SuiteWorld 2022 - Studio McGee overcomes supply chain surprises with NetSuite
Integrated ERP system proved vital when shipping container price leapt from $2,000 to $30,000.
When wife and husband team Shea and Syd McGee documented their home renovation on Instagram back in 2014, the pair quickly built a loyal following. From that initial foray into interior design, Studio McGee now operates seven subsidiaries, offers a range of homeware items, has a licensing deal with Target, and even has its own Netflix show, Dream Home Makeover. The company has grown from a staff of two to employ 200 people and expects to post revenue of over $100m this year.
However, the firm’s evolution from home renovator to multi-channel business with 3.5 million Instagram followers has brought challenges. Patrick Ord, President at Studio McGee, explains:
It's an interesting dynamic with social-led businesses, that you can have an outsized following that outskirts your competency. You can have millions of followers and then people think you're huge when in reality you're just trying to fulfill out the back office. Whereas historically in order to have a big name, you have to execute really well. One of our challenges has been to scale as quickly as possible to keep up with demand.
The situation came to a head when demand for homeware spiked in 2020, leading to a rapid rise in sales and customer base. While the company managed the growth, behind the scenes Studio McGee was struggling with disconnected business systems that made it difficult to capitalize on emerging opportunities. Ord explains:
That introduces a lot of interesting challenges, where you have this great following and you're running as fast as you can just to keep up with the demand. We have multiple businesses, our design business is actually one of our smaller businesses now, our largest business is our e-commerce direct-to-consumer business, which is 85% of our revenue.
The challenges are, we have so many opportunities, how do we discipline ourselves, how do we organize ourselves, how do have accurate score keeping in each of our business segments to know which business is doing well, which businesses to pursue.
To work out the answers to these questions, Studio McGee decided to move away from its existing Xero, Stitch Labs and ShipStation accounting, order management and fulfilment products, and switch to NetSuite ERP. This meant the company could switch from running five disconnected business applications to a single integrated system, increasing productivity, and offering faster and more accurate reporting.
Studio McGee is using NetSuite Analytics Warehouse (NSAW) to support its move into a new 325,000 square feet fulfillment center, which includes robots for picking and packaging that are integrated with NetSuite. The firm is combining its NetSuite and Shopify data in NSAW, and will be able to add information from Google Analytics and other systems.
The business is also planning a move away from Excel spreadsheets, replacing them with NetSuite Planning and Budgeting to speed up budget and merchandise planning processes, and gain a better understanding of product and profit margins.
The old invoicing system has been upgraded to SuiteCommerce MyAccount to offer interior design clients custom invoices at the project design stage. When the client reviews each invoice item, they can unselect any they don’t want, and make bank transfer payments in the system instead of needing to pay by credit card or check.
One of the key challenges the NetSuite system has helped Studio McGee deal with are the supply chain issues that started during the pandemic and continue to plague businesses. Container costs in January shot up to around $30,000 a container; in a normalized environment it’s more like $2,000 to $4,000, and while costs are coming down now, it’s still about $6,000 to $7,000. Ord adds:
We've seen the time to receive product increase dramatically so we had to stock deeper. We just moved from a 45,000 square feet to a 325,000 square feet warehouse facility as we’re stocking more deeply.
You see those spikes and when you're trying to look at your financials and margin compression and manage cash, those types of surprises can kill you. We're really leaning on NetSuite to get good landed cost information. You can have a product on paper and the margin looks really good, but when you start adding in all the supply chain costs and factors and not only how you get into port, but how you get from port to warehouse and you use rail and trucking, it's very dynamic so you need really dynamic intelligence.
To ease the transition, Studio McGee relied on systems implementers and consultants, as well as NetSuite Advanced Customer Support (ACS). It found Health Check particularly helpful, where NetSuite investigates systems optimization. This process identified a number of slow-running scripts and unlocked some bottlenecks for the business.
Ord acknowledges that while the initial NetSuite systems implementation was difficult, that would be the case with any major tech upgrade:
We knew what our business was like then, but we didn't know what it would be like a year or two from that point. It's a constant battle to try to evolve your processes to match the functionality of your systems. And then we continue to partner with other systems that need to integrate within NetSuite.
But we're feeling really good about where we're at now, moving into our new fulfillment center, which was a big lift for us. Now we're at a point where we have robots for picking and packaging that's integrated into NetSuite and we're doing some really cool things. But it's quite a journey.