Blog postsJune 20, 2018
2018 D3: Future-Proof Your Warehouse Strategy
Last month, we attended the 2018 D3 Retail Summit in Brooklyn, put together by eyefortransport (EFT). It was a packed couple of days with a lot of great speakers brought together for a common interest: how to solve the retail supply chain challenge.
New technologies, changing buying behaviors, and market saturation have put retail to the test. As supply chain and logistics become increasingly important for eCommerce success, retailers and brands are turning to new B2B solutions to meet demands and thrive.
FLEXE Co-founder and CEO, Karl Siebrecht, gave a presentation on how you can “Future-Proof Your Warehousing.” Below is the video and transcription.
If you know what these brands have in common, raise your hand, but don’t say anything yet. Anybody know what these brands have in common? That’s awesome. Okay. One, we got one. Okay. We’ll come back. Keep it to yourself. We’ll come back to this. So, back to future-proofing your warehousing. What is future-proofing? It basically means, “Hey, the world is sort of an unknown place. How can we plan for the future and plan for the unexpected?”
One good answer, if it works, is this: Find a crystal ball to tell you exactly what’s going to happen.
Or, there’s a concept that I learned. I spent four years in the Navy, which was a great experience. I was a Navy diver. Pretty cool job if you’re looking for a new one. Happy to share stories at the happy hour later. But there’s this concept described as “structural agility” or “structural flexibility.”
Create Structural Agility
What does that mean? If you’re in the military, there’s a lot of scenarios you can imagine happening, and you can’t plan for every single one of them. So, what you try to do is build in structural flexibility, or structural agility.
The best example I have of this is an aircraft carrier. Here’s a way where you don’t know the war is going to break out or, what’s going to happen, but this is a way you can sort of transpose your firepower very rapidly and very quickly, and you can respond to a lot of different things.
Structural flexibility: that’s one of the things I want to talk about with respect to how do you potentially future-proof your warehousing or your logistics network. You start with some concept of what are the possible things that could happen in the future.
So, I’m going to make three incredibly obvious predictions:
- One is that eCommerce is going to continue to grow. It’s been like 16% every year. I’m just going to bet that that’s going to keep happening for the next several years, okay?
- The second one is that consumers won’t stop changing their preferences and their desires. Just think about one example, the delivery promise. Is three days good enough? Is it going to all go into two-day? What about same-day? If consumers have to pay for one-day, do they revert back to three to five? I don’t know. We don’t know how this is going to play out, but what we do know is preferences will continue to change, particularly as some people innovate, and offer up new options. One of the big innovators who of course is setting the bar for all this is Amazon.
- So the third prediction is they’re [Amazon] going continue to influence consumers and impact other companies.
I’m making the wild prediction that that’s going to happen, that all three of these things are going to happen. How do you future-proof against this kind of stuff happening?
One of the structural challenges in the logistics industry is this, and I would argue it’s among—if not the most fundamental—structural challenge, and that is that warehouses are static.
What do we mean by static? It’s that the economic construct is a long-term lease. Whether you as a brand or a retailer are leasing buildings on a 5- to 7- to 15-year term, or you’re working with a 3PL, who then has to lease the building under that same term, these are big fixed costs. These are fixed chunks of capacity. They’re static. In the face of a business that’s increasingly dynamic, this creates tension and challenges. This creates a situation where companies can be long on space and short on space simultaneously in different geographies. There’s fundamental mismatch here.
One of the things where this becomes particularly acute is that delivery promise. We talked about consumers of course, everybody knows this, they want to get stuff faster and cheaper. It turns out, many of you probably already know this, the number one reason for shopping cart abandonment, the number one reason, is that consumers are dissatisfied with their delivery choices at the point of checkout.
Again, most people already know this. You spend a lot of money to get that consumer to the cart. This is awesome. They’re there. They fill it up with goods, and then they see that delivery promise, and if they don’t like what they see, they’re out and they go someplace where they can get the same or similar goods with a better delivery promise. That’s a challenge.
Well, there’s this inconvenient truth, which is you can’t be fast or cheap without a broadly distributed warehouse network. You’ve got to have goods where the people are.
Now, I should clarify that. Warehouse network could also include brick and mortar stores, which some of the biggest retailers we’ve heard about today, of course, that’s one of the big initiatives.
Particularly in the face of the company that’s setting all the consumer expectations who has a fulfillment and sortation and distribution center footprint that looks like this.
The question is, “How can you keep up?” They’re setting the consumer expectations through the delivery promise to be fast. How can you keep up? They are sort of broadly two avenues you’d take. One is how do we leverage his network, because Amazon is fantastic at what they do. Massive scale. How can I, as a product company, distribute my goods through this channel. We’ll come back to that in a minute. Or, how can I try to replicate this so that I can achieve the same delivery promise for economics that my business can support?
There’s a set of companies that have figured out how to do this really well, which brings me back to the trivia question. Does anybody know what these brands have in common? In the back, we’ve got one.
Yes. They’re online or eCommerce retailers?
That is true, but that’s not what makes them particularly unique.
They’re Amazon type of brands?
Yes, these are all Amazon brands. Isn’t that amazing that … I didn’t even know this, but these are all Amazon brands, it’s pretty cool, that are leveraging that footprint. Now as a business, again, you’ve got to decide how can I also leverage that footprint? Or, if there’s some fear that maybe given all the orders that they see and all the products that they see us buy, that these companies may have some sort of advantage. I’ve got to figure out how to replicate that network in a way that is economically feasible to me because I don’t have the type of budget that Amazon has to put up 300 nodes in a network.
So, how do you compete? If you could pull out one of these white boards or pieces of paper and brainstorm what would you like this distribution network to look like, it would have some subset of these components:
- One is you’d want to have infinite warehouse locations. Warehouses wherever, that I can tap into at any time.
- You’d want to have complete flexibility with that capacity. I want to be able to dial up capacity in one market. Maybe I dial it down in another. I want to dial it up for a season. I want to dial it up for a new product launch or a special consumer promotion, next-day free shipping for these goods for Father’s Day, and when that promotion is out, maybe I want to go back to a different configuration.
- You want transactional pricing, because nobody, really, save one company, can afford 300 warehouse leases.
- You’ve got this now broadly distributed network. It’s even more important that it’s centrally managed.
- And, you’d want advanced technology to help you figure out how all these goods should flow through this big network.
Essentially, this is what we built with FLEXE. The way we have tackled this problem is through an open marketplace model, where we have collected a network of over 900 warehouses.
These are all operating warehouses. Most of them are 3PLs. Many of them are 3PLs you may be working with today, that have excess capacity.
We have clients, retailers, and brands who have hundreds of thousands of products that need capacity, sometimes on a flexible basis, either for growth or for seasonality, or for product launches, the things we’ve talked about.
There’s a software platform that connects these companies with these providers so that to the company, you’ve got centralized control over your orders and your inventory, even though you’re working with a diverse set of different operators. That same technology platform is what’s deployed in the warehouse to manage consistent quality and consistent economic viability on the shop floor and the warehouse floor.
Two seconds on case studies. It’s everybody from Ace Hardware, who we help with seasonal overflow of goods as well as one of the world’s largest CPG companies to help them with seasonal overflow and overflow related to supply chain disruptions, to retailers like Toms, who we help with their pop-up fulfillment networks.
We provide pop-up warehouse and distribution to support and distribute to those locations, and high-growth eCommerce companies. I don’t know if anyone’s ever heard of Cargo. They’re a local company based here in New York. Fantastic. They have convenience stores in Ubers. So, what do you think? Right there. I saw my first one in the wild last night. There was a couple folks, I was in a car with—it’s great—but, they’re building out a national network of these capabilities and they ship replenishment Tic Tacs and the like to drivers around the country, so it’s very, very important for them to have a distributed fulfillment capability. They’re a small VC-funded startup, they can’t get into 5, 10, 20 different leases on their own.
So, that’s what we do, and just recently launched, actually today, a new program. Again, just sort of leveraging the same model in the face of change. One of the things that Amazon is doing is they, in addition to continuing to gain market share, they continue to evolve their footprint, right?
They’re growing it and they’re reconfiguring it. As somebody who’s selling through Amazon, you’re getting instructions to ship goods to different fulfillment centers, and they’re getting tighter and tighter with their inventory controls. They’ve raised the cost of storage, because they don’t want your goods sitting around in their warehouses, and they’re developing more discipline around essentially the on-time in full dynamic. I don’t want too much of your inventory. It’s got to be on time, and in the right quantities.
This is a very difficult thing to manage, particularly as the landscape keeps changing. So, the latest solution we just launched is an FBA distribution program that can help you save 40 to 80% on storage, because we’ve got facilities surrounding all of the Amazon facilities. So, you can effectively have buffer storage capacity near the FBA sites to replenish in a much more effective way.
I’ll leave you with a last thought on structural agility, and it’s with a quote from one of the great philosophers of all time, in my opinion. Mike Tyson, who famously said, “Everybody has a plan until they get punched in the face.” So the question is, “What’s the structural part of your plan that can flexibly adapt to whatever punch is coming next?” So, anyway, thanks for listening and look forward to the panel.