Failure-proof your supply chain and fulfilment

 
TLDR of this Webinar

Failure-proof your supply chain and fulfilment

To say supply chains are complex would be an understatement. But they don’t have to be.
Let’s break the mystery and frustration into two parts.

Webinar Details

Duration: 47 mins. Available to watch now
Transcript: Read now

What you'll learn

  • Finding suppliers
  • Ensuring reliability
  • Negotiating rates
  • Making delivery delightful

 

Find out more about TradeGecko.

 

Transcript of the webinar:

Hi.

Thanks for taking the time to be with us today! My name’s Cameron Vernest and I look after Partnerships here at TradeGecko.

I wanted to start off with a few housekeeping items before diving into today’s webinar. To keep things flowing, we’ve muted the phone lines. If you have any questions throughout the presentation, please key them into the chat function.

This is especially true given our topic today and the different sizes of business that are here.

We’ll do our best to try to answer them in the Q&A section, and if we don’t get to them live, we’ll respond to you directly via email.

We’ve created this series to help you navigate the challenges associated with building and running an amazing business.

There are no hacks and no shortcuts. To build something truly amazing you need to do your research and be intentional in the decisions that you make.

The opportunities provided through eCommerce are enormous. And to reiterate: it’s important for everyone out there — especially the newbies — to understand that eCommerce does not offer a get-rich-quick scheme. You’re starting and running a business, which means you have to put in work to make it work.

Our goal today is to answer a single question:

How do you failure-proof your supply chain and fulfillment?

Naturally, we’re going to break this down into two parts …

First, procurement:

  1. Identifying suppliers
  2. Ensuring reliability
  3. Setting up redundancie

Second, fulfillment:

  1. Self-fulfillment
  2. Third-party logistics
  3. Making delivery delightful

Supply chain is perhaps the least exciting and most complex part of running an amazing business. That means we’ll be doing a bit of back-and-forth between those of you in the initial stages of growth and those of you who are ready to go deeper.

First up …

 

Procurement

The most common mistake is with procurement, sourcing, suppliers, etc. is setting it and forgetting it.

Because everyone here is already up and running, I don’t want to talk too much about finding suppliers. Instead, the goal will be to think through your partnerships like genuine relationships.

There’s so many factors to consider on the supply side:

  • Operational efficiency to lower costs
  • Reviewing your suppliers’ capabilities and quality
  • And anticipating growth to avoid downstream capacity bottlenecks

Less technically worded: Getting the most out of your supplier while ensuring your customers get what they want when they want it.

With more customers buying your product and demand increasing, you may need to consider even more elements that overlap intimately with your supply chain: expanding your distribution channels and adding additional warehouses being the top two.

To save on operating costs, it’s crucial to track and monitor inventory levels, spot sales trends by location, and quickly transfer product between warehouses the larger and more spread out your customers become.

Amidst all that, the crucial factor: partnering with the right supplier or manufacturer is like finding the right life partner.

On that note, number one …

 

1. Identifying suppliers

If you’re at the early stages of growth and looking for suppliers — or, if you’re thinking long and hard about your current supplier — the obvious question is: Where do I find them?

Rather than hit B2B marketplaces, prioritize interpersonal and professionally vetted sources:

Trade shows offer a golden opportunity to identify upcoming trends and possible suppliers. Large trade shows collect thousands of exhibitors from both sides of the supply chain aisle.

Being there in person — not necessarily as a vendor, just an attendee — carries gravity. You can compare prices on the spot. Often pitting price and terms sheets against each other — a bit of healthy competition. And you get to look manufactures in the eye establishing the foundation of any relationship: interpersonal connection.

Trade magazines are a less costly and time-consuming avenue. While they’re certainly packed with ads for manufacturers, many also contain full feature write-ups and earned media mentions. Those last two should be emphasized in your search.

Trade organizations or industry associations that serve your vertical or product category similarly contain go-to lists. If they don’t, 90% of the time you’re never more than a phone call or an email away from contacting someone within that organization who can help guide you.

Finally, there’s Sourcify. Sourcify is a relatively new platform that maintains direct relationships with select, heavily-vetted manufacturers across Asia, the Middle East, and Mexico. It’s a subscription service that plugs right into your eCommerce platform or can be used as a standalone application.

 

2. Ensuring reliability

Just like any relationship, trust is paramount. But also like any relationship, there are always tradeoffs. On the supplier reliability front, this comes down to three factors that play off one another:

  1. Quality
  2. Volume
  3. Cost

Trying to get all three at 100% from a single source will inevitably lead to heartbreak. Instead decide how to prioritize those three factors for your business.

How? By starting with (spoiler) your product.

At risk of oversimplification, two types of products exist in the world:

  1. Commodities
  2. Bespoke (custom)

 

1. Commodities

Commodity isn’t a dirty word, even though it sometimes gets a bad rap. If you sell commodities — everyday, consumable, short-use products — you already know how fierce competition is.

Crayons is a great example. They sell a host of toys, books, craft supplies, and educational tools across online and offline channels.

For a company like Crayons, cost is at a premium. As a result, the brand prioritizes its suppliers with a bottom-line emphasis. It’s willing to wait longer on orders and spend more in bulk.

For commodities …

Cost > Volume > Quality

Evaluating a supplier means asking and answering two questions:

  • Are your terms and conditions as well as service level agreements sufficiently flexible without sacrificing cost?

Supply availability and the supplier’s own financial viability — their history and projections — are critical. T&Cs and SLAs have to be firmly ironed out: including delivery timelines, payment terms, and order volumes.

For instance, if your annual order ceiling is 10,000 units, can you spread that out over time? Quarterly adjustments? Monthly? Moreover, can the supplier flex to support shifts in your demand: not only their production levels, but also their available capital to fuel production.

  • What percentage of market share do your purchases represent from this supplier?

If you’re a smaller buyer, there is a chance that you could be shirked (or deflected) for larger customers if there is a supply shortage and they favour the larger relationship.

2. Bespoke (custom)

Rarity, uniqueness, and high-price characterize bespoke or custom products. Nearly all are born out of a creator’s desire to sell 

That’s exactly the case for a business like Philippe V: quality is king.

Quality > Volume > Cost

Bespoke products, however, demand maintaining quality control at two levels of procurement: (1) the end product (assembly) and (2) the component products (raw materials).

For clothing retailers, that’s textiles and fabrics. For food, beverage, and CPGs, it’s all about the ingredients. For jewelry, the quality of your materials and precious stones.

In addition, the brand story stands for ethical, sustainable, cruelty-free, green, or any other kind of socially motivated product …

Taken together, this means placing two checks at the forefront of your supply chain relationships:

  • On the volume front: Are you anticipating — building in enough time — not just for components available, but time and ability to assemble them: whether yourself or through another manufacturer?

In other words, capacity planning from start to finish.

  • On the quality front: Keep a very watchful eye on the raw materials and the assembly.

This goes back to T&Cs and SLAs from commodities, except this time with the knowledge that if you fail to live up to your brand’s promises due to any failure in your supply chain … customers won’t hold your supplier responsible. They’ll hold you responsible.

In the end …

Your type of product should determine what you prioritize in terms of reliability from a manufacturer.

 

3. Setting up redundancies

The third and final element of creating failure-proof supply chain on the procurement side are redundancies. Normally, redundancies apply to large or enterprise companies.

Except … Black Friday, Cyber Monday is almost upon us.

Sure, it’s August. But if you haven’t kicked off your BFCM pregame with a long hard look at your supply chain, then I’m very glad you’re here today.

The question is: How do you balance safety with profitability?

The answer: by combining your type of product with historical data from seasonal events.

1. Commodities

Here the best practice revolves around enlisting multiple manufacturers, wholesalers, or distributors. As if I haven’t stressed T&Cs and SLAs enough already, be sure your core relationship from a provider is ready for the peak in demand as well as any additional suppliers you enlist for the holidays.

2. Bespoke (custom)

For bespoke products, redundancies demand double downing on labor and time elements earlier as well. Few things are worse than having to take backorders, stop taking orders, or lose holiday shoppers with a warehouse full of materials, and no capacity to create finished products.

 

Fulfillment

Welcome to the new normal. Thanks Amazon …

Fulfillment, shipping, and logistics are the elephants in every eCommerce room today. Amazon has made cheap or free two-day delivery near universal. In Australia and Asia Pacific, the time tables are even tighter.

In fact, among shoppers:

For growing businesses, fulfillment can feel like the ultimate “rock and a hard place”: gutting profits on one side and upsetting or losing customers on the other. Because of that …

The most common mistake is thinking too narrowly — isolating fulfillment as a line item to be optimized by price, rather than an integral part of your brand itself.

Inside all the heady terminology and formulas, never lose sight of the central question: how do you balance not just costs versus costs, but profits versus time?

Fulfillment is really about choice. Certainly, when can you afford to move from in-house to outsourcing? And yes, how can you make delivery a differentiator and competitive advantage? But above all, do you need to free yourself and your team for growth?

1. Self-fulfillment

Given that most merchants fulfill in house, we’ll start there.

Fair warning: here come the numbers and the charts. Which is only right. There’s no way around them — but there are some ways to simplify them.

If you haven’t yet familiarized yourself with base rates for major providers — namely, USPS, UPS, and FedEx — besides jumping from site to site, you can grab comparison sheets to give yourself a big-picture view.

Likewise, each provider has its own qualification system for rate tiers, like this one on the USPS:

In Australia, MyPost Business is the default provider most merchants turn to, whose tiers by-and-large surround parcel volumes:

All that is fairly overwhelming, which is why app integrations (like ShipStation), have built calculators to compare rates package by package:

RedStag has a similar calculator within its platform, but it hosts an open version on the web as well:

Likewise, Australia Post has an open calculator for its business rates:

Alongside rates, there’s two standout resources I can’t recommend enough.

First, ShipStation’s aptly titled Cheapest Way to Ship.

Pay special attention to chapter two on how to get carrier discounts as well as the end of chapter three where you’ll find a quick-hitting list of takeaways on provider-by-provider recommendations: 

The second resource is Shopify Plus’ definitive guide to Ecommerce Fulfillment:

The powerful insights there surround …

  1. Using median order value (MOV) or average order value (AOV) to set your free-shipping thresholds

“Ideally, free shipping is set just high enough above your MOV or AOV that it nudges customers to add one or two extra items they were previously denying themselves.

  1. Side-by-side comparisons on the profit-margin difference matching products, onsite offers, boxes, and shipping can make
  2. And a wealth of real examples on optimizing kits, bundles, flat-rate boxes, onsite freebies, and more

This example from Into the AM unites (1) surprising shoppers with free gifts, (2) using in-cart upsells based on free-shipping thresholds rather than discounts, and (3) offering those gifts only on select best-sellers so that the products are bundled based on items the company can essentially ship for free with the original product in flat-rate boxes.

Still, the most overlooked element of self-fulfillment is warehouse management.

 

Warehouse management

Few merchants — even large merchants — think strategically about receiving, storing, and picking and packing. We’ll hit picking and packing a bit in the final point on making delivery delightful, so let’s just look at receiving and storing …

For recieving, profitability and speed hinge on labor. Taking inspiration from Max Muller’s Essentials of Inventory Management, every business reaches a tipping point when it no longer makes sense to run fulfillment in house.

Knowing when you’ve reached that tipping point isn’t just about independent shipping rates versus the rates of a third-party logistics providers, it’s equally about the monetary costs of receiving itself:

Equation

  • Avg. receiving time

Determine the average time it takes to receive (unload) a shipment

  • Annual receiving time

Multiply receiving time times the number of annual shipments

  • Hourly warehouse labor

Multiply the total annual receiving time by the average hourly labor rate

Avg. rec. time x Annual shipments x Hourly wage = Receiving labor costs (And that’s only a third of the equation you have to add in shipping and holding costs as well.)

 

Memory systems

For storing, the default approach is what Muller calls “Memory Systems” where you rely on human recall to organize a warehouse. Memory systems serve small and medium business well, until growth hits or someone quits, retires, or goes on vacation … and processes fall into disarray.

Before it’s too late, take an intentional approach to storage through:

ABC is an inventory management technique based on putting products into categories in order of importance, with A being the most valuable and C being the least.

  • A items: 20% of products, accounting for 70%-80% of consumption value
  • B items: 30% of products, accounting for 10%-20% of consumption value
  • C items: 50% of products, accounting for up to 10% of consumption value

That same breakdown can be used to layout your warehouse giving easiest access to A, B, then C products.

Weight

If you sell products of varying weights, some of which require forklifts for pulls, then use those weight to your advantage. From haphazard pull patterns (on the left) to organized, cost effective, and time effective (on the right).

Zones (FIFO)

For perishable products, you likely use a zoned layout by necessity to separate frozen, refrigerated, and non-refrigerated items. FIFO (first in, first out) is an inventory system that — just as the name implies — means the first items in your inventory are also the first ones to leave: oldest items go first.

Similar to ABC, if you use FIFO to monitor inventory by batch and expiry date … the next logical step is to store the items within your zones by those same rules.

Keeping those costs and strategies in mind, brings us to the second part of fulfillment:

2. Third-party logistics (3PL)

Once you’ve hit a tipping point in your self-fulfillment costs, third-party logistics providers come into the equation to outsource fulfillment sometimes in part, often in full.

Fulfillment by Amazon (FBA) is the most well-known 3PL where Amazon receives, stores, ships, and tracks the entire process.

But if you don’t sell on Amazon in total, or if you want to provide a more tailored experience to customers through fulfillment by merchant … an army of 3PLs stand at the ready.

Big-picture: the same way we talked about relationships with suppliers applies with 3PLs. 3PLs are partners entrusted with the sacred task of fulfilling not merely orders, but your customer’s end experience with your product.

That being said, there’s still plenty of due diligence to conduct. By way of summary …

 

Five questions for 3PLs

  1. What are their physical capabilities (volume and geographies) and their technological capabilities (integrations you need now and you may need as you grow)?
  2. Do they have in-house customer service, will their service integrate with your own, and how do they manage reverse logistics for returns?
  3. How pristine is their safety record and financial record? It’s one thing to have “measures in place,” but beware of 3PLs that don’t or won’t provide you with third-party validated documentation of both.
  4. What is their company reputation? Ask for one-on-one contact information to business that are roughly your size and operate in the same product vertical.
  5. Are their pricing structures clear: set-up, maintenance, tiers by volume, etc.?

Our shortlist here at TradeGecko includes:

  1. RedStag
  2. ShipMonk
  3. Shipbob

For Shopify merchants, the Shopify Fulfillment Network made huge waves when it was announced less than two months ago at the Unite conference.

What you need to know about SFN

  1. SFN is available to US Shopify merchants “for early access” by application only
  2. Pricing has yet to be publicly released
  3. Once enrolled, select products will be stored in Shopify controlled warehouses
  4. By the close of 2019, 99% of those products will be eligible for 2-day shipping and custom packaging for up to 10,000 packages per day
  5. For more details, check out https://www.shopify.com/partners/blog/shopify-unite-announcements-2019#sfn 

Last, but certainly not least

 

3. Making delivery delightful

So, how do we bring this all together?

The most important moment in eCommerce doesn’t happen online. It happens when your customer get the thing they want … when they want it and how they want it

As two final thoughts:

First, “Where’s my order?” is the number one customer service inquiry by a mile.

(Pun intended).

You cannot over communicate shipping details and shipping updates with customers. While most are happy enough with email, think through approaches that are already gaining steam in customer expectations like SMS and Facebook Messenger.

Second, make the most of unboxing: physically and digitally.

Exceptional and standout unboxing experiences are an art … and a growing category for user-generated content in every imaginable media form: social, pics, and videos. Make yours memorable and sharable by overlapping it with your post-purchase email campaigns, direct messages or SMSs, and your loyalty program.

Thanks so much for joining us, and we wish you and your business all the very best during these times. Please feel free to contact us at success@tradegecko.com with any questions.