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Blog postsAugust 07, 2019

On-demand warehousing and the sharing economy for high-growth eCommerce brands

Find out how high-growth eCommerce brands can use shared-economy solutions to build their businesses faster through on-demand logistics and collaboration.

In part two of the D3 Retail Supply Chain Summit panel recap, find out how eCommerce startups can use shared-economy solutions to get started, what types of KPIs are important to track, and how to best collaborate in logistics.

This is the second set of responses from the panel called, “Optimize costs and step up customer service through new partnerships.

You can read part one here.

Moderator: Juli Lassow, Founder and Principal at JHL Solutions

Panelists

Questions:

  • How does the shared economy help startups?
  • What does the shared economy look like for smaller eCommerce companies?
  • What kind of logistics KPIs are important to track?
  • How can you best collaborate in logistics?
  • What are the benefits and drawbacks of on-demand logistics?

How does on-demand logistics and the shared economy help startups?

Juli:

Kevin, you’ve touched on the bid process and how an organization that's fairly fleshed out and has a pretty good idea of their needs can come to you and start a partnership or start consulting with you on the best services. For both you and Karl, if a startup is coming to you, how well thought-through do they need to be? What's the best way for them to interact with you and make sure they're getting the most out of your skills and your abilities, while they might not be showing up as the experts in this space at all?

Kevin:

I think from our perspective, it comes down to people. We like to approach those engagements in a much more consultative fashion. We understand that in companies that are growing rapidly their needs are going to change on a day-to-day basis.

The advantage of working with a company like CHR is that we have scale and we've seen a lot of other companies go through the same growing pains and can potentially bring in additional resources that have dealt with those things and provide different solutions or different answers than you might not get otherwise.

Karl:

For FLEXE, we're very proud of our software platform. But it doesn't drive itself. We've got a big team of very experienced people who help make sure that our clients can tap into our services in a way that's most effective.

We serve really large global corporations who have tons of expertise, and they come to us and they're very prescriptive. "Here's what I need. I need these three locations, I've got this much volume, etc,."

And then, at the other end of the spectrum, we work with startups who don't have that expertise, and in some cases they don't even have people in the function. We'll start with a basic business need like, "Hey, how quickly do you want to deliver these goods? Do you want two-day, three-day, or one-day delivery timeframes?" And we'll start with the outcome they’re looking for and then bring to them the solution that will get them there. It may be a two-node network, or it may be a four-node network. It's a huge spectrum.

What do on-demand logistics and the shared economy look like for smaller eCommerce companies?

Juli:

So, top question [from the audience], what does the shared, or gig, economy look like for smaller eCommerce companies?

Gina:
We work with FLEXE and we work with Flexport. So from both a fulfillment perspective and a logistics perspective, we are tapping into these partners that are out there. I think that it's going to be a continuous partnership for a very long time because it would take—again, it’s relative to each company, but in order to scale to be at a level that these other massive companies are at, it's only helpful to really tap into what [these logistics companies] and helping us on our journey to grow and scale.

I've heard of some [other] really great companies that are entering this space just here at this conference that I'm going to look into—from a returns perspective and last-mile logistics perspective. So, as a smaller eCommerce, you definitely want to see what's out there, what's suitable for your company, and lean into it as much as possible, if it's right for you.

Karl:

To build on that, I was speaking with a guy last night who has been involved in a lot of branded startups. He's not the first person I've heard this from, but his perspective was, it's never been easier to start a company.

There's this whole idea around picking a category, developing something, and making sure it's differentiated. And then from an infrastructure perspective, it's never been easier. You don't have to go do television advertising, right? You do social advertising, build demand, and/or build demand on Amazon. Then, you leverage a platform like Shopify for your shopping cart, where you don't have to build your own shopping cart. Then, there are analytics tools out there you can use. Finally, there are companies like FLEXE, Anvyl for manufacturing, and also delivery companies. There's this whole stack of technology companies that you can plug into where you don't have to make capital investments to build up that infrastructure. It used to be much more difficult to do.

Gina:

And something I would add to that as well is the technology piece. We don't have a huge internal tech engineering team. And so working with these other partners that do have these platforms that you can integrate with, we use Shopify for front end, and so it's really great that you're able to have these integrations so that you don't need to have this massive tech team. And if you do just work with certain consultants to help engineering where you can customize things, but I think that technology platforms are a huge aspect to help get a company get off the ground.

What kind of logistics KPIs are important to track?

Juli:

You brought up ROI. I'm wondering, within the total cost of investment on a logistics side, are there any KPIs that we haven't touched on yet that you'd put out for consideration when you're looking at, or thinking to embrace the sharing economy?

Gina:

For us, something that is important as a new company that's really trying to set a precedence within this specific product category is perfect-order score—making sure that we are delivering the right product all the time.

It needs to be picked and packed correctly, it needs to be in the quality that is up to our standards, and it needs to be on time to what we've promised the customer. So it's kind of that trifecta of putting all of these different SLAs together to achieve that. At Casper, we were just starting to really talk about that. At Great Jones, we're already talking about it because we definitely want to hit all of those bases as soon as possible.

Kevin:

We're at a retail conference, on-time-in-full (OTIF) is the preeminent one that everybody's aware of. I think there are service parameters that extend beyond that, and there's certainly a cost-to-deliver component that any retailer is looking at.

How can high-growth eCommerce brands best collaborate in logistics?

Juli:

So, Gina, as you're thinking about strategic planning in the startup space, and knowing that you might know the step or two that you're following but you might not know the next 10 steps, how do you think about sharing your strategic plan with some of your key partners so they can join you on that journey and be able to provide optimal solutions where you know you've got quite a few variables that could introduce a lot of need for flexibility and change in pretty short order?

Gina:

Sure. I think it's really important to engage with the partners that we're working with, such as FLEXE, on what our roadmap looks like so that we can be as proactive as possible and plan into it. Again, they have a lot of information that we can leverage that could potentially help us get there faster and achieve what we're aiming to achieve. So, I only think that it is, again, helpful if you do [share information]. Hopefully, as a startup you're taking the time to actually have those strategic planning conversations instead of just operating in the day to day, because it's so critical to do that as early on as you can. And also sharing that information with your partners so that you can adapt and get there.

What are the benefits and drawbacks of on-demand logistics?

Juli:

So Karl, earlier I heard you talk about warehousing and truly an on-demand warehousing system. In our conversation earlier, Kevin, you talked about true on-demand logistics is actually almost a failure of logistics in some cases. So I wonder if you guys would take just a moment to talk about how on-demand shows up and looks very different in your respective spaces, and how you define success?

Kevin:

On-demand. I think the idea, it's a very romantic idea, right? I go on my phone and I can click a button just like I do for an Uber. I go out to the corner and I'm disappointed if the car is more than seven minutes away. Conceptually, in personal transportation, it makes a lot of sense because we all have vehicles, or most of us have vehicles, and they're used about 2% to 6% of the time. So there's this tremendous pool of unused capacity in the personal transportation space that's very easy to access, and you've got a pool of people in the gig economy who are willing to go out and fill that need.

We like to joke that anybody who had a minivan and some time can now make money driving people around. It's an entirely different example when you look at the commercial space. First of all, the barrier to entry, a truck cost about $150,000. So it's not something you enter into lightly and say, "I hope I'm going to have business." Right? The idea is, you create a plan for that piece of equipment. You keep it highly utilized. Any movement without freight on that truck is a waste of money, of time. And if you can't generate revenue, you're just burning profit.

So the idea that I can go in and just access [trucking] capacity that's readily available, to me it says that that capacity had no plan. So if it's sitting there idle and I go in and go, "I'm empty now and I don't know where I'm going to go next." What does that mean? It's either I don't have the right density of customers and I'm going to be looking for one, or I got sent someplace that I don't have a customer. So that idea is on demand.

If everything was working appropriately and we had 100% utilization, which everybody is going for, there wouldn't be the ability to have on-demand. It's something that everybody's working against from a transportation perspective, in trucking at least.

Our goal is to create a more highly optimized plan and not have to say, "Hey, I'm empty here and I don't know where my next load is going to come from." Instead, we can give you the next load in the next seven. And we can have that planned out for you. That's conceptually what we're working towards. The idea that on-demand transportation for trucking perspective just doesn't make fiscal sense.

Karl:

In the warehousing world, you know, totally agree that the concept of on-demand, it's a longer cycle time in B2B than it is in consumer. Particularly with our customer segments, again, large fortune companies and venture-backed startups.

This isn't a, “Hey, come to a website, click a button, and boom, fulfillment happens.” That's not the way it works with FLEXE either. But the benefit of on-demand, and why this whole business works in our business, is because the economic construct of a warehouse is a long-term multi-year lease. You know, you can have the perfect plan. But if your plan is to grow 20% year-over-year, and you have to lease a building for five years, by definition, you're going to be less than 50% utilized in year one because you've got to get enough capacity to cover year five's volume. That is your plan to be less than half utilized in year one. And so, multiply that by all the thousands of businesses out there and that's why you end up with 20% to 30% underutilized [warehouse] capacity.

So, there are two main values here. One is, you may plan and then the plan may be incorrect, but that's okay because here's a way to—if you're on the supply side—monetize that underutilized capacity—and if you're on the demand side—flip on additional capacity. And secondly, if you happen to have signed up for more capacity than you need, here's a way to sort of mitigate the financial risk from having to do that.

How should retailers navigate the tension between the demand for product customization while wanting a fast turnaround?

Karl:

We have customers at all ends of the spectrum. We have customers that have very exacting requirements. Like, “I want my product packaged this way with this welcome card, etc.” And we have others that, arguably, are operating more of a commoditized market and they want speed, consistent quality, and low cost. So, with the best companies, it ties back to your overall strategy. How are you choosing to compete? Does that delivery experience need to be part of your brand? Is it a brand extension? And if so, chances are, it's going to cost a bit more. But that should be a very rational investment to make if it is its own strategy. And that's an approach you choose. Versus if you're a less differentiated operator in a crowded category and you want cost, then it should look a different way.

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