Is 3PL Right for Your Business? With Harry Drajpuch of Amware Fulfillment

Guillaume: Hello everyone. Guillaume Le Tual here, host of the Ecommerce Wizards Podcast where I feature leaders in e-commerce and business. Today’s guest is Harry Drajpuch. He’s the CEO of Amware Fulfillment and today we’ll be talking about ‘fulfillment for e-commerce’. A topic that he knows very well having built a company of about 800 employees doing fulfillment and shipping. So we have a great expert with us today to discuss the topic.

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All right, Harry, thanks for being here today.

Harry: Guillaume, it’s my pleasure. Good morning, and looking forward to the next few topics we’ll discuss.

Guillaume: All right. Before we just deep-dive into the topic, I’d like to know a little bit about you. You have a good career here as a CEO, can you tell us a little bit about your path?

Harry: Well, I’ve been in logistics for 40 years, a little bit of an old timer. I started out in the 1980s in transportation, trucking per se. From trucking I moved into warehousing. I started my career as an operations manager in a warehouse and moved up with varying increasing responsibility in different companies, all in the third party logistics world serving multiple customers. I ran my first company in Southern California as a CEO, a regional company and then I came on board with Amware in 2015, and I’ve been CEO for the past five years. So I actually came on with Amware as a COO to kind of work on some operational efficiencies and get the company more attuned to fulfillment. We had a robust B2B business but we were really starting to focus and drive the business towards e-commerce fulfillment. I was brought on board and then two years after I got here I became CEO. So it’s been five years now. It’s been a great ride, great growth. Just to give your listeners some context we are a $200 million company and just five years ago we were about 50. So nice growth and I think it’s just a great space to be in.

Guillaume: Awesome. So let’s start with a bit of a softballer, when should an e-commerce company consider moving to a 3PL? Maybe they bootstrapped this from their basement, they hit the first million dollar, they’re doing some shipping themselves, when should it consider changing to 3PL?

Harry: Five minutes after this call.

Guillaume: Okay.

Harry: After this broadcast. Seriously, I would say for companies, there are many 3PLs out there that cater to smaller startup companies. And I think anytime you’re certain that your offering is going to grow and take off and be serious, I think that’s the time, believe it or not, to stop looking for a partner. Again, there are 3PLs out there that cater to companies that do $10 million in annual sales or $15 million. At my company Amware Fulfillment, we start to look at companies that have a minimum of 50,000 shipments a year. So if you think about 1000 shipments a week, that’s a good time to really start to think about outsourcing. The reason is, good 3PL companies will allow you to focus on what you do best and that’s really marketing and selling your product. And then we’ll take care of everything not just within the four walls but everything that happens after the click is something we get involved in. And again, I think the key for your audience is to focus on what you do best and that’s selling and marketing that drives revenue. You know, we’re an expense getting the product to the customer but a very important expense. We’re really the last people to touch the product before your customer opens up the box and sees it.

Guillaume: All right. Let’s say from a technological and efficiency point of view, if they’re doing it themselves and if we’re talking about 1000s of shipments a week, perhaps a 3PL will have things like robots or automation or stuff that a company would just never invest in. They just have 1000s of shipments and you have so many 1000s of shipments per week, is there an angle here on efficiency or how fast the package can leave and things like that?

Harry: It’s interesting, yes. As a company is growing the question is, how do you build it to accommodate that growth? How much capacity do you build in? How much do you want to invest in the company, in brick and mortar, in material handling equipment, in racking, in space? You know, why would you want to do that if you can outsource that and get the best that’s out there from a third party provider? So yes, companies like mine will give you the latest in technology, robotics, drone use within the warehouse, but most importantly, your costs will be in line with your revenue generation. So a typical customer that’s probably getting out of their own garage, let’s say is going to have a bill with me for warehouse services of a half a million dollars, I can maybe save you 10 or 15% of your own internal spend. Not a huge amount of money, about $50,000, but a saving nonetheless.

I think where your audience can really take advantage is in the parcel spend, that can generally be anywhere from three to six times what you’ll spend in a warehouse. So a company that spends a half a million in a warehouse may ultimately wind up spending about $2 million dollars on a parcel to get the product to a customer. We generally save customers because of our purchasing power, the size of our spend, and our relationships and negotiated rates with the big three, if you will, or big four parcel providers here in the states will generally save someone 20 to 25%. Now for $2 million, that’s 400 to $500,000, that’s not insignificant. Again, we have the purchasing power, the relationships, the service, and that’s something that you can very well take advantage of when you go to a 3PL provider like Amware Fulfillment.

Guillaume: Yeah, because you have such a huge volume that they will benefit right away from lower shipping costs, for sure. Also, we have to think about the capital expenditure as an e-commerce merchant, okay, the business is booming which is great, but do you really want to put all that kind of money into things like drones and tech that delivers and so on? You will not spend as much as a large 3PL, you will not have high tech and so on and it’s like money that’s not necessarily placed there to just put towards operations instead of growing the company.

Harry: Guillaume, it’s not only the spend that you can save, you have like warehouse management systems that can cost you anywhere from a half a million to a million dollars, then you have the annual maintenance. It’s not just the spend that’s involved, it is the infrastructure that you have to now obtain for your company to support all of those things. Think about the IT department that you have to have, not just for your front end but now for your back end. So you’re getting involved in building out a lot of infrastructure internally that’s not going to generate revenue for you but going to be some cost for you. You might as well take advantage of what 3PLs have out there. Many of us have state of the art leading technologies, again, we do voice picking, we do pick the light, you can take advantage of all of that to create efficiencies for your company without making the major investment.

Guillaume: You know, to me a 3PL is a super logical way to expand a company. Otherwise it gets very difficult to manage a company as it expands and anytime you can sort of just cut off a whole branch of something, like, now I don’t need to bother with that part especially if it’s not revenue generating. To me it’s good business sense in general. Now, another question of course is Amazon, we cannot not talk about the elephant in the room here. Amazon is setting some expectations for customers about speed of delivery, about free shipment and so on. So how does a merchant compete against Amazon on the shipment and delivery?

Harry: Very, very simple. You know, Amazon to your point set the bar, same day shipping, sometimes you can even get that product same day. If you’re a retailer that has, let’s say, a commodity type product or a product that there’s a substitute out on the market, yes, you’ve got to get that product out there, ship it the same day, and you’ve got to get it out there in a hurry. The way to compete with the Amazon model is quite simply to take a look at the number of warehouses that you would like to, the number of inventory points you would like your product to reside in. I mean, one thing that Amazon does well is that it takes your product and disperses it amongst several warehouses to get it closer to the end-user. That’s how they cut down the transit time.

So we at Amware Fulfillment do the same thing, we have facilities in the major metropolitan areas, we can hit everything the next day and on the second day by ground. So we can put your product closer to your customers and ultimately, your transit time is down, your shipping cost is down, you get your product closer to your end-user and they’ll get it faster. And we ship everything, all the orders that we receive, we ship the same day as well. So any order that’s received Amware Fulfillment between two and 3pm goes out the same day so your customer should get something the next day but no later than the second day. So that’s how you compete using a 3PL like Amware Fulfillmen.

Guillaume: Okay, and how does it work working with your 3PL? I ship you one pallet of stuff and then you will distribute it to the other one or how does it work?

Harry: It can work on how we agree it should work. So we’ll do a network analysis of your shipments, we’ll make a recommendation of where the best places to place your inventory are. And then we’ll make arrangements for that product to arrive at the right facilities. They don’t necessarily have to come through Amware where it might take a little bit longer time but we’ll make arrangements for you to get your product directly from your manufacturer or from the port or wherever it is to the right facility for distribution.

Guillaume: Okay, and for like streamlining all the orders like coming in to send those orders to 3PL, do we connect like either an ERP system, the enterprise resource planning system where we connect directly to a website with your system or how do orders get typically send over to a 3PL?

Harry: We can connect to a shopping cart as Magento, we can connect to an ERP system, we can connect any way through the web that you want. At the end of the day business rules will decide once we get the order, we will route that order to the facility that should ship that order closest to your customer depending upon cost, speed, time, whatever parameters you set as being most critical. That’s what we’ll use to route those orders. So very, very little for you to do other than set up the business rules and say, Harry, I want this to go in the fastest way, I’m not necessarily concerned about the cost. That would be one parameter, or I’m concerned about the cost, I wanted to go with the least cost routing method and we’ll route it that way as well. So again, we’ll sit down beforehand, talk about the business rules, and then we’ll set it up according to those rules.

Now those rules can change. If you have a sale, if you have a promotion, we could change the rules on the fly. You can say I’ve got a promotion coming in, I want that promotion to only come from one facility because I want all the products there. Again, lots of ways to do it, lots of flexibility, lots of customization that you don’t get with an Amazon who will pretty much tell you, here’s the way we want to receive it, here’s how we’re going to handle it and here are the rules. It works for them. Again, you know, that’s a different model. For us and for our customers, they enjoy customization, they enjoy flexibility and they enjoy the close working relationship where if they’re planning on a promotion they just tell you Harry, two weeks from today we’re going to be on Good Morning America, or we’re going to do something else, we’re going to have a two for one, we need you to get ready for that. And then we can ramp up very, very effectively and efficiently to help our customers make those promotions and not have to worry about last minute scrambling for people, scrambling for other things to make it work. We do this for a living and we know how to take customers from zero to 100 in a very short amount of time.

Guillaume: Okay. So the e-commerce receives the order, it’s transferred over to you and you guys dispatch it depending on what’s the most efficient warehouse to ship from and I’m guessing you sort of return information to the e-commerce store. So it’s like, here’s your tracking number or something like that, or is there ‘no return after’, just like it’s gone?

Harry: Everything gets returned, you know the status of the shipment or where it is. Once we ship it out the door, it’s sent back and you get a tracking number and a link to track that shipment. Everything that you would get from Amazon, you can get from Amware as well.

Guillaume: Okay. Let’s talk about free shipping. Nothing’s really free, so when they say ‘free shipping’ obviously it’s baked in the cost. Do you have some opinions or wisdom that you can share with merchants who say, Amazon says free shipping, what do I do? Do I offer free shipping? How do I handle that question?

Harry: Great question. True, nothing is free. Again, if you’re selling a commodity type product you have to start to take a look at the free shipping that may impinge on your margins because of the fact that it’s a replaceable product. I want something that I can buy from five other retailers, for instance. But if you have something that’s very, very unique I don’t subscribe to free shipping for unique products. Brand loyalty, if you’ve managed to really work your product, work your brand, and have a loyal following, free shipping is not necessary. Now what you can do, you can have free shipping over $75 worth of purchases. At that point there’s a little bit more meat on the bone, you could share that with your customers. But I would say if you’re in the commodity-type of business you’re going to struggle with free shipping. You’ve got to make sure if you want to offer that, that you’re getting the most efficient supply chain logistics company that you’re working with, and that you can afford to get free shipping. But if you’re doing it internally and on your own and you’re paying the premium rates from the parcel carriers, free shipping is really going to be a problem. If you’ve outsourced it and you’re saving significantly on your spend for parcel you can order or offer free shipping, or reduce shipping costs, which is what I prefer to do myself.

Guillaume: Okay, so 75 bucks in advance of free shipping, or you sort of bake it in the cost. I like your point of view here that if it’s a unique product, or high value product, not a commodity product, why offer free shipping? Or maybe just do competitive shipping at cost so you don’t lose an order. I have seen some people sort of just average it out, say like, let’s just put like five bucks for shipping so you don’t lose orders but the customer is helping you to cover the fee. Yeah, sometimes it might be 15 for that specific parcel but it sort of averages out to more or less than five, or maybe it’s a bit about five but you just eat a little bit of that cost. So there’s no magic formula I guess there but we want to be as competitive as possible on the shipping aspect and not lose a sale basically, but also not lose money if we can or lose as little as possible.

Harry: Reducing shipping costs helps but I think what customers really want is availability, order fulfillment, on time delivery, you know, if I want it tomorrow I want to get it tomorrow. Many are willing to pay a little bit of a premium to get that tomorrow sometimes and some are not. Those that are not you’ve got to make a decision, and to your point, I always like a fifty-fifty split or some split that says, help defray the cost of this, and I think most customers are more than willing to do that. And again, provided brand loyalty and service is there and you’ve created a great customer experience when they get the package.

Guillaume: Right. And I would add to this that not all e-commerce platforms or BPO providers, or shipping providers or integration with these will give you an estimated arrival date for the package, so that would be a great plus to add. Because if you put yourself in the customer’s shoes, like I need this but it’s time sensitive, that is, if it arrives, I don’t know when. Well, I may already have left for some other place and I will have missed the package for several days or whatever. So the estimated arrival date does impact conversion rate from the e-commerce point of view. So it is always to put that up if you can in the relationship with the 3PL. What else should people know about fulfillment 3PL optimization? Is there anything else that comes to mind?

Harry: Yeah. What comes to mind is really how do you keep customers clicking? How do you keep them buying? Most marketers and online sellers are focused on everything that happens up to the moment of the purchase, you know, let’s say the click. They shouldn’t stop there because what happens after the click has an enormous impact on creating happy customers that buy again and again. At the end of the day it’s really about repeat business. So marketers who view fulfillment as someone else’s job ignore the fact that the fulfillment experience is when the customer really has a first-hand experience with the brand. Everything to that point is merely a promise.

So fulfillment really delivers on that promise and how well it delivers can have a serious impact on how the brand is regarded. So what I would say is that it’s hard to win today on product and price. I think many companies sell similar products as we talked about before, you know, uniqueness matters. That makes it very, very hard to differentiate today. What I would recommend is they differentiate based on the overall customer experience, and order fulfillment is really at the heart of that customer experience. Amazon puts the smile outside the box, what I would tell you is Amware puts the smile inside the box. Especially for luxury brands and high-end goods, online sellers don’t just sell the product they sell a brand experience. If you get the box and it shakes, you can hear the product inside, you open it up and it’s an oversized box, your product is thrown in there, that is not a great customer experience.

But think about getting the product in a white box, tailored and it’s got your company logo on it, you open it up and everything is in there perfectly and you’ve got different colored tissue paper, it validates the purchase. It really supports the fact that it was worth buying this, this is great and they get on social media to tell everybody I had an unbelievable experience. I waited a day for the product and it came and it was batched beautifully. Someone once told me, it’s not necessarily what’s inside the box but it’s all about presentation. For customer experience don’t stop at the click and think that it’s okay because you’ve got the sale. Make sure that it goes right through the pipeline and that when they open it up it validates again, it was worth the money, it was worth dealing with this e-tailer or retailer and I’m going to buy again and I’m going to tell people on social media that it was a great experience.

Guillaume: Yeah, right. Apple would never put your iPhone in a brown box or cardboard stuff. So if you want to build a customer experience it makes sense to go with this. Of course the cost will vary depending on what kind of box you go for and all that. But just a sort of ballpark question, how much more does it cost to sort of create that kind of customer experience with the beautiful boxes versus the brown cardboards of Amazon?

Harry: For sure it will add a couple of percentage points to the cost of the product, but again, it’s really about the experience. If you’re kind of a hit and run retailer that’s not in it for the long term you’re just going to maximize every transaction. I mean, Apple is a great example. You will open up an Apple batch, you take the sleeve off, you open up that white box and it’s packed so tightly you can hear the air when you open or pull the cover off, it fits neatly in there when you pull it out, it’s an experience. I mean think about it, the phone is $1,000 or $1,200, you can buy phones for half that price, but it’s all about creating that experience from the moment you open the box. It is everything that they do and I think yes, it’s going to cost you a little bit more but it pays for itself in repeat sales and free advertisement.

Listen, what keeps my customers up is social media, I mean, they look at social media every day and I look at their websites for social media and what kind of reviews they’re getting. If I see something about a shipment not being right I proactively will get on the phone with my customer and will say, let’s look at this, let’s talk about this. But by the same token, when you’re reading reviews that you received a package, you opened it up and it’s what you were waiting for. Everybody remembers the movie, a Christmas story where a kid was waiting for his decoder ring from Ovaltine and he waited and waited, when he opened up the box it was just a silly promotion, he was so disappointed. The kidding thoughts when we get a box never goes away. It’s the excitement, I don’t care how old you are, it’s opening up that box and saying wow! I’m happy I got this, I’m happy I spent the money and I’m really excited. I’m going to not only tell my friends but if I’m going to buy again, I’m buying from these people.

I’ll tell you a quick story, I bought batteries online, everybody sells batteries. I don’t remember why I picked this site and I have to buy batteries over and over again, I go through a lot of batteries for whatever reason. I got this box. It was shaking when I opened it up, the boxes that were put in the box batteries were all over the inside, they were opened up. If you asked me today who I bought it from, I would tell you the name of the company but I will never buy from them again. It’s not a big deal, it’s a commodity, I got it, I just want to have my batteries and they’re useful, but they were thrown in a box and it wasn’t any kind of an experience. Think about it, if I’ve got to buy batteries again I don’t want to buy from them. I mean, it was all air, they shipped in a big box, they can’t be efficient doing that, it’s not sustainable. I want to go to a company that when I open it up, someone cared, someone took the time and trouble regardless of what it was and I will buy from that company again. The one that sent me the last shipment of batteries will never see my order again. And that’s a shame. I mean, if you think about the cost of securing a new customer, it’s five times to six times more than a repeat customer.

Guillaume: Right. And you touched on sustainability, are there any best practices that merchants should think about for sustainability?

Harry: Yes. For multiple reasons, for many of our customers we’ve taken out boxes which are corrugated which might be recyclable, okay, but are big and bulky. We’ve put them in smaller bags, pad packs, and they can ship their products in a pad pack. So they save on material, they save on shipping costs, because there’s no air, it’s not a big bulky product anymore, it’s a little bit smaller in a bag and it’s easy to get in and easy to get out and easy to recycle. So yes, sustainability is very big today. It’s expensive if you don’t do it, there’s lots of savings to be had by looking at a sustainable route. Again, going for packaging bags instead of boxes and dunnage is very simple. When you get a pad pack, it’s all built in, there’s no additional tonnage that you necessarily have to put in. So if your product lends itself to something like that, I would strongly urge your listeners to look at that.

Guillaume: Okay, good point. And should businesses standardize their box size? From what you’re saying, ideally, you go all the way to Apple and each product is pre-made, printed and in a perfect fit box. But let’s say you have a large inventory like a million SKU, you’re not Apple with just a few products. Should you standardize the boxes to try to maximize on volumetric weight or something like that?

Harry: Standardize, yes, but customize. So what I would tell you is we can hook our customers up with packaging experts. Packaging salespeople will sell you standard packaging which is profitable for them but may not be a good fit for you. So there are standard boxes out there and you can use the standard boxes”, quote unquote. But when you get a customized box that’s made specifically for your product, you will save air in the box, you will get a smaller and more perfect fit, you will get an Apple type package made for yours and you can standardize on those. I think many people make the mistake of going to corrugated companies who have corrugated salespeople. And again, they sell standard sizes in the industry and you have to figure out, then you buy the dunnage for that, it’s better off to make the one time investment in a packaging expert who will design a batch for you and standardize multiple size boxes for your shipments and you will save in the long term and have happier customers for that.

Guillaume: Okay, so the general idea is to remove the air and try to make it as lean of a box as you can, or you can still try to sort of optimize size versus weight in that volumetric weight game optimization? That’s very unclear for most merchants how they should go about it.

Harry: You want the package that is the right size for your product, not bigger. And you want to figure it out in a way so you don’t get hit with any kind of dimensional charge from the parcel carriers. A dimensional charge is when you have a light product and your light product takes up more space than they would like it to. So in other words, if you ship a pillow in a box that would weigh next to nothing, but think about the size of the box. So the parcel carriers who sell by weight would not make any money yet that package would take up a lot of space in their store or in their truck or their equipment, so they will hit you with what’s called the dimensional charge. That cost is based on the size of the box and not the weight of the box.

And that is why today you have mattress companies, these foam companies that compress this thing into such a small pack such that when you open it up you’ve got to stand back because when this thing opens up it’s like an airbag going off in your car. But it’s a good point. Think about what they did and using porcelain, how clever they got to be able to kind of compress that. And they went on to customized packaging, a one time investment and obviously standardized their boxes based on a twin full queen, king. So they’ll have four or five different boxes standard for them but not standard for the industry. It’s a little bit nuanced, but I’m trying to make the distinction for your audience that a customized box isn’t what the corrugated salesman is selling you, it’s what a true packaging expert would come in and tell you how to dimensionalize that box to suit your product.

Guillaume: Okay. Maybe if we can go just a tiny bit outside of your core expertise of your own 3PL. There’s a lot of problems with the supply chain right now, it’s a big topic. Is there anything that the merchant can try to do to sort of optimize or tips and tricks or best practices to get their shipment on time, or maybe to get the stuff from Asia and bring it to the warehouse without issues or something like that?

Harry: The best thing they can do in that regard is deal with whether it’s a freight forwarder, you need to deal with someone who has size and who has ploughed, if you will, within the supply chain whether it is air freight, whether it is steamship lines, is to deal with someone who is not just on the open market. Because yes, at the open market you can potentially save a few shekels or a few dollars but you are going to wait in line for the space. It is kind of like flying standby on an airplane, yeah maybe you will get a little bit of a discount, the last minute kind of thing but there is no flexibility. You have to wait until something opens up.

The same thing applies with us because we are big, because we have buying power. For us, we have commitments from our parcel carriers so that even during peak season we’re going to get service. We are not going to get limited, we are not going to get rationed. We have a commitment in writing that says you are going to be serviced. You need to find someone who can provide that same guarantee within the supply chain to your customers. Am I going to be standing in line? Is there a guarantee that when I have a pick up or a shipment ready from Asia that you will pick it up, that it will make its way on the steamship line, that’s not going to be sitting for weeks for space. So deal with someone who can make that commitment to you in writing, and they are out there.

Guillaume: Thank you. And as a last shotgun question, anything else you would like to share with the audience about the fulfilment?

Harry: Now with the idea of fulfillment the one thing I would want to share is, we are a partner and not a vendor and not a supplier. I am a partner to my customers and I look for customers that want to partner, that don’t look at me as transactional. I like to think I am a strategic extension of the customers I deal with. I participate with them in their monthly meetings as they plan their businesses out for the coming year. I mean, if you think about growth and the inhibitors to growth, if I know the plans of the people I am working with and they trust me with those plans, I am going to be a facilitator for them, I am going to enable their growth, I am going to be there when they have promotions that gets the products out so that they get bigger five times more sells than the promotion that they thought they will get.

They don’t want their customers waiting weeks for those shipments than they would like to think about. So I will just tell them that when you are outsourcing, find someone you trust, find someone you will bring into your organization and treat them again, as a strategic ally, as a strategic partner. Seek their help, trust them but make them a part of your organization and you will have the true synergy of one plus one equaling three as opposed to just finding someone with the lowest price and they are transactional and you are not going to let them in a tent with you. You are dealing with the wrong people and you have the wrong strategy if that’s what you are doing.

Guillaume: Awesome. Well, thank you for sharing. If people want to get in touch with you Harry, what’s the best way?

Harry: The best way is through the website, www.amwarefulfillment.com. We have links to ‘contact us’ and there is a tremendous amount of information on my website that has case studies, that has links to others that can help your business, that can answer a lot of questions for you. So I would strongly urge your listeners to at least explore the website if not dealing with me but it will at least get you started on the path to outsourcing fulfillment and then making the right decision.

Guillaume: Awesome Harry, thank you for being here today.

Harry: Guillaume, my pleasure any time.