Modernizing eCommerce Logistics: From Start-Ups to the Fortune 1000

Moderator: Dr. Dale Rogers, ASU

Panelists:

• Stuart Clark, Co-Founder and Head of Software and Operations, Cargo Systems, Inc
• Larry Hotz, Director of Marketing, Woodfield Distribution
• Justin Schuhardt, Senior Director, Supply Chain M&A, Walmart
• Karl Siebrecht, Co-Founder & CEO, Flexe

David Burton, Track Chair:

Today's session is titled “Modernizing eCommerce Logistics: From Startups to the Fortune 1000.” We have a great panel of speakers: coming from the largest retailer in the country. Walmart, is here, along with in-car commerce startup, Cargo, and 3PL provider, Woodfield Distribution.

I'm going to hand over this session to Dale Rogers, professor of logistics and supply chain management at Arizona State University.

Dale Rogers:

Welcome. I think this is the third year we've hosted a session, and it’s interesting to note how much warehouses and distribution centers have evolved during that time. If you look at the last 25 years of supply chain, we've seen a lot of progress on the planning side. When I was a young guy, there were planning tools, but the warehousing model was not evolving nearly as quickly as the technology. Today, we're changing the pattern of distribution. Previously, the industry would consolidate inventory into fewer facilities because of the tradeoff in cost between transportation and inventory storage—as long as fuel costs were low, retailers were willing to ship farther and could reduce inventory by having fewer facilities.

Now, you need to have multiple facilities and you need to have warehouses that are closer to the consumer. Companies today have a portfolio of different types of distribution centers of all shapes and sizes. We're going to explore one of these new types of facilities, or solutions—a new model for warehousing and fulfillment.

Today, we're going to walk through several case studies pertaining to a new model for warehousing and fulfillment, and then we’ll open it up for questions. Let’s start with Justin Schuhardt from Walmart.

Justin Schuhardt:

Oh, hello. I'm Justin Schuhardt representing Walmart and particularly the eCommerce side of our business. For those of you who don't know, Walmart, is the largest retailer in the U.S. We operate more than 4,700 brick-and-mortar retail outlets across the country.

We also have one of the largest private trucking fleets in the U.S., and over the last decade, we've entered the eCommerce and omnichannel space.

As we all know, peak season is upon us. Every year, we prepare for a busy shopping season around the holidays. Peak season can put pressure on a business to move large volumes of inventory in a short period of time. We were looking for a partner to help with demand during that critical time period.

Stuart Clark:

Hey, everyone. My name is Stuart. I'm co-founder at Cargo Systems. Cargo was founded in 2016. We're a venture-backed startup based in New York, and we provide a miniature vending machine inside of rideshare vehicles. It's a simple unit that straps onto the center console. Riders are able to place orders through their phone and the driver gets a notification and brokers the sale.

We provide drivers with all the hardware and software, so they don't have to worry about handling inventory or managing payment. We have two core fulfillment products. The initial box, which is a kit of various products, and our replenishment box. As the drivers run low on inventory, we're automatically sending them replacements as needed.

Larry Hotz:

My name is Larry Hotz. I work at WDSrx, Woodfield Distribution, and we are a pharmaceutical logistics services provider based in Florida. We handle a range of businesses in our facilities. In terms of our work with Flexe, we represent the warehouse partner end of things. We’re in a unique situation because we work with pharmaceuticals and pharmaceutical manufacturers, so the warehouses that we have are all FDA DEA-regulated and the SOPs that we have are very strict. As such, attention to detail and hygiene are incredibly important to our operation.

Karl Siebrecht:

My name is Karl. I'm the co-founder and CEO of Flexe. We started this business based in response to the structural challenge with warehouses. The economic construct and the way warehouses are bought and sold, is typically a long-term lease. This can be an effective mechanism in some instances, but it also has its limitations for businesses that are dynamic.

This is a very aspirational concept, but as Dale said, for some companies, this could be the entire distribution capability. For others, this is an agile complement to existing infrastructure. We now work with a breadth of clients. We've come a long way in five years. I’ll let you hear from folks who are using and experiencing it to illustrate where this type of solution is valuable, where it isn’t, and the use cases for which it's a good fit.

Justin:

Thank you, Karl. So, our case study at Walmart was quite simple. It's the peak season demand that we have to overcome. We started with Flexe last year and it went quite well, so we expanded the application a bit this year.

What we needed at Walmart was a storage and throughput solution to meet 90 to 120 days. Everything from receiving—starting in that first day to exiting a warehouse—had to happen under 120 days, but ideally closer to 90. That’s a very short time period in warehousing. How do you go and find someone to do that? But that's what we needed on the fulfillment side, primarily eCommerce fulfillment.

We’ve also partnered with Flexe to do some store displays to help get our stores ready for the season and distribute to our stores as well.

It’s worked out quite well to supplement our fulfillment operations. We have quite a large network for distribution and fulfillment, but in this case, we were looking for someone that could provide the agile solution and give us about 1.5 million cubic feet of space and a throughput of about 400,000 units. That was just to meet a portion of our demand that we had over that time period. We looked at some of the other criteria that we had, looking at our planning tools, and thought, “How do we identify the right partner in the right geography?”

We had certain geographies in the U.S. that had more of a shortfall with respect to space and throughput than others. So that was one of our requirements, not just space but, the where.

We needed space in the northeast U.S., the Midwest, and on the west coast. So, what ended up happening was Flexe was able to, through their marketplace approach, give us a selection of different providers from coast to coast with different size buildings and different available capacity.

We could actually take a look at those facilities, get to know who the operators were, see what specific city they're in, ideally close to one of our other distribution centers. We had a list of different operators in various geographies that we could choose from and were able to dial it into Eastern Pennsylvania, Central Illinois, and Northwest Nevada. I mean, those are some of the more hot distribution and fulfillment hubs in the U.S., but there is space available.

We were able to identify two partners across three facilities to do the work for us. Our service level expectations are high and eCommerce is very difficult with our customer promises to get it there on time in the right condition—”100% filled.” Some of our simple criteria for performance expectations was we needed to find someone that could have a fill rate of 99.8%, 99.5% on-time shipping, and, you know, our internal goal was to have an 85% sell-through rate, so as to minimize some of the exit costs that we could experience on the back end. More to come in the Q&A.

Stuart:

Great. So on the other side of this size spectrum, Cargo is not as big as Walmart. Various priorities as to why we chose Flexe as a partner: right now, we operate two Flexe facilities, east coast and west coast. One is in Jersey and the other in California.

Cargo, it's still a small operation. We built it from nothing. And so, having a partner that was willing to take us on and actually grow with us was very important. Also, obviously, no capital outlays was important at our size. When we chose Flexe as a partner, we were still in the seed stage of funding. So, spend was very, very important, and also the ability to just have an east coast and a west coast facility rather quickly was very important in doing our distribution because our drivers are all over the country in the top eight markets. Then you add in the other sort of interesting aspect of Cargo is that replenishing our drivers is really important and it's one of the main things that we do.

As a startup, we're very versatile. We may pivot, we may change. Flexe was an easy partner to choose so we could have that ecosystem of facilities with various capabilities. For example, what if Cargo discovered that actually, people don't want products, they just want ice cream or something like that? We would be able to find a facility that could, you know, cold pack all the goods and do that sort of distribution. It was important to be nestled within this network of facilities. The ability to do whatever we want and pursue whatever as a business stuck.

The two facilities we use now are performing really, really well. It was a simple technology integration. Let me step back. I lead two functions at Cargo, I lead technology as well as operations. I think to get us set up with Flexe, it took me like a Saturday or a Sunday morning.

I've done multi-month warehouse integration projects in the past. I've done those. This was not one of those which was good for me because, you know, I get to make a decision and I say, "Hey, I don’t have to do that again."

Various features of the platform are great for us. Specifically, I enjoy things around error reporting. We're actually able to, in the event that things do go incorrectly, get that data back and automatically handle those situations for our drivers.

It's not like somebody is working through that on a spreadsheet or something like that. We actually automate that entire process.

Cargo is in growth mode. Our volume increases 10% to 20% every single month. And that will be the trend for quite a while. By situating ourselves within a network of facilities, growth is not going to be an issue. If we needed to move facilities, we would be able to do that fairly quickly within the Flexe Logistics Network. If we decided we wanted the third facility in Dallas, for example, we can do that.

Larry:

We’ve learned quite a bit from our experience with Flexe. The pharmaceutical timeline for acquiring a warehouse isn’t short, and we are in expansion mode. That's really why this opportunity first came to us and made sense.

In terms of capital expenditure for pharmaceutical warehousing and logistics, you have to spend money upfront before the first client moves in just simply because of the licensing and the registrations that are required from governmental and other authorities. It takes about six-to-nine months to make that happen. You cannot receive your first pharmaceutical delivery until all of those I's are dotted and T's are crossed.

With Flexe, we can fill the warehouse partially or fully from day one as soon as we get the keys. So from the point of view of all of the labor, infrastructure, equipment, machinery that we need to purchase upfront and wait six-to-nine months in order to implement, with this solution, we are utilizing our resources very, very quickly. That is one component that is very favorable for our business moving forward.

The other piece is the eCommerce segment of our business. As a logistics service provider, we do more than fulfill orders. We have our warehousing, we have eCommerce fulfillment for dietary supplements, nutritional products, etc., and we have that expertise. Because we are a pharmaceutical provider, we do have the KPIs that customers expect, even to a higher standard than most would require. And so, there is that confidence that items are going to be delivered on time and in good condition.

Currently, we have five Flexe clients in our warehouses throughout New Jersey, Florida, and Texas. And we are fulfilling orders for them. Three of those clients are eCommerce. Regardless of the product, we have the capability to ship orders as they come in for the Flexe clients.

So, those are really the two main points in terms of our capacity to fulfill those eCommerce orders, the nature of the business having very high standards, and the ability to begin operations much sooner with this solution than waiting for a traditional pharmaceutical timeline.

The other thing I would mention is the space we’ve made for Flexe clients. It’s beneficial for both of us—it’s an evolution. There are other elements that are coming on board, what Stuart you were saying in terms of additional services which we might offer, whether it's a call center or returns. We bundle everything together from an eCommerce standpoint so there's no, you know, individual or independent negotiations for things like freight or storage, shipping costs. It's all bundled together. So, it's a very simple and seamless solution that, I think, benefits all parties.

Check out part two of our CSCMP panel discussion for a Q&A session with the panelists.