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Nathan Resnick:

Hey, it’s Nathan Resnick. Welcome back to Product Sourcing Stories. Today we have one of my favorite, favorite, just experts in 3PL logistics, Andrew from Tipsy Elves. Andrew, thanks for joining us. Can you give us a quick 32nd introduction about yourself?

Andrew Sutton:

Yeah, definitely. My name is Andrew Sutton and I’m the Director of Operations, Logistics and Fulfillment with Tipsy Elves. I’m currently on my eighth year with Tipsy Elves.

Nathan Resnick:

That’s amazing. I want to really just dive in. How did you choose your first 3PL? Walk us through that process.

Andrew Sutton:

Definitely. When I first joined Tipsy Elves, they actually already had their first 3PL selected. Part of my role at that time was to really manage that 3PL relationship. I that was just a recent college grad willing to do whatever it took to get my hands dirty and help the company. But it’s about a year or two after that, we quickly outgrew our 3PL, and it was just becoming very obvious that we needed to find a 3PL solution that we could grow into and that could grow with us.

Andrew Sutton:

And so that hunt really began with, I think I looked at the list of the internet retailer top 100 eCom brands at that point, and made a list of the most commonly featured 3PL’s and created that target list, and that’s kind of where we started our list and started our hunt. So one by one RFP process calls, and eventually scheduled some onsite visits with our favorite potentials. That was really my first exposure in the 3PL world, and I think on a surface level, you think a 3PL just picks and packs and ships orders, but there’s so much more that goes into 3PL operations.

Nathan Resnick:

Right. Right. Walk us through your process of determining whether a 3PL is a good fit or a bad fit.

Andrew Sutton:

Definitely. Yeah. I think really, it begins at looking at the 3PL’s history and see where they’ve been, where they’ve come from and where they currently are, and a lot of that has to do with speaking with their current clients. I think referrals are key with whatever service provider you’re looking at, but you really want to talk to a wide variety of clients and, if they’ll allow you, former clients, too. A lot of people will give you their top one or two clients referral and they just have glowing referrals but those might be the company that’s giving them the most money or whatever, and they’re treating them the best, and you just don’t get that same experience once you get in the door.

Nathan Resnick:

Right.

Andrew Sutton:

So being able to speak to a good number of their clients, current and past, is key. And then, I think a good indicator of a good 3PL is that they ask really good leading questions during the RFP process. Trying to truly understand your brands, the seasonality of the growth potential, new customers, agents. I’ve been a part of a lot of RFPs and proposals where all they ask is how many orders and units in a year? And then they do the numbers of how much money they can make off you, but I really enjoy the 3PL’s out on the front end, kind of express concerns with certain things about your brands or things that they’ll have to figure out.

Andrew Sutton:

And just from day one, the first time you discuss with them, even before you sign on, you’re kind of having open, honest, transparent communication. I mean, at the end of the day 3PL has to be treated like a direct extension or partner of your brand. You could source the best products, have the cleanest website ever, but if you can’t pick, pack, and ship on time and accurately, it’s going to ruin the customer’s experience.

Nathan Resnick:

Right, exactly. I mean a 3PL really is directly correlated to a customer’s experience. That’s so important. I’m curious how crucial or how much significance does the location of a 3PL matter to you when you’re making this decision? Let’s say your products are coming in through the port of Long Beach in LA. Are you always looking for a 3PL in California? Obviously, if you have a lot of customers on the East Coast, maybe you want to look on the East Coast. I mean what’s that process look like when you consider a 3PL’s location?

Andrew Sutton:

Definitely, and that’s a great point. I think a lot of companies just look at just trying to have the most convenient location, which is typically closest to their headquarters, which is a huge benefit of being able to quickly access your products. But like you said, if you’re a West Coast company, and our headquarters are in San Diego, in our early first couple of years we’re doing mainly cold weather gear, Christmas sweaters, onesies, ski suits, and all our demand was in the Northeast, so it didn’t make sense.

Andrew Sutton:

Even though we started with a 3PL at first in Southern California, we eventually moved it to New Jersey just to be closer to try to save on transportation costs, time and transit, all that good stuff. And yeah, throughout the years now, we’re actually on a fourth operation, 3PL operation. We’ve gone from Los Angeles to New Jersey to Brooklyn, to actually, I guess fifth now, to Dallas and now back to Los Angeles.

Andrew Sutton:

It’s kind of ever evolving just because our variety of products has changed now, too. We have a huge demand for cold weather gear, but we’re also doing spring, summer gear, fine shirts and stuff like that. So yeah, everything you mentioned is super important. I think saving on carrier costs and reducing time in transit is super important.

Nathan Resnick:

And this is high volume. I mean, I read online Tipsy Elves has done over a hundred million dollars in sales. I mean, you guys are shipping thousands and thousands of units every month, if not every day. One question that always comes up, especially as a brand grows, comes into international shipping. How does Tipsy Elves handle international shipping or how would you recommend a eCommerce founder handle international shipping?

Andrew Sutton:

Definitely. Yeah. So international shipping is something, I’ll admit, that we’re not exactly experts in, and I think a lot of that has to do with almost all of our demand is domestic. United States is pretty special and unique in the fact that we just love dressing up. A lot of our things are ugly Christmas sweaters or it’s Halloween costumes or retro ski suits or St. Patrick’s day Mardi Gras.

Andrew Sutton:

There’s some demand for that abroad, especially up in Canada. But the first five or six years were purely focusing on domestic, and then whatever trickled in internationally we take and fulfill, but it was a pretty small portion. And so what we’re realizing is that our domestic customers are most focused on quick delivery transit. They want things shipped same day, next day and delivered within two days just because of Amazon effect.

Andrew Sutton:

What we’ve seen with international customers as we focus more on them is that they’re willing to wait longer, but they just don’t want to pay a lot. I think they’re just more used to issues and delays with export, with customs clearance, with all the things that could maybe turn a three or four day delivery into a five or six. They’re more accustomed to that, so they shop through the process.

Andrew Sutton:

Something that we’re becoming more and more aware of, too, and focusing on and trying to find a solution on currently is trying to figure out a way to bring the customs and duties situation earlier into the journey. A lot of our main main sellers are ugly Christmas sweaters. Due to the competition and the product type, they have pretty steep customs and duties charges, so our international customers are used to paying a fee upon delivery but not as steep as they currently are with our products.

Andrew Sutton:

We’re trying to remove that shock that they experience upon delivery, and so we’re currently vetting a couple of solutions to include a customs and duties calculator at checkout, and so at least the international customer is aware of it and they could have the choice to prepay at checkout. And so it’s the product and shipping costs, and then customs costs at the same time.

Nathan Resnick:

Got it. Makes a lot of sense.

Andrew Sutton:

And so at least they’re aware of what will eventually be expected upon delivery.

Nathan Resnick:

You hear stories of customers getting goods internationally, and then they have to pay X amount of additional for customs, and it’s a surprise, and kind of hurts that customer experience

Andrew Sutton:

For sure. Yeah. We want to make sure all the way through delivery, they’re not shocked by anything. We want to remove all friction and be as honest and transparent as possible. I admit this is an area that we’ve been pretty weak on, historically, just because we haven’t placed a lot of focus, but we’re realizing that it’s just … I mean the demands for American trends are just getting more and more popular, so we really want to focus on it, especially as we feel we have a pretty good situation with domestic shipping.

Nathan Resnick:

Definitely. Definitely. When you look at a 3PL, I mean you mentioned you’ve gone through five different 3PL’s and a whole bunch of RFP processes. What’s the key metrics that you look at in a new 3PL? I mean, is it like warehouse space? Is it number of units that they’re shipping out a day? I mean, walk us through a view when you’re analyzing a new 3PL in terms of the exact metrics you’re looking at from an existing 3PL standpoint.

Andrew Sutton:

Definitely. Yeah. Yeah. There’s a lot of good metrics to look at. I guess I just want to preface it by saying, our brands, on-time shipping and deliveries is important for every brands for experience, but almost all of our orders are for a specific date or event. So if we’re shipping something late, and they have an ugly Christmas sweater party on a Friday night, our package ships late and arrives on Monday, it’s usually worthless to that customer and they’re pretty upset and want to return and refund it.

Andrew Sutton:

Whereas if you’re just ordering a pair of shoes or jeans or you might be bummed if it shows up late, but you can still find another excuse to wear that. So I think we take 3PL relationships and metrics, probably more serious than most brands have to, but it’s the crux of our business, so we just have to.

Andrew Sutton:

This might be overkill, but the metrics we’re looking at are not only their on-time shifting percentages against whatever SLA agreement, usually 3PL’s will commit to something like the high 97%, 98%, on-time within 24 hours is kind of common depending on the size of your account.

Andrew Sutton:

Then we also look at their performance on a weekly average, a weekly, biweekly and monthly average. Other metrics are how many units and orders can they pick per man-hour, and then ship per man-hour, because warehouses need to know that information in the forefront if they’re are going to be able to staff your account properly.

Nathan Resnick:

Totally.

Andrew Sutton:

So those are kind of the outbound metrics we really look at, and we’ve seen, just as a side note, that a good warehouse should be able to ship twice as many units in orders in a man-hour than they can pick. So if they’re picking 50 orders an hour, then they should be able, and that’s just a random side note.

Andrew Sutton:

So that’s kind of the outbound, and inbound we kind of tie returns and PO receipt in the same bucket. We’re just seeing how many units they can process in, again, a man-hour just because if you have something sent [inaudible 00:00:09:39] a week, that’s just lost time. To make sure that they’re being able to receive returns in a timely manner for customer experience, but also get your new POs in stock ASAP. So it’s a combination of inbound and outbound.

Nathan Resnick:

It’s very analytically driven. I mean, you’re looking at all these metrics as detailed as the man-hour and what’s going on with each shipment. I’ve got to ask. I mean, you’ve been through five different 3PL’s. There’s got to be some nightmare stories. You don’t have to name names, but I’d love to hear any nightmare stories you’re able to share.

Andrew Sutton:

Definitely. Yeah. Yeah. Through the year we’ve definitely learned some hard lessons, and when it comes to fulfillment, we’re pretty hands off to begin with. And just over the years, as I mentioned, on-time shipping is the crux of our business, so we’ve become more and more involved in seeing the insides of almost every 3PL that we work out now.

Andrew Sutton:

I’d say our biggest nightmare, which has popped up a few times as we’ve had a couple operations rely on the replenishment system of a warehouse. Replenishment, essentially, is where you have one active location per skew, and it holds 12, 15, 20 units and everything else is up in reserves. So that’s up in racks, two, three, four racks up that can only be accessible forklift, cherry picker, which is great in terms of maximizing capacity or usage in a warehouse or storage.

Andrew Sutton:

But during high volume output days, it just throws a wrench in the whole entire system because, essentially, if that active location runs out of units or there’s not enough units in that active location to fulfill the orders, then a replenishment task goes out to where someone, they essentially shut down the aisle so no one can pick on that whole entire aisle. They bring a forklift in, bring more inventory down to the active location so they can resume picking.

Andrew Sutton:

Our seasonality, our slowest days, our heaviest days are about 40 times the size of our slowest days, and when we get peak season and we’re relying on replenishment, we’re having to replenishment task nonstop all day long. That’s been our biggest pain point, and early on we just wanted to pay the cheapest fees we could in terms of storage and replenish is the best way to do that. But we found during peak season it’s going to cost us way more in delayed shipments and just additional man-hours. It has more service issues than it would ever save us. There’s been times that we’ve been just behind thousands and thousands of orders because of replen.

Andrew Sutton:

And then, one true nightmare relating to this replenishment story is one time the replenishment system, the WMS, the warehouse management system wasn’t working properly and the replenishment tasks weren’t kicking off before the pick task went out. So we had warehouse staff going to pick locations that were completely empty because the replenishments task was getting kicked off after the pick task. That’s something that popped up in like late September going into Halloween season and wasn’t truly fixed until almost Christmas.

Nathan Resnick:

Wow.

Andrew Sutton:

So we’re talking about, yeah.

Nathan Resnick:

Just the busy season for all those products.

Andrew Sutton:

Exactly. That’s really when we pick up. We’ll walk around the warehouse and we’ll see all the active locations empty, and we look up and all the inventory is up above and we’re trying to figure out what the heck’s going on.

Nathan Resnick:

Wow.

Andrew Sutton:

And yeah, so I just heed a warning to those brands that do high volume. Just pay attention to the replenishment, make sure you partner with your 3PL and ask good questions. Make sure you have some game plan in advance to where maybe during your peak season you bring all your reserve storage down to the floor pallet, whatever it is.

Andrew Sutton:

It might cost you more in storage, but the increased output and efficiency is so worth it.

Nathan Resnick:

Totally. That makes a lot of sense. I’m curious, too, I mean has Tipsy Elves, have you ever kind of, has your team thought about opening their own fulfillment center? Is that ever been a question that comes up, or a thought that comes up?

Andrew Sutton:

Definitely. The first several years of the existence of Tipsy Elves, we were running into a lot of 3PL issues because of our extreme growth. We’d be one 3PL that did great in year one. In year two, they just couldn’t keep up with us for whatever reason. We were just starting to lose faith in the 3PL industry. We saw a lot of companies just looking to make slim margins and just doing the bare minimum to keep your account afloat, keep a paycheck, but they didn’t really personally care, and that’s just super, super frustrating.

Andrew Sutton:

So we threw it around, and we looked at leases at a time in Southern California, in Arizona, near our headquarters. We’re considering it, but just the upfront costs and bringing on a [inaudible 00:13:56]. You can learn everything in-house, but we didn’t want to have to.

Nathan Resnick:

Totally.

Andrew Sutton:

We got to the point where three or four operations were just back burning on it, and we didn’t know what else way to go other than ourself. Thankfully, we’re now in a great 3PL solution and it restored my faith in the whole entire 3PL industry. There are good 3PL’s out there, and if brands are listening that are very frustrated, I was right there for six or seven years. Late nights, stressful nights almost three months straight, pretty much a fourth quarter Halloween through Christmas season, just like going to sleep with stress, waking up with stress, just wanting to pull my hair out. But there are good three 3PL’s out there. I can assure you that.

Nathan Resnick:

Yeah, you just got to vet them out, huh?

Andrew Sutton:

Yeah, and that’s what I mean. Over the years we’ve just learned to ask the good questions because we’ve been burned, and just made bad decisions. That’s the best way to learn, unfortunately, but that’s also cost us a ton of money and pissed off a lot of customers.

Andrew Sutton:

It eventually got us to a good place. I and our team probably know a lot more about 3PL operations in most brands hopefully ever will. But it’s definitely worth your time and investment as an eCon brand to become a true partner and create a good situation with your 3PL because the more you sell, the more they ship, the more they help you ship on time, the happier customers, lifetime value ,repeat business goes up.

Nathan Resnick:

Totally. Makes a lot of sense. Well, Andrew, thanks for coming on Product Sourcing Stories. This was the deepest dive we’ve had on 3PL’s. If people want to learn more about you or ask questions or find out more about Tipsy Elves, where can they find you?

Andrew Sutton:

Yeah, definitely. I think the easiest places would just, I mean, the classical LinkedIn. Feel free to send me a message there. I always keep my eyes out there, and then just andrew@tipsyelves.com is my email. I would be happy to chat with anybody and share war stories, nightmare stories, whatever it is. And yeah, just kind of toss ideas around. Happy to chat.

Nathan Resnick:

Awesome. Thanks for coming on.

 

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