So much has changed in the eCommerce space in a short matter of time that it merits special scrutiny. Elliot Begoun brings back Mike Gammarino of Bluprint Partners to talk about what is happening right now, what we should be aware of, where the opportunities lie, and where the constraints are for your eCommerce business. Mike is a 3PL guru and runs a consulting company that helps consumer brands build operations that scale. He shares his insights and alerts that an entrepreneurial business should be aware of as it relates to all operations, in particular, 3PL and logistics. He also talks about some of the things entrepreneurs should be thinking through, doing, and planning to position their eCommerce business for growth.

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Listen to the podcast here

Scaling Your eCommerce Business Through 3PLs With Mike Gammarino

I’m glad to have a friend back with us here, Mike Gammarino of Bluprint Partners. He is my go-to guy. He’s our 3PL guru. I thought, since the last time we had Mike on the show, so much has changed. There’s so much going on in eCommerce and in all of those activities. I thought it would be important to bring him back and get from him what is happening, what we should be aware of, where the opportunities are, and where the constraints are. Mike, thanks for joining. Before we jump in on that, why don’t you share with everybody who isn’t familiar with you or with Bluprint, what you guys do, and a bit about your background?

Thanks, Elliot. It’s great to be back. In a nutshell, we run a consulting company that helps consumer brands build operations that scale. We work with mainly high-growth emerging brands and help them build that operations road ahead of their sales. We were mostly focusing on warehousing, logistics, supply chain, outbound packages and products to direct-to-consumers businesses and wholesale.

Let’s jump in and talk about what you’re seeing. Give the top five insights and alerts that an entrepreneurial business should be aware of as it relates to all operations, but in particular, 3PL and logistics.

Unprecedented growth, that was the theme for 2020 for direct-to-consumer businesses. ECommerce grew at 44% year-over-year in 2020. Usually, it averages around 15%. It’s now accounting for over 21% of all consumer spending, which is pretty unbelievable. Looking at the top five, one of them is the supply chain throughout from manufacturing all the way to consumers is extremely strained. We’ve seen from a 3PL perspective, most of the folks that we work with, our certified partners, are completely full. They’re out looking for additional space, labor, and technology to continue providing the services they need. We had some partners that were doing Black Friday level volumes in the summer of 2020. That only increased as the year went on.

From an eCommerce perspective, it’s an extreme growth unlike we’ve ever seen before. We haven’t recovered from that. We’re talking about a large ship we’re steering here in terms of the global supply chain. It’s affecting people from manufacturing all the way to direct-to-consumer. Number one is understanding that the eCommerce landscape, the fulfillment centers around the world are strained, and they’re looking for additional space and labor.

I’m out here in Los Angeles. Our vacancy rate for industrial real estate is 1.4%. It’s effectively zero. There’s not a lot of space out there. If you’re looking at the general supply chain, I’m sure we’ve got some brands that are on the call now that have experienced issues with importation and transportation from ocean freights, airliners, and trucking. In the port of Long Beach, LA, the busiest month was December 2020 in their 110-year history.

Through Q1, there have been anywhere from 25 to 40 ocean liners, vessels, and basic container ships sitting outside in the water waiting to be unloaded. They see a lot of strain from getting products out to your customers and getting your raw goods, packaging, and finished goods. If you have anything coming in from overseas, we see some pretty significant delays there. We’re advising our brands that if you’ve got stuff stuck on the water, you’re pretty much stuck. If you need things right away, you need to be airing them in. That’s caused spot prices for air freight to skyrocket. Not only did we see passenger freight traffic decreased dramatically in 2020, that caused spikes in spot pricing.

In FedEx, 30% of their air cargo capacity is in the belly of commercial passenger airliners. You can imagine when all of those flights got canceled, they lost a ton of capacity. In addition to the increase of goods coming into the United States has dramatically increased spot prices. We see record-high prices for air freight as people are trying to fly over all of the congestion in the port and get things in. That’s number 2 and number 3. Ocean freight and air freight are strained.

If we look at on the ground here in the US, spot rates for trucking had jumped at 35% in terms of costs. We see the heaviest demand for reefers that we’ve ever seen. Not only we’ve seen a big increase in a lot of brands that are either chilled or frozen and maybe were selling only into retail stores, adding any direct-to-consumer channel to their model or they were Amazon Fresh only. They saw delays with Amazon purchase orders and receipts, so they were pulled off-shelves in retail stores and wanted to take control of their distribution.

That’s increased reefer trucking in addition to COVID vaccines. Those vaccines need to be shipped at sub-zero temperatures. There’s even been an increase in dry ice consumption and reefer trucks that were needed on the road. That’s numbers 4 and 5. We’re seeing an incredible cost increase and capacity increase throughout the entire ecosystem of consumer goods and ending up with your eCommerce warehouse.

That’s an important point because we’re trying to encourage brands to be doing, getting across these costs. Many of them are absorbing them because they’re not paying close enough attention to this or they think it’s very temporary. Putting on your swami’s hat, what do you see going forward? Do you see a return to a more normalized capacity and therefore normalized cost across the supply chain? Do you see this as more reflective of the new norm?

I’d say it’s going to be the new norm, perhaps through 2021. We’re already in March. We’re less than six months away from the peak season for a holiday as we move in Q3 and Q4. It’s going to take more time than a few extra months of 2021 to get everything aligned. The other thing I didn’t mention is that the equipment is in the wrong places. You’ve got container ships, trucks, and chassis which are what the containers sit on. There are shortages there, which affects FedEx. It affects your outbound eComm as well. It’s going to take a better part of this year for the additional capacity to be added to our systems, which means I don’t see costs going down from transportation or fulfillment, probably in 2021.

Those reading this are going to be relatively emerging younger entrepreneurial branches. If you’re coaching those teams and founders to make sure that they’re at least well-positioned as they can be to, one, withstand this, and two, they’re able to grow and support their growth. What are some of the things you would encourage them to be thinking through, doing, and planning for?

You mentioned it before. It’s to be laser-focused on your costs. These underlying transportation, freight, and fulfillment operations costs can sneak up on you. For example, if you take trucking costs and freight, a lot of times, you don’t get those invoices until 30 days after they’ve shipped your goods. They can come in late. There are real lagging indicators. They can sneak up on you in terms of your costs. I would say pay extra special attention to your transportation and operations costs because I almost guarantee you, they’ve gone up. Paying attention to costs is the big thing I would be looking at.

I don’t know if there are many advantages to going out there and shopping around. We’ve done that for a few brands. We’re looking for ways to shock the market and see where they were to see their fulfillment costs. We haven’t had a lot of success. As brands, we don’t have the upper-hand. It’s the vendors that do because they’re at capacity. We’re seeing brands struggling to get into co-packers because there’s not a lot of capacity there. We’re seeing brands struggling to get into eCommerce facilities.

If you take that one step further, the consumer price index for groceries for 2020 rose at a 50% clip over what it normally does. Essentially, food prices have gone up dramatically compared to what they normally do year-over-year. While nobody loves to raise their prices, we might want to take a look at that and take some consideration into that because grocery prices have gone up significantly. If you’re struggling with your costs, it will behoove you to take a look at that and see if that’s something your consumers might be able to withstand.

For those of you who are doing a lot of brick-and-mortar business through the larger broadline distributors like the UNFI and KeHE, that takes 90 days to get that done, too. To be looking at it now to the effect that change, you’re talking about it being three months. I would echo that encouragement to understand what your costs are now and then be okay with passing that through. You can always augment that through promotion. If you’re not able to have the fundamentals of your business where you’re absorbing it in a margin that you probably don’t have to begin with, you’re putting yourself in peril. A couple of other questions have come in. One of them is interest around SKU rationalization. Have you seen companies begin to go through that process and cull the herd, so to speak, of their SKUs in order to streamline, simplify, reduce the amount that they’re storing, and dealing with etc.?

It’s 100% and sometimes it’s not always their choice. Retailers have been SKU rationalizing from the middle of the summer with shelf space and trying only to sell their bestsellers. They only want those on the shelf. We have a brand that we’re working with that expanded their product line dramatically and you have it aside here. Their costs went up because they’ve almost tripled the number of flavors they had in their product line. The way they came to that conclusion is because their storage costs had risen so much because they had to hold more inventory. When you’re talking about inventory holding costs going out for storage, shipping, and production, it wasn’t a dramatic increase in costs but they took a cost of goods hit because they added products to their line. The reasoning for them to start culling was to bring their holding costs down in addition to working with their retailers and only working on bestsellers. It’s been a theme.

One of the things I would want to encourage everyone is to simplify. That goes across the number of SKUs you’re offering as it relates to your eComm business and the number of configurations that you’re offering those SKUs in terms of pack-out. If you have three different variety pack sizes, pick your bestseller and go down to one. Now is the time to streamline because I would imagine that the 3PLs reward that. They want to support and do business with those that make it easier for them to execute. What do you see there in terms of that relationship between the supplier and the 3PL in terms of working together to streamline?

Because the warehouses have the upper-hand and they are full, we’re bringing brands into partnerships. I am much more likely to get acceptance from a 3PL if I’ve got three SKUs and it’s a fairly simple configuration rather than bringing in somebody that has 27. They’re looking at that. I’ve seen 3PLs. When we are working with establishing partnerships, we try to provide as much information to the warehouse as possible. We’ve seen them take a step back. If you send them a brand that’s complicated, they’re not looking for that because their business has got tremendously complicated. I’d say even when you’re trying to sell your brand outside to other vendors whether it be your co-packer or facility management, it’s all about keeping it as simple as possible. Brands don’t have the upper-hand now.

I think consumers understand it a little bit more than they used to. They understand the constraints as well. They’re a little bit more educated into the challenges of what’s going on in the supply chain. What else have you seen in terms of some best practices? Anything that you’ve seen in either some of the companies that you’ve worked with either on the provider, 3PL, shipper, or manufacturer side that has been done well that might be good for others to investigate or consider?

If you’re looking at continuing theme about costs, shipping costs have gone up dramatically, both FedEx and UPS. The post office added additional costs over the holidays because of the demand. They’ve also increased costs for 2021. We go back to the whole freight, production, and operations. Those costs can also sneak up on you, so going back and monitoring those closely and looking for ways to be creative with your shipping options. Going back to the rising prices, it’s not something that you need to necessarily. If you’re at $19.99, you don’t have to go to $24.99.

You can be creative with ways that you can do that by limiting your promotions, creating bundles to increase your AOV, and then looking for more creative ways to get your product to your consumer or passing your shipping costs onto your consumers rather than raising your retail price. You can start passing rather than raising your retail price by $5 a unit. If you increased your shipping, they might be charged for $2 to $3 shipping to make up for some of that. Those are the things back best practice-wise. We’ve seen it. It’s getting creative with the way that you’re marketing and distributing your products to not only reduce your costs but to increase the general top-line revenue that you’re bringing to your business.

There’s a $153 billion growth in eCommerce sales in 2020. That’s 44%. How much of it do you think is sticking? This 20%-plus of sales going through eCommerce. How much of it slides back to the more traditional split between brick and mortar in eComm? I know I’m asking a question that is requiring you to foretell the future. In your experience and your gut, what do you see?

There’s a new floor. We’ve probably peaked in Q4. I don’t know if we’re going to continue to see that peak. That is beyond us. We’re not going to dive down to where we were in 2019. I’ll give you an anecdotal. My parents would never have used, and they always were grocery shoppers. I taught them how to use Instacart in 2020. They’re still using Instacart. They were amazed at how convenient that is when they started using it. There’s a story-after-story that bringing this new technology to direct-to-consumer convenience to homes that hadn’t experienced it before. They’re not going to go back. We’re not going to stay at these high levels because people are going to want to go back to in-person shopping. I get it. People are longing for that, but there is a new floor. Do we see a drop at 20%, 30%? Maybe, but it’s going to be ever-growing. It’s not going to go into the negative.

In addition to the providers looking for more real estate and labor, what else are they looking to do in order to be able to scale with this long-term? Are you seeing new technology coming in? What’s changing on the ground, so to speak?

It’s the technology piece of it because there are a few ways to expand your capacity. One of them is to get more space, which is very limited. It’s like I wanted to add more people, but with COVID, warehouses had to scale back the density of employees inside their facilities. Many of them went from a single shift. Let’s say you got 100 employees on the floor. They moved to two shifts running sixteen hours a day with 50 people on each shift. You can add more people and space. The only way you can do that is to get more efficient. That’s where we’re seeing some technology coming into play. Looking at automation and different ways to layout your facility. We’ve been doing warehouse improvement projects. That was part of a decent part of our business pre-COVID, but because most warehouses weren’t allowing outsiders to come into their facilities, that died off. We’re seeing that’s springing back up again, too. We’re doing a lot of warehouse improvement projects. Focus on efficiency and technology is a big part of that.

Are you seeing many 3PL providers firing vendors and calling their own? I heard they’re getting rid of some of the companies that are underperforming or taking up peak slots and pallet positions for nothing more than the storage fees.

Nothing dramatic but going back anecdotally, we did have a brand that launched in 2020 that didn’t necessarily meet the forecast that they had provided to the warehouse. The warehouse called us up and said, “These forecasts weren’t here.” Pricing was based on the forecast that they’d given. We’re in the process of looking at that and renegotiating. There’s an eye on it. We did have one warehouse that’s saying, “You guys don’t make 50% to 75% of what you said you are. What’s going on? You could let us know if this is going to change because we were counting on this business from you and it didn’t necessarily materialize.”

For a relatively small business now, would you recommend that we stick with self-fulfilling longer than normal before we branch out to a 3PL? When is the right time now to make that jump?

It’s dependent on you. Another example, we’re working with a brand that has outgrown its current facility. They’re trying to determine, “Should we go ahead and get a bigger lease for a space that’s double where we are now and make that capital expenditure, time and effort to get a new facility running? Should we look at a 3PL?” We’re running the numbers for them to see what that’s going to end up to be, “What’s their CAPEX and OPEX for a bigger facility. Should you hand that off to a third party?” Suppose you’re thinking about not from a less of an analytical perspective and more in an environmental perspective. In that case, I will lean more towards keeping it in-house because I like having that control now more than I did before.

Brands that we’re able to do that if they could mitigate the COVID restrictions on their own and not have to fight with resources. If you’re going to a 3PL, you’re fighting with reefer for capacity for all the other brands that they have under their roof. It could be a good thing as long as you’re okay with scaling your operations and understanding that running a 1,000 square-foot facility is a lot different than running a 10,000 square-foot. You have to make that commitment to scale your operations and then put the cash towards it.

I’ll give you a couple of examples. We had a brand. Pre-COVID, eComm was 1% of their sales. Post-COVID, eComm was 27% of their sales. At 1% of the sales that they were self-fulfilling, it was no big deal. At 27% of their sales, it’s different and they’re at the precipice of, “What do we do? Do we start doing it?” It’s big enough to them that having a 3PL could take a lot of the burden off of them, but it’s still probably not big enough for a lot of 3PLs to get excited about what the business represents to them. How do you think through what it would take to scale self-fulfillment? What are some of the things that you should consider doing if that’s the route you want to go?

From a numbers perspective, the way we help brands make those decisions or at least provide them the data so they can make an informed decision about it, we do OPEX and CAPEX calculations. If you’re starting up another warehouse, you’ve got to have a decent amount of cash to be able to secure that lease, hire the people, build it out with racking, electrical, and everything you need to do to grow your facility. Providing that to them is the big thing. Sometimes when you see those numbers, the brand may not want to make that investment. The nice thing about moving to a 3PL is that there isn’t any upfront investment besides the cost of moving your inventory to their facilities. It can be very attractive from that perspective if you’d rather spend that capital on growth rather than operations.

The other thing we look at is, “In the brand, the current staff, CEO, founders, current operators, do they want to spend the time and effort? Do they have a predilection towards operations were they like that control, feel like they can be good at it and it becomes a core competency for a specific reason?” Some founders don’t want to deal with that. I don’t blame them. I’ve run warehouses before and built our internal warehousing and supply chains. It is a Herculean effort. It takes a lot of time and money. You have to hire people who are experts at it. There’s a little bit of calculus there from the people who are on board and the founders and owners of the business. Does it need to be a core competency? Many times, not. Now, though, it helps to have that control, but it’s also understanding, “Running 1,000 to 2,000 square feet is so different than running 10,000, 15,000, 20,000 square feet. It’s an exponential curve in terms of difficulty. It’s not linear.” Those are the kinds of things we talk through.

Also, if it can be leveraged as a competitive advantage, there is a lot of that around each person’s unboxing experience. If that’s something for your brand that you want to make sure is part of your competitive advantage, keeping control will give you that potential. When you remove the ability to self-fulfill, you’re going to give up some of the customizations and that needs to be part of that.

Those are some of the intangibles. It’s tough to put a number on that.

If I’m a brand trying to grow my eCommerce business with my 3PL, am I looking for a 3PL that is everything to me? Do I want the same 3PL to do my D2C, B2B eCommerce, and my wholesale pallet-in, pallet-out business? Is that the best design in your experience?

For smaller brands, I would say yes. As you grow, there might be the opportunity to split those. Keeping it simple and having all your inventory with one supplier and one vendor is helpful. You’ve got one place to look. You’ve got one report to pull. You’ve got one invoice every month. You’ve got one team to work with, one set of contacts. It benefits the brands. Especially when you’re smaller, you keep that under one roof. Most of the three deals we work with can do both. Some would rather do eComm over wholesale. We look at the brand and say, “If you’re 90% eComm, 10% wholesale, we’re going to put you with a guy who’s an eCommerce superstar because their wholesale is not a huge part of their business.”

I do like keeping it under one roof. I’d say that there are specific examples where you split it. Sometimes with food and beverage, especially if you have some shelf products and shelf-stable especially in the chilled or frozen category, many times it makes a little more sense to set those up. It’s very dependent on the brand, their growth, and their product lines. It’s not an easy question to answer without diving deeper.

Here’s a question that came in. It’s about being aggravated with the 3PL. You mentioned it’s not a good time to shop around. What do you recommend in terms of working with your 3PL provider and establishing a better relationship with them when you’re struggling with the results you’re getting from them?

I’ve been preaching a lot of patience and understanding because everybody in the supply chain and operations were stressed. Most of the people that we’re working with took a breather in January 2021 and felt like they were caught up. This flood of new business and changes has already hit them towards February 2021. We see that peak head back up. I do understand that there are issues with 3PLs. We see it more than they were used to. It’s not necessarily that they’re bad operators. It’s just that they’re overworked and overloaded. One thing is patience as much as possible. Be specific with them about the issues you’re experiencing and make sure you have a solid communication line. Understand when you have these specific types of problems. Who in your organization do you need to be speaking with? An escalation path, too if you’re not getting the answers that you need.

What we try to do when we’re working with brands that are having problems, we give them a call and lay everything out, “Here’s a very smart agenda for the call. Here are the things we’re going to talk about. Here are the things we’re experiencing that we’re not happy with. Can you guys come back to us with a plan of action to correct these problems?” Sometimes there are assumptions if things aren’t going well as a brand. They must understand that we’re upset about this. Maybe you’re talking with your one point of contact in customer service and that’s not bubbling out to the operations team on the floor. The guys that fulfill your wholesale orders may not even hear the issue. It’s also making sure that the communication path inside your organization gets to the right people. It’s just sometimes, with all that’s going on, you may be telling one person in the org and it’s not getting to the people that can make that change.

We also like to have recurring meetings. If we’re having a problem with a relationship or an operator, it’s not one-and-done. It’s like, “Let’s get 30 minutes on the schedule for the next four weeks. Every Tuesday at noon, let’s all hop on this call together.” What we’re finding now is everybody is so busy. It’s hard to grab their attention. If you’re constantly trying to say, “Can we schedule a call next week and another call the following week?” Get it on the calendar. Get the agenda together. Be specific about what the problems are and then also be cooperative. Many times, it’s not always the 3PLs’ fault. If you had a bunch of inventory that came in that was mislabeled and they’re scrambling to try to fix it and shipping out the wrong items, I’d also take a look at yourself and say, “Am I doing everything I can to make sure that this relationship is a success?” It’s easy to point the finger at the vendor, but it’s a two-way street.

Part of it is managing the consumers’ expectations. This is where we see things as shipping is taking longer. 3PLs are under pressure even to get things picked, packed and shipped in the same time frame. On the website, it’s still saying to consumers, “We’ll ship within 24 hours. You’ll get it next day.” Changing those expectations a bit and managing consumer expectations can sometimes take care of the whole problem by saying, “Due to unprecedented demand, it’s going to be 3 to 5 days before this is shipped.”

Managing expectations with your consumers is also a ton of the problems. I know if I’m ordering online and I see a notice like that, granted, I’m in operation so I understand it. The general consumer because of what’s happening, understand there are going to be delayed. If they’re not told that there’s going to be a delay, then they get a little upset. That also creates this snowball effect with the brand because you get these WISMO calls, “Where is my order?” It overloads your customer service team and then you can’t answer the questions. You get into this snowball effect where people are waiting five days for an answer from your CST. Being upfront with people and posting those things, 99% of the people will understand.

You mentioned that there’s almost no available real estate in LA and everything. Are there regions in the country where there is some more capacity? If I’m starting off or looking to put a new 3PL or put my first 3PL in, should I look at a different region in the country than I ordinarily would? There might be better availability and I might be able to command a slightly better cost arrangement if I look there.

The second-tier cities are options. Salt Lake City is a good example. I’ve seen a big explosion in Las Vegas. They have some excess capacity there, too. Some of the second-tier cities outside of Los Angeles are New York and Atlanta. They have the extra capacity because the people are very similar to what’s happening in general. People are moving. They’re moving from some of the larger cities to some of the smaller cities. That’s what we see too. Maybe taking a look at cities that you don’t think might not be on your first-tier list, they might have some extra capacity. 

One of the things I’ve learned in my years in doing this is don’t be afraid of that. Moving freight when it’s at its densest is when it’s most efficient. It’s okay if that means your co-man may be in LA, but if you can ship to Salt Lake, Vegas, Reno, Sparks, Phoenix, or something along those lines can save more than whatever that additional freight to ship it there would cost you. It’s also important that you have access to a 3PL that can grow with you. What else is going on? In general, you’re looking up and down. Talking to those who are reading here, what should people know about the industry? What should people be thinking through strategically about their business?

A lot of the brands and folks that we know have been so heads down in their business. They’ve been so focused on getting shit done, surviving, filling orders, and doing all of those things. Now, they’re starting to look up and think about process improvement, long-term strategic design, and so forth. As those heads begin to come up and brands start assessing what’s next, what are some of the things that you coach the brands that work with you to begin to explore and think through?

It’s hard, especially now, to get your head out of the day-to-day. It’s one of the things that we try to focus on. I was an operator. I never could get my dedicated hours. I was firefighting all the time. Part of what I think and wanted to do when I started Bluprint was to provide that long-term guidance to internal operators that would come struggling with getting their head out of the day-to-day. What we try to do is look at that long-term strategy. With COVID, being very nimble and designing your operations with flexibility. That’s also been a big theme of ours. The winds are shifting as the months go by and as we’re starting to move out of recovery from COVID. Thinking a little bit more like that. How are consumers going to act differently? How is their taste going to change? How are their spending habits going to change as we start to pull out of recovery? Are we going to get back to “normal?” Probably not fully.

What does that mean to your brand? There’s been a tremendous focus on, for example, health and wellness. Is that going to continue? How is that going to affect your brand as we start to get back to normal? Also, taking a peek at your historical sales. If you were one of the big winners in 2020, you saw a huge spike in demand. Maybe you were a health and wellness brand that’s done well. Be careful with your forecasts. If you grew 150% year-over-year, tempering those expectations a little bit. We want to make sure with brands that we’re not causing a heavy inventory position, where we see demand start to shrink up. You’ve already seen the financial markets’ changes with certain companies as we’re approaching out of COVID or at least a little bit. Thinking a little bit more of their cost recovery in mind, how it’s going to affect you guys and how it’s going affect your product to your consumers and channels. If you can take the time to do that, it’s important.

Every founder should be future-looking all the time and asking those questions. I wrote about this not that long ago, “The job isn’t to try to catch up to the consumer. The job of a founder or an entrepreneur is to leapfrog the consumer and meet them where they’re going.” That’s not easy to do, but that’s time that you need to think it through. A question that came in. You mentioned we’re already in March 2021. We’re not that far off from peak season. As we begin to prepare for peak season, anything that brands should be doing to be well-prepared to execute and give their 3PLs the best fighting chance to execute and meet the consumers’ wants during peak season?

One of the things that hit businesses hard in 2020 was the adjusting time efficiency of inventory. It was like, “Let’s get the inventory light. We’ll be efficient with our holding costs,” and then COVID hit. That blew everything out of the water because the supply chain got all clogged up. That shifted a little bit on the other side now or maybe not in time. Don’t be afraid to hold a little more inventory than you think you might need. Your co-man is having issues. Labor and COVID outbreaks are hitting manufacturing facilities at the Port of Long Beach. Some of the co-manufacturing facilities and ingredients suppliers all over the world were shut down.

We extended our time frames for projects quite a bit in 2020. We’re still counting on that. I would say, leave an extra time. Don’t be afraid to hold a little bit more inventory. We were advising brands to order early and order often because of what we were seeing with the supply chain. I would say, be prepared. We’re not out of the woods yet, by any means. As I talked about it in the first part of our conversation, the supply chain is still very stressed from manufacturing to goods movement. If your peak season is coming up, you’re starting to plan a couple of months ahead of where you would probably do that. Everybody is moving slower because people are bumping up against their own utilization. Order early, order often, and order a little bit more than you think you might need.

I’ll take it a little bit further. Talk to the stakeholders on all sides of your supply chain. Talk to your packaging teams, ingredients suppliers, 3PLS, but talk to your customers or wholesalers. Be as proactive as you possibly can be in your demand planning so that you’re not doing it either JIT or on a wing and a prayer. You don’t want to tie up excess inventory if you don’t need to. Being very planful and very proactive now so that you’re ready to meet those needs. It can be a competitive advantage because if you do those kinds of things. If you plan for it and your competitors don’t, you could be there to save the day. It’s important that you prepare now for that peak season. Have that conversation with your 3PL. Make sure you’re helping them understand and they’re helping you understand what it’s going to look like.

A couple of comments on that, both from the Amazon side and from the 3PL side. I talked to a brand that Amazon had restricted the amount of inventory they can hold in their facilities for months. When they run promotions, they keep selling out. They’re looking at doing their fulfillment and looking into a 3PL. Not that Amazon isn’t performing necessarily from an order management perspective, but they can’t get enough inventory into their warehouses to sell it. That’s one space constraint. I keep talking about that. It’s also the theme here.

We have another brand that’s moving into a 3PL. The 3PL asked them to reserve space ahead of moving into the facility because he was like, “We’re selling space faster so I can work on new leases. I’m going to need you to pay for space that you’re not using now.” We rarely see that. I don’t love doing that at all. Nobody likes paying for things that they don’t need. In this case, this brand has very hefty growth goals. If they don’t have that space reserved and can’t bring in product similar to the Amazon store, they will lose sales. It’s worth it for them to pay the extra money upfront to reserve that space so that they can make sure they can meet their sales demand for storing their products. We see it on multiple fronts with storage shortage.

That also comes back to why it’s important to challenge yourself in your business as to how you simplify. Make sure that you’re not falling on the sword to save SKUs that don’t need to be saved and that you’re simplifying configurations and doing all of those things. Every one of those will be a constraint. Every one of those can become a limiter to being able to execute. Now is the time to say, “How do I follow Pareto’s law and focus on that 20% that delivers 80% of the things that matter and do that as well as I can?” Deal with the others as you see fit.

The 80/20 rule is a simple way to frame your thinking. The simplification piece is huge. It’s hard sometimes for brands to make those decisions because every product is your baby. Every product has the ability to bring in revenue. Going back to the other brand, I mentioned that they tripled their number of flavors that they were offering. They were seeing a degradation in their gross margins because of that. It didn’t have anything to do with the volume of sales. It was just more expensive for them to hold that inventory. It would behoove them to start thinking about bestsellers only. When you cull the herd, it doesn’t necessarily mean you can’t bring those products back at them. You’re not killing them unless they need to be killed. I don’t know. Sometimes that may be the case. It’s always hard for brands that long tail because you put so much time and effort into the development of a product and it’s always hard to let it go. Now is the time to make those tough decisions if you haven’t already.

For so many reasons and we’re just in a different environment. We’re seeing even bigger companies sacrificing many SKUs in the effort.

The Coca-Cola’s of the world, the big boys are doing it left and right. They know what they’re doing. They understand that. They’re less emotional about those decisions. They look at it from purely a dollar and cents perspective, “This product line doesn’t make us money. Are we still doing this?” A lot of the larger brands have already done that.

Let’s have fun here. Let’s say you and I are having this conversation five years from now. What does the landscape look like? What do you see as the global or the bigger trends or changes that are coming?

I’ve got a graph up on my screen of eCommerce growth. It was at 21% of all sales in 2020. It was at 6.4% in 2010. In ten years, we grew from 6% to 20%. I don’t know if we’re going to see that kind of growth from 2020 to 2025. This is a trend that is not going away. Consumer convenience, shipping direct-to-consumer direct to my house is a trend that’s not going to go away. What I think is the question mark there is, “What happens to retailers?” We’ve already seen over the last ten years, only the best of are surviving. From grocery stores, electronics retailers, to sports retailers, only the best are surviving. Aligning yourselves with the number 1 and number 2 players in the retail space, those guys aren’t going away.

The best operators from a retail perspective are still going to be here. Retail stores are not closing their doors forever. They may not be as big as they used to be. They may not be visited as frequently, but they’re still going to be there. This is a very steep trend pushing towards the eComm. It’s not going down. Also, traditional retail will always be there. It’s going to be interesting to see how stores change and how consumer tastes change with shopping. I’m here in Santa Monica. We have a very vibrant promenade where we’re used to anyway, which is full of a lot of big-box retailers and fairly large square-footage stores. They’re going through a whole exercise of, “How do we reinvent this promenade area to shift to consumer shopping trends?” Which are smaller stores and less frequent visits. There is a lot of thinking about that in terms of like, “What is the retail landscape going to look like?” EComm is always going to be growing, but retail isn’t going away. Don’t forget about it.

Retail is going to be a big form of entertainment. There’s going to be a lot more focus put on experiential retail for sure. There’s going to be a consistent push to disintermediate and build a relationship between brand and consumer directly. That’s important. The last mile is going to be interesting. Also, that unboxing experience, the way you’re going to engage with a brand is going to be interesting. Everybody needs to be thinking that through. The other change that I see is brands working on the product portfolio.

For example, beverage companies are now offering stick-pack varieties of their ready-to-drink that are targeted for eCommerce, taking the water and the cold chain out of the process and finding ways. There are going to be bifurcated offerings where brands have built specific products that are amenable and targeted for their eCommerce business. That may look slightly different than those that they’re selling impulse in brick-and-mortar retail. All of those things are important. We’ve done it again. You and I have no problem talking about this shit. How do people get ahold of you and learn more?

We’re Bluprint Partners. It’s BluprintPartners.com. Feel free to reach out.

Thanks for joining me. As always, I appreciate having access to your expertise. I mean it. To all those reading, he is the go-to for me on this stuff. I call him all the time. I appreciate everybody joining this episode.

Thanks, Elliot.

Important Links

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About Mike Gammarino

Mike helps high-growth consumer brands operate at peak performance by building solid operational foundations to handle rapid expansion. He’s taken multiple businesses from inception to millions of dollars in sales and thousands of shipments per month via smart and effective development of logistics, order fulfillment, warehousing, supply chain and inventory control systems.

Mike has been a member of the Los Angeles startup community for over 10 years and loves helping founders turn their products into successful businesses. He also serves as a mentor to Amplify and Mucker Labs, two of LA’s premier startup accelerators. Mike has an Industrial and Systems Engineering degree from Georgia Tech, the #1 ranked IE program in the country for the last 20+ years.

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