How to CHOOSE the Right 3PL

Jared Ward: 0:06

what's going on, guys? I'm your host, jared ward, I'm the founder and ceo of luminous and I'm here with our most recent guest for ops unfiltered. His name is jesse kaufman. How's it going, man? Hey, how's it going awesome. This is actually take two of the podcast. We tried to film this last time. It was just too good. Too good. We good. We had to tone it back a little bit. Too energetic Talking about shipping and 3PLs my favorite topic Exactly.

Jared Ward: 0:34

Well, to kick things off, Jesse, we do business with you at Luminous. We got a couple shared customers. Who is ShippingTree and how did you build ShippingT Tree? Why are we talking here?

Jesse Kaufman: 0:43

Yeah, so we're a e-commerce focused but Omnichannel 3PL. I started the business eight years ago and we primarily cater to the mid, to like light enterprise size Shopify merchants.

Jared Ward: 1:00

That's kind of the space we play in. Why Omnichannel? Why is that such a differentiator for you? I think?

Jesse Kaufman: 1:06

it's important for a 3PL to be able to plug and play into a merchant's op stack and tech stack and everything and you need to be able to support merchants wherever they want to sell. You have to be able to support that. A lot of our merchants these days are launching in Target or Sephora or Ulta. A lot of the big box retailers are kind of seeing like the hype and excitement around D2C brands or what were traditionally D2C brands, and how they approach their products and they want them in the stores. So we need to be able to support that.

Jared Ward: 1:40

Doesn't every 3PL claim to beni-channel? It's like every 3pl that started out as a d2c fulfillment center in their garage and grew into a warehouse.

Jesse Kaufman: 1:50

They all say like oh yeah, you're expanding to target, like we got you yeah, we used to say that as well, but there's like, and then we slowly realized, or quickly realized that it's a whole different game. You need a lot of specialized tech and ops people on the floor to do it at like any meaningful scale. What is?

Jared Ward: 2:11

the specialized ops and tech that you have now. That makes you uniquely suited as an omni-channel 3PL.

Jesse Kaufman: 2:18

We've invested a ton into EDI capabilities, so automating as much as that as possible. Most 3PLs could support EDI at like a bare bones level once you like, look at how they're doing things and it still requires like quite a bit of coordination between the 3PL software, the retailers routing, tms, something like SPS or Commerce Hub sitting in the middle. We've invested a ton to consolidate all of that and automate as much of those annoying processes as possible. Our objective is to make logistics easy for merchants, dumb it down, simplify. So that's what we did on the tech side and then on the ops side, you need specialized people on the floor that have a ton of experience preparing these orders to go to the retailers, because chargebacks are a very real thing.

Jesse Kaufman: 3:14

I think Walmart makes a couple billion dollars a year in chargebacks. So retailers love chargebacks. They pretend like they don't, but they do Because it's just free money for them. Oh yeah, so you got to be On the ball with it and and have a team on the on the warehouse floor that like really knows what they're doing.

Jared Ward: 3:34

This is my perspective on a lot of three peels. First off, there's a lot of them. With the emergence of Shopify and Amazon FBM, anybody and their mom could set up a ShipStation account and start fulfilling your stuff for a markup out of their garage. And a lot of people did that and bless them Like that's awesome.

Jesse Kaufman: 3:53

Do your business.

Jared Ward: 3:55

But I think when somebody expands to a retail partner like they actually get cut a PO from Walmart and normally what happens behind those smaller 3PLs behind the scenes is kind of like the brand will say hey, we're going to do this thing called EDI, can you guys handle that? And they're just like they go to their WMS that they're using like Extensive or you know. Ship Hero and they search online like can Ship Hero handle EDI? And it's like, yes, yeah, we got you.

Jared Ward: 4:27

And then they dive into this world where it's like gs1 labels and chargebacks and they don't. They don't even have the faintest idea. Yeah, routing guides that are like that oh yeah, so it sounds like you guys have. You've already been through the years of trauma and trouble and you've built the tech and the infrastructure around all those needs which is special, exactly, yeah, it takes time.

Jesse Kaufman: 4:49

It was a big time and money investment to dial it in and we're still working and adding features every day everybody has shopify to thank for people's expectations of ease of use.

Jared Ward: 5:04

we get get it all the time at Luminous and I'm sure you guys get this all the time because of Amazon, fba and Shopify. Everything is just so easy. You just turn on a listing and things happen. And in the logistics world, especially wholesale EDI, it's just not that easy.

Jesse Kaufman: 5:20

That's why I started building Shipping Tree and why we decided to build our own software eight years ago. There was just nothing that compared to like that web 2.0, sass iphone app type experience that like shopify created for the space, and it was my belief like there needs to be something like that for 3pls. At the time there wasn't much. Yeah, I think I started like a year after ship bob or two years after ship bob. Now you know, ship hero does a great job for those smaller 3pls, like right, provides ideas of use and everything.

Jared Ward: 5:57

So so shipping tree how? How would you explain your custom tech is? Is it mainly in the WMS realm? Is it in like analytics dashboard, like? How would you describe the system?

Jesse Kaufman: 6:11

So there's like the shipping tree facing side of the tech and then the merchant side of the tech, so that's how I kind of delineate it. In the middle of those two sides is an OMS. Essentially, that OMS is the same for our team as it is for the merchants, so we're always like looking at the same thing as the merchants in that respect. Then on the shipping tree side it's connected to WMS our own. It's also WMS agnostic. So we also run Manhattan Active, which is like a tier one enterprise scale.

Jared Ward: 6:47

WMS for some of our merchants.

Jesse Kaufman: 6:50

So it's connected to that as well. We were acquired earlier this year and it's kind of been our philosophy with the group that acquired us that we don't want to be limited by growth, by WMSs. So the OMS is so central to what we do and the service we provide to merchants that we want it to be kind of agnostic, so it connects to anything. And then on the merchant side they have that full OMS, they have reporting and dashboards as well and just a ton of like self-help tools. Yeah, so that they don't have to call us to do basic things or even some like fairly complex things, if you like working at one in the morning and you like managing your orders and whatever, like you could do that and without having to call us or anything you've onboarded so many brands at this point onto your 3PL services.

Jared Ward: 7:45

What do you think now, after all this experience? What are the top two or three things that brands overlook the most when they're choosing their 3PL service?

Jesse Kaufman: 7:55

In terms of evaluating a 3PL yeah, evaluating a 3PL.

Jared Ward: 8:01

What questions do you think they should ask more that they're not asking?

Jesse Kaufman: 8:05

That's a good one. I would ask how are operations on the floor set up? What's the team structure on the people executing the pick and pack and stuff on the floor? That's really important. You want to make sure there's redundancy if people take a floating holiday or they're sick, or something. That's really important. You want to make sure there's redundancy If people take a floating holiday or they're sick or something. There's backup. It's not just going to stop, but also, in that same vein, ask what sort of shifts they run. We run seven days a week out of most of our warehouses. A couple of them might be six days a week, but that's really important for consistency, like if amazon shut down for the weekends they would have like 30 million orders on monday and same thing for us, albeit a way smaller scale, but it's still.

Jesse Kaufman: 8:59

You need that consistent output so that you don't fall behind as a 3PL. So any 3PLs that take the weekend off, it just sets up the next week for headaches. In my opinion. I would try to drill in on like staff in the warehouse and then initial filters, like once you filter through, like the filters you should set to kind of get to your last couple 3PL candidates would be tech stack and locations. So how easy is their tech stack going to integrate with your tech stack?

Jesse Kaufman: 9:36

You don't want headaches there. You want your data available where you want your data and you don't want to be like at the mercy of the 3PL's limitations on where your data's going to be and what format, etc. And then locations there's a lot of talk on Twitter about multi-location and stuff Doesn't matter, Just choose one central location. It depends on the product you're selling and everything. But it matters a lot.

Jared Ward: 10:03

Let's move to a segment now. So this segment is stuff that crappy 3pl say. So if somebody, if somebody doesn't have that redundancy, that you're talking about what? What are some red flat like, what are some things that they'll be saying if it's just like some dude running ship station in his garage, like what is he gonna say when there's no redundancy?

Jesse Kaufman: 10:27

yeah, he'll just say, like we have, I would watch out for like call outs, like zero downtime, yeah, or like like super crazy metrics.

Jared Ward: 10:40

This is a red flag instead of pointing to processes, they're like oh we, we get it out the door, no matter what. There's no, there's zero downtime. It's like me and yeah.

Jesse Kaufman: 10:51

Obviously it depends on the size of your brand, but if you ask for an org chart of the warehouse, essentially, and they can't there we go and they show you something that has three names on it it might be good for your brand, where you're no entrepreneur starts a business to stay at that stage and you don't want to hop around 3PLs, you kind of want to find one that you can be at through exit.

Jesse Kaufman: 11:18

What's a red flag around tech stack, Tech stack if they charge you for a Shopify connection or they kick you to a third party for a Shopify connection. If you're working with a 3PL now that doesn't own their Shopify connection and control that, I think that's a big red flag.

Jared Ward: 11:39

Interesting. Why is that?

Jesse Kaufman: 11:42

Because Shopify, they add features and they make changes quite frequently that are hugely beneficial and we've noticed we use an iPath service for some of our other more obscure integrations where a very small percentage of our merchants use them, but they have Shopify, so we're always looking like whenever Shopify makes an update, we'll kind of look at if they followed the update, because we're just curious and they're always like, depending on what's in the update, one or two cycles behind, whereas like we're able to support things like shopify flow almost like the day it's announced.

Jesse Kaufman: 12:25

We're building that it sounds like you have infrastructure for integrations, upkeep or you know, basic upkeep with these important things yeah, we have an engineering team and we have people assigned pretty much to maintain shopify as like that's their main priority to maintain and improve that shopify integration would you say that this statement is true or false?

Jared Ward: 12:49

if a 3pl is currently strictly on a legacy system say they're running like NetSuite's WMS or Dynamics 365 or Manhattan, and that's their core piece of tech, which is they're known for being really notoriously difficult to integrate into, especially like talk about like a Shopify integration man jamming Shopify into Manhattan or any of those newer channels that frequently get updated it feels like those legacy systems are always lagging behind. What's your take on that? I tend to agree with that. Going into a different topic, everybody thinks that delivery should happen like next day or within two days. How do you guys stay competitive there?

Jesse Kaufman: 13:40

you you've talked about having multiple warehouses yeah, that's the only way to do it. Again, there's a lot of talk on twitter like other 3pls saying they don't personally care if an order gets there in three or four days. I think that's like there's a bit of bias talking there because they might not have the ability, they don't have a bunch of locations and they kind of haven't seen it for themselves the benefits there. But speaking from, like, my own personal experience as a consumer, I like it when stuff gets to me quickly.

Jared Ward: 14:12

I think everybody does yeah Like, why would I?

Jesse Kaufman: 14:15

I'd much rather one or two days than three or four days. It's like not even a question I wouldn't necessarily pay more for one or two days versus three or four days, but that's where having the right 3PL comes in. We work with a brand called Hiyo. Shout out. Hiyo, shout out, evan Shout out Jack.

Jesse Kaufman: 14:41

Great beverage company. Everyone says beverage doesn't work. D2c, we've kind of proved that wrong with them. It could, if done properly. Hiyo e-commerce orders deliver on average under three days and like the median is much closer to two. And they do it quite cheaply as well, and that's because they have inventory spread out. Now it's a much better experience for their customers getting it in one or two days oh yeah versus everything shipping out of a central location.

Jesse Kaufman: 15:08

Hyo, with the way they have it set up with us right now, shipping is cheaper, so they're paying much less for shipping than they would if they were just shipping out of one location, even if it's the most central location in the US, and shipping is faster. So I don't understand people that say multi-location is overrated. It certainly doesn't fit every brand, if you're a big apparel company extremely.

Jared Ward: 15:35

It's extremely hard to do properly, but for consumables and like CPG products, it's kind of like a Magic bullet, honestly from my experience, I feel like the biggest problem with multi-location that 3PLs run into is it's very challenging to and I'm going to hit on why I think your OMS tech is that big differentiator. It's because most 3PLs they don't have the technology to take in all types of order data and then conditionally split it to different locations. It's actually, like it, actually a challenging thing to do. Is that something that ShippingTree does really well?

Jesse Kaufman: 16:19

Yeah, we do it.

Jesse Kaufman: 16:20

I wouldn't say we're not as good as Amazon, we just don't have the density to do it like that All the data our merchants need to make their own decisions, we put that in their hands. And if the goal is to get down to the last unit as a replenishment is coming into the warehouse, that's extremely hard to do. Like you almost have to get lucky, I would say yeah. But if the goal is to run down like the last 5 or 10% of your inventory and the replenishment comes in, that's a much easier threshold to meet and it just depends on the brand and their tech stack that they have. So something like Luminous helps a lot with that. The data we provide helps a lot with that as well.

Jared Ward: 17:12

Very cool that the data we provide helps a lot with that as well. Very cool. Well, isn't there something else to be said? Multi-location with more cost-effective shipping, like the brands will. They won't have to pay so much shipping to zone seven or yeah, it's faster and cheaper.

Jesse Kaufman: 17:26

like back to that payo example, when they were at one warehouse, average shipping zone was zone six and they were kind of lucky with that because they were shipping out of SoCal and most of their customers were in SoCal.

Jared Ward: 17:41

Exactly yeah.

Jesse Kaufman: 17:44

So then they went to two locations we opened up in Ohio with them. I think their average went down to zone five. So not a huge difference. So not a huge difference, but people started, on average, started getting a lot more people Like their East Coast customers, started getting their orders in that three-day range. Then we opened up a third location with them in Dallas and that's when things really their average zone is now zone four.

Jesse Kaufman: 18:12

Very, very cool If you look at rate cards from the carriers. Zone four is like it's cheap doing multi-location properly. It's faster and cheaper. The only drag is splitting the inventory and once you go through the exercises a few times and you kind of set as a brand, you set up that infrastructure with transportation and your co-packers and you kind of dialing the data that you're getting from the 3pl over your erps or whatever you're using. You could set it on autopilot essentially. So you know those first few replenishments might be a little hectic but but once you've got those reps it's not such a big deal anymore.

Jared Ward: 18:58

Sustainability is such a big thing nowadays when it comes to packaging that your 3PLs use. What are you guys doing in that arena?

Jesse Kaufman: 19:07

We don't use any plastics or try to minimize the use of plastics. Any plastics we do use or we're like asked to use, we make sure they're, like those new, biodegradable got it.

Jesse Kaufman: 19:18

I'm not even sure if they're like technically plastic, but they're biodegradable or recycled again, we minimize that as much as possible. So, like our default void fill is craft paper, not those air pillows or bubble wrap or anything like that. We have some beverage brands that sell glass bottles. We use those like pulp trays, so it's like a recyclable paper-like material. And then again, with multi-location, if you think about it, packages are going shorter distances so there's less emissions per package. So multi location actually does help a little bit. And we include carbon offsets automatically with our hostage partner, easy post. We use them as a aggregator for all the carriers we work with. We've made a deal with them that every package we ship we buy carbon offsets for.

Jared Ward: 20:15

Wow, that's very cool. What brand do you think does the sustainable packaging the best? Can you shout out one of your brands that you think has awesome sustainable packaging?

Jesse Kaufman: 20:25

Hyo does a really good job Another one of our brands, Parallel, does a really good job. There's a couple I can't I'm not sure if I I'm allowed to mention that come to mind that do a good job.

Jesse Kaufman: 20:38

Another one that's not a customer that does a really good job is seed oh yeah yeah, yeah I'm I'm friends with someone high up there and I'm always like blown away with their packaging initiatives and stuff. It's pretty cool, like they I don't know if they still do it, but they were importing like packaging materials from Italy and stuff. Wow, going like way above it's extra mile, yeah, yeah.

Jared Ward: 21:06

What about expansion globally? That's kind of also become a hot topic recently. The omni channel conversation has been happening for the past decade. It segues really well into the expansion to global markets. So people wanting to do FBA in different countries, what does ShippingTree do to help brands expand globally and what's your position on that expansion?

Jesse Kaufman: 21:31

So we only have warehouses in the US. We work with a couple of great international carriers, so Passport and Globally being our two providers of choice there. They both have really good solutions and solutions within solutions on how to attack global markets. My personal opinion is the North American market I'm going to throw Canada in there, even though it's tiny but it's easy to ship to. The North American market is so big and the threshold for market saturation in the US is so high that that brands should really focus on that.

Jesse Kaufman: 22:14

In my opinion, until they're at a certain scale and I think it depends what your category is to what that scale might be. If you're an apparel brand and your product for lack of a better word kind of translates to consumers easier internationally than some obscure supplement that might be like in vogue in the us, right your, your threshold for going international might be lower, but still fairly high. Brands are running into growth challenges and they think the fix might be let's start go selling internationally, whereas there's a lot more meat on the bone in the us yeah, so it sounds like it's.

Jared Ward: 22:59

It's really a question of the saturation in your current market that you're selling in and the total market share in the global markets that are less saturated. Like how, like, what does that actually mean in in dollars? Like if you could take over, because if the market share is so small or it's like super saturated in Canada or in Europe, then might not be a good idea. Sounds like there's you got to crunch some numbers.

Jesse Kaufman: 23:23

A lot of our larger brands are are doing that and they'll always start with shipping from the US to the markets they want to go to to kind of test the water test yeah yeah, and that's kind of that's a great way of doing it. If you really want to go to to kind of test the water test, yeah, yeah, and that's kind of that's a great way of doing it. If you really want to get serious about international expansion, you have to have localized inventory.

Jared Ward: 23:44

In my opinion got it okay yeah, well, switching gears a little bit, this is more of a selfish question, so luminous, this is how I would put it. We help brands that use 3PLs, like Shipping Tree, prioritize their own data, particularly more like on the I would say, more the top of the chain data. So how important is it, do you think for brands to have their own system of record and not just see their their 3pl's technology as like, oh, this is, this is my system of record. It is to a certain extent, but do you think it's important?

Jared Ward: 24:24

for brands to prioritize their own data yeah, totally.

Jesse Kaufman: 24:28

I do think it's really important. We always tell merchants once they get to a certain size, like you should probably look into an erp of some sort using shipping tree as, like the source of truth up to you know, 20, 30, 40 million in revenue you might be able to get away with it, but you know, once you're scaling, you're gonna want there's a lot more data points that you're going to want interacting with your shipping, data points that aren't going to come into shipping tree and so you're going to be like splicing that in excel or something. It just doesn't seem very sophisticated. So we always tell merchants at a certain point and I think we've introduced a few to luminous that like, hey, you might benefit from this.

Jared Ward: 25:18

It's funny how we both have come to the same conclusion. I say the exact same thing. So, brands that use 3PLs and that are omni-channel, I break them down into two segments. It's really simple. It's either they purchase and route raw materials to different spots before they go to the 3PL or they don't. And so the brands that we've noticed that, the brands that don't have to do like purchasing of raw materials and stuff and all that complex like external manufacturing through co-manufacturers yeah, the threshold is typically like at 30 or40 million is about where you need your own system. For the brands who are purchasing a lot of raw materials and they're having to do a lot of coordinating before it even gets to the 3PL, it's more like $20 million-ish $15 to $25.

Jesse Kaufman: 26:08

Yeah, I can see that. Yeah, that makes sense.

Jared Ward: 26:11

Switching gears to more of like a personal question. How long have you been CEO for of ShippingTree?

Jesse Kaufman: 26:16

Eight years so technically I'm not no longer CEO. We were acquired earlier this year, still like super involved in the business. Not much has changed.

Jared Ward: 26:25

But yeah, I was CEO for years years when it comes to like e-commerce and brands expanding to wholesale, and like there's so many trends that you've seen what is what's your biggest learning experience as a ceo in a really fast moving world pay more for really good talent.

Jesse Kaufman: 26:51

so if you're hiring for a role and someone comes in that you think is exceptional and he or she is like 10, 20, 30% above what you're willing to spend, I, if you go with versus going with a cheaper candidate, so pay up for good talent. That's kind of like my main advice for people building businesses.

Jared Ward: 27:23

Do you have a positive or a negative experience where you underpaid somebody and it was a disaster, or an experience where you overpaid and say oh wow, this guy just owns his stuff.

Jesse Kaufman: 27:35

Both an experience where you overpaid and say, oh wow, this guy just owns his stuff. Both, yeah, I've had experiences where I didn't hire someone because they wanted more money than I was willing to. Then I thought was appropriate. I'll never know if that person would have been a superstar, to be frank, but I do. I do know that the person I hired instead instead was not a superstar and is no longer. You know they're probably no longer at the company. But if it's a consequential role, especially like early on in your business, don't pinch pennies on hiring talent.

Jared Ward: 28:07

Okay. Well, here's my last question. Say, Jesse is starting a brand today, Desi is starting a brand today. With all the trends happening right now, how would you think about your expansion strategy as a brand? Let's say you launched, you've gotten some product market fit on Shopify You're like a beverage brand or something and you've just broken 5 million. You've proven that like okay, this thing works. What channels are you going to and why Beverage?

Jesse Kaufman: 28:35

I'm going retail and I'm going retail like hard hiring a sales team, probably putting shopify on the back burner a little bit, letting it simmer. I wouldn't spend a ton, put a ton into growth. But yeah, it's beverage, it's all like. Physical retail is where the big money is made, I would say like the generational, life-changing money, and for that you need kind of like, you need really experienced people on the floor in a warehouse preparing retail. You need a really experienced sales team like out there in the wild dialing in your retail experience, in the wild dialing in your retail experience. So you need people like boots on the ground, driving hours every day, store to store, market after market, making sure your product looks good in the store, talking to buyers in the store, talking to people stocking the shelves in the store, getting as many like data touch points as you can. Retail is a big part of the category. That's kind of what you have to do. Something like supplements, so well suited to d2c, I think you go hard, shopify hard.

Jared Ward: 29:44

Amazon again hire really good talent one of the brands that uses us. Obvi uh man, they crush it.

Jesse Kaufman: 29:52

Direct consumer their supplements sell like crazy. I think they're doing pretty well retail also, those guys yeah I think I saw they're. They're in like all the walmart or yeah, a lot of walmarts. I'm not sure if they're nationwide, but what about tiktok shop?

Jared Ward: 30:07

would you? Would you be experimenting there?

Jesse Kaufman: 30:08

yeah, why not until it's like banned. Yeah, until it's banned completely. Like might as well hedge. So yeah, you know I wouldn't be going all in on tiktok, but well, here's the ultimate question would you outsource to a 3pl or not?

Jared Ward: 30:25

would you? Would you get your own warehouse, because you know what goes behind the scenes of 3pls, or you're just like no?

Jesse Kaufman: 30:31

3pl right like off the bat. I don't know source. Yeah, almost like off the bat. I don't know source. Almost right off the bat, yeah.

Jared Ward: 30:36

Okay, and you'd probably use ShippingTree, right?

Jesse Kaufman: 30:40

Yeah, they would give me if I could get good pricing from ShippingTree, I think.

Jared Ward: 30:44

Okay, well, very cool. That's basically all the questions I have. I thought that was a great episode. I think brands watching can really get some good value about the state of the 3PL market. What's a good 3PL, what's a not good 3PL? A lot of practical advice for brands. Anything else that you want to say? Where can people find you and what are you up to now?

Jesse Kaufman: 31:04

So they could find me on Twitter. Email me jesse at shippingtreeco. I'm still very much in the weeds of Shippingtree. They'll find it really, really fun. So I'll be doing that for the time being. So, yeah, if you have any questions, feel free to reach out if you want to talk 3pl strategy or anything. Also would like to shout out a couple of my friends ryan bennett, really good consultant, if you're looking for a 3pl to run a process for you or just analyze your 3pl's data, whatever you want to do anything 3PL shipping related. Ryan Bennett's kind of a wizard there. You can find him on Twitter and LinkedIn pretty easily. And then Matt Hertz as well at Third Person, really good at running processes and kind of matchmaking for brands and 3PLs.

Jared Ward: 31:51

So just want to give those two guys a shout out Awesome. Well, thanks for joining us today, Jesse. We'll see everybody next time.