- Chew On This
- 3 $-Saving DTC Operations Lessons
3 $-Saving DTC Operations Lessons
In Ops, we’ve researched, tested, made mistakes, learned, and implemented major lessons into our brands’ SOPs. Check out 3 of them here.
Welcome back for some more bites to chew on.
Thank you very much for voting in our polls on Wednesday.
85% of our respondents voted “Yes” on additional content focused on founders, brands, and stories. We’re full of ideas, and we’ll keep you posted on new content developments here.
COT Holiday Party with ReCharge
A sincere thank you to everyone who came to our holiday party on Thursday. We loved meeting and talking to all of you and learning about what you’re building.
A major takeaway for us: the individuals, agencies, SaaS companies, and DTC brands who are doing really well are obsessed with solving one major, specific challenge.
For us, this reinforced the idea that spreading yourself too thin makes everything harder: you’ll have less focus and less bandwidth to dedicate toward your primary focus and/or overall mission.
We’ve learned a lot of tough ops and logistics lessons from our DTC scaling, our initial move into retail (Vitamin Shoppe), and our major Walmart expansion.
Three that we’re sharing in this edition:
What brands get wrong about warehousing
A logistics commandment: Consolidate Thy Freight
Inventory imperfection: accept it
In future newsletters, we’ll cover how our retail experience has affected other parts of our business, but for now…
Not an actual Obvi delivery route.
First Course: Busting the Bicoastal Myth
Frequently, U.S.-based eCommerce brands will leverage a warehouse somewhere on the east coast and somewhere on the west coast.
After all, this makes some sense.
Many larger population centers are on the coasts, and you would think having your logistics closer to hubs means faster delivery (happier customers) and cost savings (happier customers and happier you).
This is not what we do, and it’s not what we found makes the most sense for our business.
We started with 1 warehouse.
4 years, 10s of millions in revenue, and 4000+ Walmart locations later, we still operate through 1 warehouse—based in Wisconsin.
Much love to our Wisconsin friends.
The reasons why:
We found that freight from Wisconsin is actually the cheapest in the country, on a zip code basis. Although warehouses themselves are cheaper elsewhere (e.g., in Tennessee and Ohio), freight costs are a much larger portion of OpEx.
🌟We researched over a dozen 3PLs and ultimately partnered with Flat Fee Shipping.
Although the true midpoint of the contiguous U.S. is (arguably) somewhere in Kansas, our research showed that equidistance wasn’t as relevant a variable, and based on weighted averages + operations volume by state, Wisconsin was the winner.
Retail benefit: Nailing retail logistics can be a pain in the 🍑, but our learnings from DTC logistics helped our Walmart ramp up. We didn’t have to build an entirely new system from scratch. We just added to the one we had in place.
Second Course: Consolidate Thy Freight
Working with a mass retailer (especially at a larger scale) translates to an increase in logistics complexity as well as an additional component of our supply chain.
For us, this has involved getting product from our Wisconsin warehouse to Walmart’s 32 distribution centers.
How we originally approached this: We intended to leverage another 3PL and standard freight systems to fulfill Walmart’s demand.
What we found out: This was neither the most efficient nor most cost effective way to build the new system.
What we ended up doing: We partnered with a consolidator, called UNIS.
A consolidator combines more than one org’s product(s) into containers, which means we wouldn’t have to rent and transport entire containers we could only partially fill.
That would have been bad for our bottom line.
Unfortunately, whether you fill a truck with one item or a thousand items, you pay the same price.
Consolidators are like ride sharing for logistics.
So, we get our product to UNIS’ locations, UNIS adds our product to existing containers that large companies are otherwise filling, and UNIS delivers our product to Walmart’s distribution centers.
Result: we pay less.
Overall, this has turned out to be an 8% cost savings for us.
The other big piece: UNIS has enabled us to maintain a strong OTIF (on time in full), which is fundamental to our partnership with Walmart. OTIF is as it sounds: getting the correct amount of product to a location on time.
Higher OTIF = happier partner.
Walmart asks that its brand partners’ OTIF score is above 95% (i.e., at least 95% of inventory is correct and on time), and thanks to UNIS, ours has been at 98%:
We make sure to report & emphasize our OTIF to Walmart.
🌟You have to pay a little bit of a price to be at 96% or above, but we think it’s absolutely worth it to be as strong of a partner to Walmart as possible.
Third Course: Inventory Perfection Does Not Exist*
*This isn’t entirely true. We’ll explain.
It may or may not be a hot take, but we stand by the section title. No matter how much money you spend, no matter how hard you try, and no matter how good you get at it, if you are a business truly in hyper-growth mode (100%+ YoY), you cannot perfect inventory management, especially in the retail context.
To be clear, we’re not saying it’s impossible for every brand.
Billion dollar eCommerce businesses—as they have been around longer, have more data, and are no longer on exponential growth paths—tend to have more predictable operations. Therefore, they can make more confident purchase orders and enjoy more predictable supply chains.
That’s just not the case for us right now.
Plus, in the retail context, forecasts are dynamic.
Your retail partner may ask for substantial changes in inventory every few weeks, which can disrupt your logistics planning. (“You sold more in this two-week block, so we need 5x as much inventory. You sold less in this two week block, so we need less inventory.”)
The tough part here is there’s no single way to handle this (far from it), and we don’t have a clean answer to share with you.
Certain situations are more predictable: you launch a sale in one region, and it’s likely that more inventory will be required. But, unfortunately, that’s just 1 out 100 scenarios.
Our advice, and the ultimate $-saving principle is this: rather than reacting fully to every ask about inventory changes, your leg work must involve finding an imperfect, perhaps uncomfortable, middle ground.
You won’t be able to fulfill everything your retail partner wants, and you have to leave some flex in budget to fire more marketing spend, send more inventory, or make other changes in your business.
Tool of the Week
For DTC brands like us, site speed has always been—and always will be—our friend.
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We sincerely appreciate every moment you spend with us and reading our work. We’ll see you soon.
All the best,
Ron & Ash