "Can I double-click on what happened when I'm trying to figure out how to improve a number?" So first step what you do is that when you're looking at how do I improve my operation, the first step that you do is like, "Okay, what does my inventory look like?" And then you might look at what's the value there. And then you might look into like, "Okay, how did how much have I spent into this?" So you might look at your maintenance and repair costs. Maybe you can deduct these two numbers from your accounting somehow, like, "Hey, here's the salaries of the maintenance crew and here are the cost of spare parts or whatever." But then you're looking at two numbers and then you're wondering, "Could I have done a better job and how?" That's where it starts to be hard if you don't have that serialized inventory. Like, where did this money actually go if you just kind of know that, "Well, in general, I spent this much repairing my bikes," but you're not able to connect the dots. Like, "Actually, 60% of our time went to repairing this one specific model and actually under that these five bikes that seem to be just like defective in in manufacturing," your next steps might be ill-advised. So the kind of deeper you get to double-click on how your maintenance operation in time and and investments was spread into these individualized items, the better insights you can gather on how might I improve my purchasing or my service operation. So that's kind of the key thing to me that like again, you just are capable of making better business decisions when you're able to see how revenue and costs were allocated on a serialized item level.

Tuomo: Absolutely. And even just when you are filling in the inventory and if you have similar bikes that you bought six months apart, those might have like a different purchase date, different purchase price, and it starts from there. And then recording everything that happens to that item and having that data easily available. That's something that probably once again, like at some point, maybe it's not something that bothers you when you're starting out. But maybe the next season when you're looking, like, "Hey, which bikes would I actually buy?" and that might be the real moment when you are like, "Where is the data? How can I access it?" then. And that's probably where serialized inventory really shines, is basically when doing analysis and deep dives.

Karri: Definitely. Okay, so far we've gone through like what is serialized inventory, why it's crucial in in rental businesses and how it actually operates or affects the operation and and then analysis and and even purchase decisions. And maybe at the end can we can go through like the different levels or progressions of having individualized or serialized inventory?

Tuomo: Sure. So like, anyone listening and and and figuring out what are the ways of implementing this. I think the most basic way to start is that effectively you have a calendar for each one of your articles. So that can be a piece of paper where you record effectively every booking and maintenance that you have. What becomes challenging is that if you have a lot of items, when someone calls you and asks what do you have available, you have to kind of go through all of those calendars to get an understanding. But in practice, that would be the easiest way of tracking profitability. Then maybe from that pen and paper operation, the next step is that you run it instead of a pen and paper, you run it on like Google Sheets or Excel, where you can do then some pivot tables and so on. You might be somewhat quicker in responding what do you have available when someone calls you or when you're doing your analysis, but it's far from yet being in a state where your customers could self-serve and pre-book stuff and would see the availabilities online. I think then the next step usually is that, well, I think the first step, it would be some kind of a in-store operate like system, like a point of sale system that offers some of these capabilities, but has limited for example, online store or online sale support. So if it runs on premise the software then that's probably the third step after that can help you with walk-ins, but often is quite terrible when it comes to online sales or multi-channel sales. After that, I think that, and I actually funnily enough, those on-premise solutions tend to be more expensive than the more advanced ones later that I'm going to refer to next because they're kind of somehow almost like running on DVDs or something like that. So you have to pay for hardware and all of that and not only software. I think then we start to kind of be more closer to the modern areas. So then you have providers that are either like add-ons or or similar to existing commerce platforms. So you might look into something like Wix and then you look at, "Okay, Wix actually enables me to do a lot of online sales, allows me to have a website, allows me to kind of reach my customers with that website that integrates beautifully with Google Maps and all of that. Now I want to implement bookings to my website." And then there are apps like our Twice Rental App in Wix that helps you do that, but it's still kind of probably then used in a channel-specific way. So it's kind of replacing a form online. But then I think the the best of the class is what we are also providing, is the fact that you have that individualized inventory tracking, like an actual software solution for following all of your inventory both in-store and online and being able to connect it to multiple channels. I think that's kind of then the step. And often actually, if we look into us and our competitors, the pricing starts quite in a reasonable range. It starts from like 29, 39 dollars a month. So if you compare to the cost of running things on paper, you kind of often find out that it probably would be easier to pick one of the solutions to start off with and then grow with them rather than skipping the manual operation. But I I think that's kind of the progression of solutions you might operate with.

Karri: And I bet there are some rental operators who have gone through each of those steps. But as you mentioned, modern solutions like ours are something that is kind of reasonable at the beginning and allows you to maybe start from the most advanced and maybe not utilize all of the advanced capabilities, but you are ready for whatever comes next, and it kind of scales with you.

Tuomo: Yeah, and that's also our approach, why we've taken the approach especially with the new platform where pretty much all of our features are available in the cheapest plans also. So we don't we don't like feature-gate your capabilities. You probably don't need all of the most advanced capabilities, but you have them there if you need them. But we don't price-gate you, like, we don't kind of force you to pay more just to be able to do something. Rather, we look at the volumes and the complexity of your setup.

Karri: I think that's a pretty quick, maybe maybe compared to our previous episodes, but I think a pretty comprehensive look into the serialized inventory and why it's really crucial in rental businesses. So thank you for all of the great insights, Tuomo.

Tuomo: Thank you for the great questions, Karri.

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