JLD: Boom! Shake the room, Fire Nation! JLD here with an audio master class that is literally going to be a critical component to your 2019 if you ever see yourself creating and shipping a physical product. This audio master class is called “Fulfillment for Dummies: A Crash Course on the Pitfalls and Opportunities Within Warehouse Fulfillment Operations”.

And I have brought Harry of Amware Fulfillment which is a national fulfillment specialist that enables one- to three-day delivery 98 percent of the US while helping fast-growing companies scale fulfillment operations through every growth stage cycle. And we’re going to be talking about a lot of things today. Specifically, what are some common mistakes that online businesses make in fulfillment management with my three journals: The Mastery, The Freedom, and the Podcast Journal?

You better believe I’m going to be taking notes because I both store and ship my products – not just to the US but to the world – and I’m making a lot of mistakes that I’m going to learn from Harry today. So, stick around Fire Nation. I want to thank our sponsor and dive right in. Harry, say what’s up to Fire Nation and share something interesting about yourself that most people don’t know.

Harry: I’ll tell you something that most people do know. I’m a private instrument-rated pilot –

JLD: Ooh!

Harry: – but what most people don’t know is that I became a pilot to overcome a severe fear of flying.

JLD: Wow! Well, I have a fear of flying and I don’t think I’m going to become a pilot! [both laugh] So, I definitely give you kudos for that, my friend. Cool stuff. Well, listen Fire Nation, as I mentioned in the intro, we’re going to be rocking an audio master class on Fulfillment for Dummies. We will be giving you literally a crash course on the pitfalls plus the opportunities with warehouse fulfillment operations.

As I mentioned, this is a near and dear topic to me because I have the Freedom Journal, the Mastery Journal, the Podcast Journal – I have tens of thousands of these products sitting in warehouses – and I can tell you I’m making a lot of mistakes. So, I’m taking notes. I hope you do too, Fire Nation, but just break it down for us right at the top, Harry. Why did you write the e-book “Fulfillment for Dummies”?

Harry: I wrote the book because there’s a need out there. I’m actively involved in almost all the new sales for my company and I speak to entrepreneurs and business owners on a daily basis. And it’s really surprising how many out there just view what we do as a black box and don’t have visibility into it and don’t have a good understanding of it. And so, I wrote it because I think, when you approach this subject with some knowledge on it, you’ll do your organization better and you’ll make better choices in your fulfillment programs.

JLD: So, one thing that I’m really curious about – again, being somebody who uses warehouses and uses fulfillment and it’s a decent part of my overall revenue stream – like where is the direction of fulfillment going? What’s the future and what’s the current state?

Harry: The current state is very, very fluid. It’s a growing business obviously. More and more sales are happening online and the biggest impact to fulfillment today is really the Amazon effect if you will. The breadth of products that you can buy on Amazon’s site – and more importantly than that – Amazon has raised the bar and expectations to where everybody wants their product faster. People want free shipping now and they think that they can get the product – I order it today – it will ship today – I’ll get it tomorrow or the day after –

JLD: Or maybe a drone can drop it off at my doorstep in two hours – one of the three.

Harry: Or maybe a drone’s going to drop it off to your point, but for us on this side that are fulfilling the orders, it’s getting harder to retain associates. Unemployment is down. Wages are up. People leave jobs for minimal amounts of money today. Everybody’s got a living to make. So, it’s hard to retain associates. Parcel costs are constantly going up and they can make up as much as two-thirds of a fulfillment budget. And warehouse vacancy rates in the United
States are down. The good news is the economy is humming and space is harder to find, and when that happens, space for cost goes up. And taking on new customers can become a challenge because of that.

JLD: So, one trend that I’ve seen – again being in the trenches so to speak – and this is with Amazon as well – is that they’re really ramping up long-term storage fees. Now, I’ve been using a warehouse since back in 2015 and I just had really reasonable storage rates for all that time. In fact, I bought like 80,000 units because these are non – they don’t expire – they’re journals – they’re books – so, they store really well.

So, I bought 80,000 to get my cost per unit way down and I had this very specific long-term storage fee set up that was a year-to-year basis that was very affordable. And now I’m getting hit up by my fulfillment. They’re saying, hey, we are like quadrupling. We are 5X-ing the long-term storage – meaning anything over six months is like becoming so super expensive. Why are fulfillment centers doing this? And how can we, as people that are using fulfillment centers, not just kind of get priced out of this market?

Harry: Part of it is being driven obviously by the economy and limited space. So, Amazon has got a ton of customers as we all do today fortunately. There’s a clamor for our services. We have limited space that we can put people into. And if you think of sitting at a bar and nursing that beer for a half an hour, the business is looking at the stool and saying, hey, I can serve five premium drinks in a half an hour or an hour –

JLD: Good analogy.

Harry: – and this guy is in here nursing the beer. Well, if your product sits in a warehouse and doesn’t turn, money is made slightly on storing the product, but most is for value-added services. So, bringing product in, bringing product out, packing it, adding value to it, making kits – whatever it is that you do – that activity generates revenue for providers for warehousemen. And if product just sits there and doesn’t turn, you can’t make any money in that space. So, therefore, they raise the rates (1) to try to recover some of that and (2) to probably discourage you from placing products in a warehouse that are pretty much just storage.

JLD: Yeah, it does make sense. And like I said, that was a good analogy. I definitely understand that. So, Fire Nation, just really be aware, number one, that these online warehouses – these warehouses in general – these fulfillment centers – they are looking to move product. The pick and pack – that’s valuable – other value-added services – they don’t just want you to take, like in my case, 80,000 books and have to store them in the corner of the warehouse and just pay like whatever rate I’ve been paying every single month over the years. Like they’re looking for a little bit more. So, kind of factor that in for sure.

Now, let’s go to break down some more specifics. Like how would you say – or how many would you say – warehouses an online retailer really needs to be successful?

Harry: It depends on what your customers are really demanding. Do they insist – is your current customer profile or your current customer group or future customer group going to demand that product in one or two days? If that’s the case, you’re going to need multiple warehouses to do it efficiently. You can ship anywhere in the United States overnight from virtually any point, but you’ll go broke doing that. So, what you really want to do is get that product placed as close to your customers as possible and that might necessitate three, maybe even four, buildings.

If your product is a commodity and it can be purchased if there are substitutes that are very similar to your product or if you’re selling as a reseller and selling the same product as others, yeah, I mean if you don’t have the product either in stock or close to a customer where they’ll receive it in a day or two, they’re going to shop elsewhere. So, that’s going to drive the fact that you’ll need multiple warehouses.

If your product is very, very unique and can’t really be purchased anywhere else or if it’s such that it’s in a class by itself – the quality of your material is unique – it’s really worth waiting for – then you don’t need multiple warehouses. Then you’re going to be able to get by with one or possibly two and customers will accept a little bit of a longer shipping time as a result of that.

So, really, it’s about what’s the customer experience going to be for delivery? What’s the product that you have? And again, if people can wait for your product – if they’re willing to wait a little bit longer for your product just to have your product – then you can put it in fewer warehouses.

JLD: And that’s why, Fire Nation, you really need to do your research and find the right fulfillment company. For instance, for me, knowing that, by far, 90-plus percent of my sales of the journals are going to be in the United States, I found a company that had one warehouse in Cali and one warehouse in Pennsylvania so that, whenever the journal is ordered – whichever one is closer – it’s going to go from that warehouse and be a much easier experience.

So, if somebody orders from New York City, it doesn’t have to come all the way from Cali. It’s coming from Pennsylvania. So, that just makes the process a lot better and simpler, and again, impacts customer satisfaction which is what I want to talk about next, Harry. How does fulfillment – in your experience – from your side of things – impact customer satisfaction?

Harry: Imagine opening up a package that you’ve been waiting for – whether it’s two days or two weeks – and you open up the package and the product was just kind of thrown in there. During transit, it got shaken around. It’s jumbled up in there or it wasn’t the right product – you ordered a red – you got a blue – you ordered a large – you got a small – whatever it may be – shipping on time with 100 percent order accuracy really extends trust in your brand and in your product and just really heightens the customer experience.

The great product and shopping experiences can be undermined by a poor fulfillment experience – whether it’s shipping late – whether it’s an incomplete order – whatever – sloppy packaging – you’re missing pieces – nothing worse than getting something that you’re going to ultimately put together and you find out pieces are missing from it. So, it’s really important that the product go out on time, go out intact, go out as a perfect order, and again, packaging plays a big role in customer satisfaction.

Have the right kind of inside packaging where it looks like care was taken to make the product look nice inside – it just enhances that entire experience for the consumer. And really, we want to make them come back and repurchase from your site if you will.

JLD: And that’s a key word, Fire Nation – repurchase. I mean that is a huge part of my business. People finishing their 100-day Freedom Journal and then ordering another one – or people finishing their 100-day journal loving the experience and wanting to try to the 100-day Mastery Journal – or just saying I want to get into podcasting now and I know that JLD does great products and creates great content and I trust him because of my past purchases – so, I want to go with the podcast journal.

Like making all that stuff happen, Fire Nation, starts with that initial customer satisfaction that they order the product, the product arrives, it’s undamaged, it’s packaged nicely, it’s on time – all of those things – is absolutely critical for repeat customers and for people to just become evangelists about your products and services. They’re going to tell their friends like X, Y, Z. That’s why one reason where Zappos became so famous is because they would upgrade your order for free. They would add a little gift. They would do this. They would do that. And people started talking about it. They would get interviewed on CNBC. Like think about those things, Fire Nation. It can really add up.

But we make a lot of mistakes, Harry. I make a lot of mistakes for sure because it’s not like my sole current focus which is why we need experts like you to come on, talk to us, and write books that you’ve written. What are the common mistakes that you’re seeing online businesses make when it comes to their fulfillment management?

Harry: There are several common mistakes that entrepreneurs and businesses make. Interestingly today, B-to-C and B-to-B – many businesses are serving both markets. And in an effort to maintain good quality to both markets and fill rates, what a lot of entrepreneurs want to do is split that inventory. So, I’m going to set aside product that just goes to consumers. And I’m going to set aside literally the same type of product that goes business to business.

And so, what they do in separating that product is that they’ll actually separate them in a warehouse so that there’s no chance of it being comingled. There’s no chance of my B-to-C inventory going down to satisfy the B-to-B. And that, one, drives up your costs – it goes back to my earlier comment about how many warehouses you need. If you start to put your product in multiple warehouses – even the same inventory – your carrying costs go up. You’ve got to manage two inventory points or three or four. And then you’ve got to manage shipments to those facility points. So, you really just drive your administrative, your labor, and your inventory costs way up.

Another mistake that’s fairly common is the failure to efficiently scale your operations. So, e-tailers make a couple of mistakes in this area and one is, before product has actually gained traction in the market, they’re going to want to do fulfillment themselves maybe to see what it’s like, maybe to start out, or maybe they’ll just find a single location mom and pop kind of fulfillment partner if you will.

And then, when the product takes off and volume spikes, there’s really no time to react and they’re dealing with a small provider that really can’t scale effectively. And so, they’re missing out on fulfilling orders. They’re have disappointed customers. And you don’t get a second chance to make a first impression. So, you really turn off potential buyers, and again, the repurchase with that.

And then there are the companies that go in the opposite direction. They’re well-funded start-ups and they wind up spending a boatload of money in up-fitting a facility in anticipation of growth and operations and they wind up with tremendous infrastructure and carrying costs and equipment that’s not utilized properly. And again, all they do is drive up their own costs, their own inefficiencies, and ultimately, they either have to pass that onto a consumer and become somewhat uncompetitive or it eats into their margin.

Outsourcing to a third party creates a flexible fulfillment solution that you can grow – that can grow as you grow. Fulfillment costs are easier because they match your revenue stream. So, your expenses will match as your business grows. Your expense will grow and they grow proportionately together so they’re in sync and they’re in line.

Another mistake that’s made is paying too much for parcel shipping. A lot of e-tailers view parcel shipping almost as a commoditized cost of doing business. And they feel they have limited ability to really influence that and that’s not the case. That’s a mistake. There are many cost-saving, profit-improving strategies that you can use to control it – that determines the size of your box that will determine how much you’re going to pay for shipping. And there are cost-effective boxes that you generally just don’t buy from a box-maker. You might have to make it a little bit customized, but you’ll save in the long run on that.

The other thing that outsourced companies – third-party providers – can bring to the table is leverage. We handle almost a million shipments a month in my organization at Amware. We have tremendous buying power with DHL, UPS, FedEx that an individual entrepreneur doesn’t have on their own. So, by going with a third-party provider, you’re able to take advantage of that scale that they can leverage for you.

Many companies also starting out make a mistake that they don’t need a warehouse management system. And when you’re small, it’s entirely possible to get by with a highly manual approach, but as your sales grow and you’re trying to manage your inventory and your business and your orders on an Excel spreadsheet, that can quickly get out of control for you. I mean, obviously, a solution to that is buying a warehouse management system, but those can run you in the area of a half a million dollars. And again, as you’re starting out, why make that expenditure? If you outsource that, you can take advantage of a warehouse management system that I have that I spread over a million orders a month that you get all the functionality – all the benefit of – for a fraction of the cost.

And then, one final big mistake that’s made on the outsourcing part is not constructing a good outsourcing agreement. Outsourcing agreements fail most often because the buyer’s expectations were not clear up front. So, if you can carefully construct a scope of work document, that’s going to make the headaches go away later.

Take the time upfront to align with your provider on the objectives of the project – performance expectations, costs, and timelines – and as business starts to ramp up when you really, really need that thing to work like a well-oiled machine – your fulfillment machine – you won’t be sitting down arguing or worrying about agreements, about, gee, we weren’t expecting this – it’s going to have a well-laid glide path for your growth and it’s going to facilitate growth. Again, when you get everything done upfront in an agreement that here’s my full scope of work – here’s what I expect you to do.

It’s a lot like building a house. You can go up to a contractor and say, hey, I want a four-bedroom house, two-story, 2,000 square feet, and walk away or you can really sit down and say, hey, here’s what it has to consist of. Here’s more detail. Let’s get it down upfront. I want outlets in every room – three outlets in every room. I want this lighting. I want this kind of heat. You understand the more detail you get into upfront, the better the experience will be when it’s completed.

JLD: Lots of great food for thought there, Fire Nation. A couple things I want to go back over that I think are key. Number one, if you’re going B-to-B and B-to-C – so that’s business-to-business and business-to-consumer – really be focused when you’re splitting that inventory because that can be a big no-no if you don’t do it right because costs can go way up. So, just make you’re very intentional about that.

And then also, failure to efficiently scale your operation and that, again, kind of goes to my next point which is, if you are growing, if you are scaling, you need that warehouse management system. And the bigger you’re going, the more efficient, the more effective, and the more professional that warehouse management system has to be. As Harry mentioned, this can go as high as $500K. So, this definitely could be a big cost. So, you don’t have to be there Day 1, but you want to always have that on the horizon. What am I doing to have this warehouse management system for this growing business that I have?

Now we have a ton of value bombs, Fire Nation, coming at you when we get back from thanking our sponsor.

So, Harry, we’re back and I have an audience of entrepreneurs – of small business owners – and they have a lot of things they need to do to run their business successfully. So, why do we need to also understand picking, packaging, and shipping? Break that down for us.

Harry: Inside the warehouse, picking, for instance, is the largest labor expense – inside the house again. So, what drives up that expense is not just the activity of picking product but travel time in a warehouse. So, in other words, an order that has five, six, seven, eight items – eight different items on it – in a warehouse, you’re walking to get that product from place to place. So, understanding how that product is placed in a warehouse or understanding what the picking costs are in a warehouse will just set you up for you being a good partner in helping that cost down if you will – reasonable – and helping the 3PL keep that cost down.

JLD: Well, let me break in for a second because like what’s something that we could do to really be helpful in that scenario?

Harry: There’s nothing that helps like planning and there’s nothing that helps like data. So, if you happen to have, let’s say a hundred different items – 200 items – that you’re selling, providing your third-party provider with what you think sales velocity will be by item will allow that provider to put those high-velocity items together so that, when orders come in for that, they’re walking less. If you’re not sure about what the velocity would be of your sales – because, look, most sales follow the 80/20 rule, right? Twenty percent of your items account for 80 percent of your costs.

If you don’t know that and you just place the product in a warehouse – not in a haphazard way but rather in a random way – you may walk from end to end to constantly fill orders. And it’s just – again – it just takes longer to fill an order. If it takes longer to fill an order, your charge is going to be higher for that order. Again, you either have to pass that forward or you’re going to wind up absorbing that and making less profit.

JLD: And the reality that I found a few times – like I just barely kind of missed that drop-off where the product has gone out for the day or it hasn’t and then I’ve had to deal exponentially with the product not showing up on time, the customer complaining, and the tracking the hassle. Fire Nation, keep it easy. So, one thing I should say, Harry, is I’m curious because I’ve never outsourced this yet, but at what point do we think that outsourcing fulfillment actually makes sense?

Harry: So, let’s talk about the pros. Generally, you can save money by outsourcing and 10 to 20 percent of savings are typical. And it can be even higher with parcel shipping management if you allow your provider to manage your small parcel shipments. Again, they’re going to leverage their buying power and they’ll pass some of that onto you obviously and you’ll be able to save money.

Another pro is if you have large volume swings. If your business is very, very seasonal, outsourcing makes a lot of sense in that case. You don’t want to be encumbered if you’re doing it internally and you have volume swings. You’ve got to figure out how to get temporary or part-time employees onboard to handle that volume swing – something that you’re probably not focused on – it’s not your core competency – you just want to sell. You don’t want to be a labor manager. You don’t want to be having to make these arrangements for that.

So, third-party providers can do this. They do this all the time. They have arrangements with many staffing companies. They have access to temporary employees that most entrepreneurs don’t have. The reason for outsourcing – scaling easily and quickly – again, whether it’s a promotion that you want to run that just came up that you had an idea. You see an opportunity to run a promotion and you really want to ramp up very quickly – again, a third-party provider – an outsourced provider – who does that for a living – does that all the time – they can do that significantly faster than you can.

Again, you’re going to source labor. You’re going to have to source supervision to manage it. You’re going to have to start all sorts of agreements to get that onboard. Third-party providers have that in place. Many times they may not even have to go outside for labor. They may have it internally. There may be seasonality for everybody isn’t at the same time. You may hit it with a third-party provider where another account gets slow – you get busy – and they can just transition employees within the warehouse.

And then, finally, look, focusing on your core business is really, really critical. If you’re the captain of a ship and there are problems in the engine room, it might be good to have an understanding of what’s going on in that engine room. But if you’ve got to roll up your sleeves and go down there and start working on the problems, nobody is managing, nobody is captaining that ship, and it’s going to kind of drift if you will out in the sea.

There’s an interesting story I like to tell and it relates to flying and I think it’s very apropos. In the 70s, on a 727, there was a flight crew that was on final approach to Miami International Airport. And if you remember, in those days, there were three people in the cockpit. One was the flight engineer, first officer, and a captain. And all of a sudden, a green light came on and the first officer kind of got occupied with the green light. It had to do with the landing gear and it was really nothing more than a malfunction in the light, but he kind of pointed it out to the first officer and said, hey, check this thing out.

And they started to chat about it, and before you know it, they got the captain involved in it and all three started to focus on this light that was really unimportant. And before they knew it, they had actually – the plane had actually flown into the ground. Everybody onboard didn’t survive and that really gave birth to the ground proximity warning system.

But the point of the story is that someone’s got to fly the airplane. Someone’s got to manage your business. Someone’s got to look out for your business long term. And if you’re worried about the nits and nats – if you’re worried about the operation and how that’s going to be – you can’t manage your business. You can’t grow it. You can’t guide it. You’re going to miss opportunities. So, those are the main pros for outsourcing.

Now, there are some cons when you outsource. There is the perception that you lose control. So, in other words, you’re outsourcing to a company like mine. The employees don’t work for your company. They work for me. And you’re kind of worried about do they have the same care? Do they have the same passion about my product as my own people would have? There’s a little bit of truth to it, but at the end of the day, we have a business to run as well. We take an interest in your product. We want to be an extension of your backroom. But ultimately, that’s something that goes to an entrepreneur’s mind.

Outsourcing can also mean losing people. You’ve had people that maybe you’ve started up with your own team and they’ve worked with you for a few years and there’s a loyalty and where you outsource to might not be locally. So, these people can’t just transition the job. And you kind of feel a kinship and an affinity for the people. I think that’s a great trait. It’s good to take care of your own people. Again, you’ve got to think about the benefit and the well-being of your own organization to grow.

And then, you have to learn – learning new skills. So, managing fulfillment companies like mine is a new skillset. I don’t think you would ever want to fully throw the keys over to someone and say, great, manage my business. You do have to be a partner to that business. It is a piece of your business. And so, there’s a skillset in managing the third party that’s a little bit different than managing internally.

So, those are the pros and cons of outsourcing. At the end of the day, there are very, very few businesses that have logistics as a strategic objective, and so, partnering with someone who’s really good at it – who really knows how to do it efficiently – who knows how to keep those costs down for you – is a big, big plus.

JLD: So, Fire Nation, I love these analogies that Harry is using and also that story, I mean, just brings things to light – literally the green light. I’ll probably never forget that story and every time I’m landing now in a plane, Harry, I’m going to probably yell out don’t look at the light, guys! What? But there are a lot of things that you should be focusing on there, Fire Nation – the pros and the cons – but overall, even if you are running your own warehouse fulfillment and you have those people there, at the same time they’re working just like Harry’s people are working. And if you can instill care in them, that’s what Harry folks do – instilling care for your products and services and your business as well.

So, Harry, overall, you wrote the book “Fulfillment for Dummies.” So, you literally wrote the book on this topic – on this subject. How can people get ahold of that and maybe learn more about Amware as well?

Harry: Very, very simple. Just visit amwarefulfillment.com. Right at the top of the page you’ll find the book. The book was written fairly generically. It will help entrepreneurs as they try to outsource. It’s not specific to Amware Fulfillment. The website obviously is if you want to know more about us – what we do – who we are – it’s all on the website just a click away.

JLD: So, speaking of that click, if they do order Fulfillment for Dummies, what happens next?

Harry: They can just download it right from the website. They can read it. We’ll probably make contact to see, within a few days, do you have any questions? Is there anything in the book that didn’t answer a question for you? Can we have the opportunity to answer that? It’s as simple as that. No pressure.

JLD: So, as we kind of wrap up our chat today, Harry, what is one thing – like one theme – that you just want to make sure our listeners really get from our entire conversation today? What is that one thing?

Harry: Do your homework very, very carefully. Think long and hard about outsourcing. There are a lot of people out there who claim they do it. Just understand what you want to get accomplished. Again, do your homework. Do your research. Partner with someone that not only has the skillset but has the same temperament as your organization. It’s a marriage, and like any marriage, you want to make sure that you have the right partner who has the same interests as you – that will ostensibly be a good compliment to you – that what you need they can provide and what they need you will provide.

JLD: And one more time, what’s that call to action for Fulfillment for Dummies?

Harry: www.amwarefulfillment.com.

JLD: Fire Nation, amarefulfillment.com – head over there. Get what you need. Learn more. Learn from the best because you’re the average. Of the five people you spend the most time with, even hanging out with HD and JLD today. So, keep up the heat. And if you had over to eonfire.com and just type Harry in the search bar, it will show the page for this entire episode will pop up with the links to everything that we’ve been talking about. And Harry, I want to thank you for sharing your truth – your knowledge – with Fire Nation today. For that, we salute you and we’ll catch you on the flip side.

Harry: It was a pleasure, John. Thank you.