How Tile is weathering supply chain disruptions

CJ Prober, CEO @ Tile
Demand and supply chain disruptions impacting consumer electronics

With uncertainties swirling on both the supply and demand sides of his business, Tile CEO CJ Prober had to steer his business toward increasing revenue while dealing with component shortages and changing customer needs.

In a recent conversation with Alloy CEO Joel Beal, Prober outlined the supply chain disruptions Tile has faced in the past two years and what he sees in the future.

Challenges and upheaval in supply chains

Joel Beal (CEO, Alloy):
You got exposed to a new world in the last couple of roles of your career. Tell us about that. Was it baptism by fire?

CJ Prober (CEO, Tile):
It was. Before getting into the consumer electronics supply chain world, my focus was on software and monetizing experiences via memberships and microtransactions. Then I became COO at GoPro, and it was an eye-opening experience getting involved in very different elements of managing consumer electronics businesses.

At both GoPro and Tile, I’ve had the benefit of having really great teams who have spent their whole careers in consumer electronics. I viewed my job as bringing a data-driven mindset to managing those businesses, which is more challenging when you’re selling devices at retail than when you’re offering a digital service. Access to data is more challenging in the retail model. But my belief is that, in the future, there shouldn’t be any difference – you should have access to all the data so you can iterate and dynamically operate a consumer electronic business just like you do a digital service.

Beal:
It’s been an…exciting last couple of years. Every day a new supply chain topic is top of mind, which is exciting, but also reflects a world of issues for brands like Tile to work through. So when you wake up in the morning, what thoughts give you a bit of trepidation for the future, and what things get you really excited?

Prober:
We’re in a pretty unprecedented time when trying to predict demand with everything that’s happening at a macro level with consumer confidence, inflation, channel shifts, etc. Combine that with supply chain disruptions. We operate a business that produces products for retailers to sell to consumers, so we’re investing capital to build that product. When you have that level of unpredictability on both the demand and supply sides, it becomes a daily war room battle. We’re spending our days worrying about supply and trying to figure out demand.

Tile is a global business; we have sales across EMEA and North America. Each geography we sell in has its own challenges, so I’d say that’s the main thing keeping us up at night – managing that chess game.

I’m excited about completing our recent acquisition by Life360. They focus on people, we focus on things. It’s an incredible opportunity to bring our products and services together to offer the must-have family service for people, pets and things, where we deliver peace of mind. Our team’s fired up about that.

But in some ways it’s exacerbated the supply chain challenges for us. Not only does our business rely on selling our devices, but our top-of-funnel for getting people into our membership relies on third-party devices embedded with Tile (like Skullcandy earbuds and HP computers). So we’re focusing a lot on the challenge, but we’re excited about the opportunity ahead.

"Inflation and all of the macro factors on top of that are creating very different challenges and trends in different markets. We’re constantly having to adjust to the input and output demand signals to manage the business."
-CJ Prober, CEO @ Tile

COVID’s impact on demand and supply chains

Beal:
Did you see more unpredictability around the time of peak COVID?

Prober:
Yes. There were three main phases tied up with COVID.

Phase one was extended lead times due to supply chain constraints, shipping challenges, etc. We saw a significant impact to demand because a lot of people weren’t going to stores and Amazon was only shipping essential goods. That was a fairly short window we recovered from quickly.

Then, we wondered how we were going to make enough products to fulfill this demand. We had a dip at the beginning of COVID and then a real increase in 2021, and there’s a readjustment that’s happening now. In phase two, things started to get more expensive – a natural effect of phase one.

And now we’re in phase three, where we have a lot of unpredictability. Inflation and all of the macro factors on top of that are creating very different challenges and trends in different markets. We’re constantly having to adjust to the input and output demand signals to manage the business.

Beal:
And you get to do all that with much longer lead times than you used to have, which makes this problem much more difficult.

Prober:
Exactly. Historically, consumer hardware has been hard. If you’re not a consumable product, you’re either upgrading existing customers or expanding your reach to new customers to keep your revenue bucket full every year. Upgrading requires constant innovation and improvement, but you have to be able to predict that demand every year. If you’re making a big investment in inventory, you have to sell it through.

So you’re making a bet that you’ll be able to predict how much consumer demand you’re going to have for your product, both for upgrades and new customers. When you take the supply and demand unpredictability globally, along with trends affecting different regions, it’s gotten incredibly challenging.

Beal:
You’ve mentioned lead times getting longer. Are you seeing other things in today’s environment that are making that problem even more difficult?

Prober:
Yes. I would say we’re seeing a change in lead times, but even when you meet lead times, availability of key components is at risk. There are bottlenecks across the board. We’re seeing lead times of over a year for key components in a lot of cases. And some component suppliers decommit.

Then once you manufacture your product, you have to get it from “Point A” to “Point B.” If you look at the cost of shipping from China, for example, it’s been a massive increase in cost and a lot of unpredictability. When the Shenzhen region (where a lot of companies manufacture their products) shuts down because of COVID, that’s incredibly disruptive.
So we have systemic issues I don’t see going away any time soon.

"We use Alloy to really drill down in the data. If you have a retailer that's underperforming expectations, why is that? When you peel back the onion and you look at sales by store, you can identify issues in different regions, like inventory shortages. A lot of retailers aren't great at identifying those issues for you."
-CJ Prober, CEO @ Tile

Mitigating supply chain risks through smarter planning

Beal:
In your example of a component supplier who’s committed and then decommits, what are your options at that point? Are you just scrambling to find another supplier? Do you have to try to re-engineer a product?

Prober:
One thing we’ve been proactive about is multi-sourcing key components. We’ve accelerated our efforts to do that, and that’s really paid dividends because not all component manufacturers are subject to the same inputs and limitations. One supplier may be reliant on a specific fabricator, another may not, and that leads to significant variability in lead times and flexibility. Our hands have been forced more than ever to multi-source components because of that.

Now, that’s not a quick process where we’ll get it sorted in a couple of weeks – it’s a multi-month process and very expensive to design and test new components. But it’s an example of something that we started well over a year ago and is really paying off now.

Beal:
What are some other things you’re doing to mitigate the current issues you’re seeing or potential issues you see in the future?

Prober:
First of all, there’s no silver bullet. If anybody’s expecting an easy solution to this problem, I don’t have it. I don’t think it exists. But there are some longer-term things I think are important to think about.

Shifting business models was part of Tile’s vision as I got involved. When you have a more predictable source of demand (memberships as opposed to just hardware), it allows you to plan around the longer-term things easier than if you’re just filling the retail revenue bucket every year. It’s not an overnight strategy, but there’s a lot happening in this area right now. Companies like WHOOP that sell a membership-based fitness band and Xbox launching a new $25/month membership are two examples.

I think in the shorter term, one of the things that’s worked really well for us is just building a repeatable process around much longer-term planning. For example, we’re now planning our roadmaps for new products almost a year ahead of where we would have in a non-supply-constrained environment, because you have to order those key components with a year’s lead time.

We have rolling two-year supply models that we’re constantly updating and iterating on. Obviously, you need to innovate and serve your customers with the right products, but simplicity in your roadmap really pays massive dividends in a situation like this. You’re solving for fewer variables. That’s on the supply side.

On the demand side, it’s a whole different ball of wax. This is where my predisposition to looking at data informs our strategy.

We of course look at macro trends and segment trends and market share. But we also go very deep on asking the whys. We use Alloy to really drill down in the data. If you have a retailer that’s underperforming expectations, why is that? When you peel back the onion and you look at sales by store, you can identify issues in different regions, like inventory shortages. A lot of retailers aren’t great at identifying those issues for you.

You have to take that burden from them and do your own work to see, for example, we have 50% of retailer X stores not selling any product because the inventory is stuck at a distribution center. Our experience is that retailers react really well to us sharing that level of data. We use Alloy to bring this data and these insights to them and they’re happy to dig in because incentives are aligned right around sales.

You also need to be in a constant state of replanning. Constantly. And taking the latest demand signals, taking the latest supply signals and iterating on a weekly basis. That’s where having a platform that allows you to easily vary those two data points and iterate on your plan without relying on some laborious Excel process is really valuable.

It’s really allowed us to stay on top of changes and make decisions that have long-term impacts, earlier than we might otherwise be able to.

Beal:
If only we could add the ability to help you instantly manufacture products.

Prober:
Yeah, we’d be done. If we could make our devices as easy as changing pixels in a mobile app, we’d be in good shape!

 

See the latest trends in supply chain and inventory management — and how companies respond when reality deviates from their plan in our new infographic.

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