And so I am so excited to be talking with him today about scaling your logistics and how to do that in a way that keeps those customers happy and create an incredible customer experience. So, Julian, can you introduce yourself to our guests?

And the he is like a big we because there is no he without the whole we that is all around me that makes it all possible. So it is a phenomenal team. Those of you who are listening may want to look at a Forbes article about FabFitFun. And our founders have talked about the membership base. And to give you a little context, we bill our members four times a year, and our billings happen at once, and when you look at the size of the membership count, you can deduce how many orders we're shipping.

And as it happens, Lori, right now, this very moment, we are hitting your systems. your cartonization systems and your rate shopping systems with hundreds of thousands of orders, right now. And that's happening per hour.

01:36 Julian Van Erlach: Very exciting time.

01:47 Julian Van Erlach: or Christmases.

01:49 Julian Van Erlach: Every kid's dream.

So. Let's say this season. I've been asking everyone on who comes on the show what their favorite comfort food is. If you're going to have one food that you just want on a day that you need a little something. What would that be, Julian?

02:32 Lori Boyer: Oh, in a few hours. Yay. It's coming. You can feel it. Oh, that sounds amazing. So, okay. Fantastic. Now, before we dive into all the questions that I have and that I've compiled actually from some of our community around scaling and how you deal with that logistics, I always ask people to come with a few key takeaways right from the beginning so that if somebody had to leave or they wanted to know what is it that you want them to leave today knowing what would that be?

So, Julian, around this topic of scaling and enhancing the customer experience, what are your key takeaways you would want our audience to remember?

The second is we are looking for choke points, cost centers, and areas of operation that take a lot of time that could throw us out of sync. So we have identified at FabFitFun that the biggest cost centers are number one, shipping, and there are factors that drive it that we'll dive into.

Number two is the scaling of labor. So having to go 8 to 1 temps during our peak seasons and how we make those hires efficiently and bring back trained temps and make that process smooth and productive.

And then the systems, and the systems have a lot to do with what you and I are going to talk about, is having the right systems to solve for minimizing the physical size of the orders that we ship, which minimizes our freight rates, and that gets back to identifying where your costs are, logistics, size is a major factor, and the choke points.

And, you know, we have solved for where our choke points happen that cause us to have over time, for example, and eliminating that over time. So be ahead of the merchandising and marketing initiatives, identify choke points, solve for the high cost areas. And you're going to be very happy.

Those choke points especially have got me really interested. I know that those are a huge challenge for a lot of people. But let's back up a little bit. Tell me a little bit about FabFitFun and kind of where it started to grow. What were kind of some of the biggest logistical challenges you experienced as the company grew rapidly?

So picking those was pretty simple because it was the same combination of SKUs going into an order. We suddenly went to full customization where people could choose what they wanted. Now, we knew that was happening, so we had to redesign our systems to be able to effectively pick infinitely, I wouldn't say infinitely, but millions of variations from what our customers were sending us in terms of order types.

So, we faced at the same time, massively growing order volume, full customization going from no customization, a much larger box. So we more than doubled the physical size of our box, and then COVID was coming, where we knew we were going to have issues with labor and issues with carriers, perhaps not being able to take all of our volume.

So those were some of the significant challenges that we faced. What are we going to do with the size of the box getting much larger? Full customization, volume increases, labor issues, and of course, the COVID pandemic itself.

06:50 Julian Van Erlach: We bought bigger items and back to being tight with a coordinated with merchandising and marketing, we were not advised that the marketing team and merchandising teams would buy bigger items. We actually physically saw ,it by analyzing the purchase orders, which are made seven months in advance.

So we analyze the average skew dimensions and cubic size and very quickly realized as POs were being placed. Without being told, but because we're looking at this data, that things were going to be much bigger, which meant that that would affect warehouse space.

You know, how did you manage that that growing size?

Then thinking through about what is it that could affect the physical size of the orders that we were shipping. Obviously, cartonization logic. Magic IQ. So that's one thing.

Another is we were taking all of our e commerce purchases that members made along with the box and basically putting the box inside a larger box and then picking the ecom items into that larger box. So now, every order that went out that was a box plus ecom items was overboxed, which made it bigger, heavier, cost of the box.

So we devised a, what we call pick-to-kit technology, where we would create a variety of kit box sizes that would fit both the kit items that members bought, the actual box Plus ecom items. So we went from everything being overboxed with ecom to now only 15 percent of the orders that had ecom items had to be overboxed.

So 85 percent of the time we're able to fit them in the right kit box. Huge cost savings. Many, many millions of dollars per quarter. And you couple that with MagicLogic, which is the cartonization software that you have and that we use, which plays Tetris with all those items. MagicLogic. com And when I say all those items, our order is not two or three units like most ecom orders.

It's more like 14 or 15 units. So the Tetris combinations that have to be played is very large and it's a two step process, the box and ecom orders. Which meant that we customized your solution or you customized it for us to be able to solve for it.

09:43 Julian Van Erlach: We anticipated that since at the time we were a single carrier company, FedEx, That the carriers would look for margin and we were a very low cost account, so very good rates, which meant that the margins were better elsewhere.

And FedEx is a great company, but we expected that we would be limited and that our rates would go up. So, we initiated a carrier diversification program. So, we went and basically became direct with many last mile carriers, some national, some regional. So, now we have a fully diversified logistics network, which we zone skip, meaning we have trucks that we floor load, we scan the truck.

And we inducted the carrier nodes all over the country, which gives us the lowest possible rate. So carrier diversification is a critical factor. Knowing that the pandemic was coming, we wanted to be sure that we had a very safe work environment, that we could attract labor. And we're competing in the inland empire of California with every major 3PL, Amazon, Walmart, everybody is here.

So safety, we knew was going to be a big issue. So we thought as we saw what's happening with COVID and we saw China buy masks. We bought hundreds of thousands of masks before anybody else had them in the area. We put bipolar air ionization into the whole warehouse. We spent two million dollars, which is electrons that are in the air that basically neutralize bacteria and viruses in midair, positive and negative electrons are shot by the bipolar technology.

That's throughout the whole warehouse. We negative air pressure instituted toilet seat covers, single serving food, air conditioning systems that empty room air every eight minutes and put it through HEPA filters and ultraviolet lamps. So everything scientifically proven to make it a safer workplace.

And guess what? We had no problems getting temp labor. Against all the competition during COVID because of that.

Like you focused on processes. You focused on people and you also focused on technology. So you didn't, you know, limit yourself to just one area. And get stuck. How, how did you, I guess, identify, I'm assuming these were kind of those choke points you mentioned earlier. How do you identify or do you have tips for people on identifying maybe where they should be looking for areas to improve?

We have many potential choke points. Among them are. Our physical space in the warehouse, we have a medium size facility, 600,000 square feet. And based on our order volume, which you can deduce is hundreds of thousands of orders per day. Based on the order volume we will choke the warehouse physically if orders do not flow very smoothly, sort of like blood through your blood vessels, including trucks coming and trucks going and being loaded fast enough and having enough loaders. So that the docks don't choke the rest of the warehouse from dock on through all the other processes.

So much of it is about identifying where you need to augment capacity to make sure that the flow remains smooth. The other, as you pointed out, is what else can affect. your output like people. So if there's going to be a crisis like COVID, you better be safe. So that the supply of labor, you know, we're, we're afraid of a situation like that, that they feel comfortable coming to us at FabFitFun, that we don't get interrupted, even though we have great technology, great process, but oops, no labor, can't have that.

13:50 Julian Van Erlach: That's right. So to your point, you want to look around at all of the ingredients that make it work.

And it's people, place, process, and then of course we look at the technologies that have an ROI or increase safety so that we can have the labor.

14:21 Julian Van Erlach: In our case, and it's probably generalizable. There are four. One is the physical technology for picking. So how we pick efficiently. And we have a, a pick the light series of assets where the orders move to pickers, not pickers to orders, so that is one efficiency of actual the actual process involved of what you're doing. In our case, it's picking

14:57 Julian Van Erlach: Yeah. It gives us unparalleled picking efficiencies for kitting and for ecom.

15:07 Julian Van Erlach: Second of the four is a WMS, a warehouse management system that gives you the capability to wave orders, sequence orders, have visibility to order status and so forth. The other two critical pieces are cartonization, so that we don't waste space when we ship, and our logistics cost is bigger than our fulfillment cost by a wide margin. That's true for many companies. So, minimizing that is critical, and that's where MagicLogic comes in, in partnership with us.

The third, or the fourth, I should say, is minimizing the actual carrier costs, the freight carrier costs, through rate shopping. And that is what we use your rate shopping platform for, where every order is bid across many different carriers.

So they know the mode of service, location, dimensions, weight of the order, their contracts involved, and the carriers come back with a bid. And what we've done very uniquely in partnership with you is since we zone skip the carriers, we have to add in the cost of that zone skip, which is the truck that we engage to go to FedEx Indianapolis or to OnTrack in New Jersey and so on.

So, not only are we getting the carrier's response for price for that order, we're adding in our own cost. And then we determine the one and each of the carriers is responding by node, not just the carrier as a whole, but every individual node of every carrier is responding with a bid for that order. So it's a very intricate system, but it drives millions in savings per port.

How do customer expectations kind of play into this whole thing? I guess. First, what is your opinion on the current kind of state of customer expectations when it comes to the actual process of receiving their package? And how is that changed?

It's, you know, learning this from other people. Of course you want a reasonable delivery time with expectations set about that delivery. If you have a non commodity product, like we believe the kit box is. Members and customers are willing to wait a little bit longer because we're shipping across the whole country and world from one warehouse, not multiple warehouses across the country. So there's a little bit of extra wait time if it's going to the east, but it's a unique product.

So understand your SLA to the member. When do they want it? What's the expectation? They also want to see that there's efficient packaging, that you're not wasting the material. And harming mother earth from all those things.

They want to see the package in good shape.

And so, yeah, just, you know, the larger you get to me, the more important it is that you make sure that that's, that's fitting.

And members are going to say, well, where is my order? You said you shipped it. But trust us, we shipped it. We really did ship it. So what we're doing now is we're partnering with Aftership and Forkites to provide members live GPS tracking of their orders as they're coming from Chino to whichever carrier node and before they see the carrier induct so that they know it's moving.

So, so smart. Julian love that.

Where is it really? So I think solving for those things goes a long way to the customer experience. And of course the order has to be right. So what you say you shipped should be there, and it shouldn't be damaged.

Sometimes people get, you know, caught in the trap of thinking that I have to have these goods sent immediately because that's the new standard. Everything's two days free shipping. That's not necessarily the case. So depending on the type of things you're shipping, it may be completely different.

So I just, I love that you pointed that out and wanted to make sure that I that I pointed out that you had said that.

21:01 Lori Boyer: Mm. That is awesome. And that's something that if you are a marketing person, you know, make sure you share these things you're doing.

Just say that, hey, by having these longer times, we are able to pass on these, these prices that as we have this shipping, you know, that we're using recyclable materials, let them know that you're doing that. All of those kinds of things really help raise your brand in their eyes. So those are all fantastic things.

How do you balance How do you balance if you know, being financially efficient and cutting costs and keeping things as, as affordable as you can, while also kind of maintaining or maybe even improving that customer experience, how do you find that balance?

Julian Van Erlach: Fortunately for us, it hasn't been an issue of trade off of one goal versus another. We've been able to simultaneously achieve them. So for example, let's take zone skipping, for example, which is a huge savings, but. It saves cost, but it's also quicker because I don't have to wait for a carrier to pick it up, induct it into the network locally, sort it, and then ship it to one of their nodes across the country.

We do it directly from Chino. So it actually saves a day or day and a half of transit time versus a carrier getting it right away, giving a member a scan, but it will take longer than what we do. So we are both quicker to the customer and cheaper to the customer by zone skipping it all ourselves.

And, you know, the same is true with the various other things that we do, such as recycled materials in the packaging and Cube logic, which allows us to ship a smaller order.

So these are all simultaneous wins. And we have not had to face a situation where objectives are at odds with each other either financially or practically. So we've been able to solve those simultaneously.

You know, being more sustainable doesn't mean that you're actually necessarily raising costs. So, so I, that's such a great point. Love that.

In your industry. It seems like that experience is going to be a big giant deal. You know, people are wanting to get your package because it's just an experience in and of itself.

How do you, I guess, do you have any tips on gathering feedback or making sure your you know, making sure that that experience is where it should be?

23:49 Lori Boyer: Oh, Reddit streams. Oh, nice.

We embed quality into those processes, so our quality teams are physically inside the picking assets that we have. They have wireless pads, and they're looking for errors, and they're logging electronically. Is it an item that's mis slotted? Is a picker making mistakes? Is a set of items damaged by someone's knife where they're cutting open a cart and there's a scratch on it.

And we identify that in real time and we are able to correct it in real time. And the end result of that is that the member reported poor experience rate is around 0. 2%. Now, not perfect, but also not bad. So when we look at what members say about my product is wrong, missing or damaged, it's 0. 2 or less.

And a part of that is because quality is embedded in each and every process.

It just seems like you've been really, you know, a bulldog about making sure that quality is there. Anything else that you can think of tips? So you said mentioned constant surveys. Reddit groups, love that. There are so many out on social media talking about exactly your industry.

Absolutely get involved, find out what people are saying. Customer support, I, I assume you have some extensive customer support.

So let's just arbitrarily say that your profit margin is 50%. That means you can offer a credit, a shopping credit, whose retail value is well above the cost of the item that the member found to be damaged or missing. So we find that members will very often choose a larger shopping credit than the value of the product, and therefore they're happier and we save money.

27:03 Julian Van Erlach: And it's their choice.

So, love that you pointed that out. As you're moving into the future, you know, what are, what are you kind of seeing? What are your future plans? Do we get to hear a little bit about growing? What are, what are you moving into?

27:38 Lori Boyer: Okay, I just have to say that's amazing because you obviously have those processes down.

27:42 Lori Boyer: So slick.

Rachel Zoe has a luxury box called Curator. They're our customer. We do some work with Dr. Squatch, the soap company, so the place smells really good, thanks to that. And we're hoping to add some more brands into our network because we're extremely cost effective in both fulfillment and logistics. And we just love to, to, you know, spread what we do well to the benefit of other brands.

Other areas are we will be getting into manufacturing, I believe. So we will be looking at some categories where we can make products that are better and better for the consumer than what's on the market. So we're analyzing a number of areas where we can begin manufacturing product. Some of them might be consumables.

We'll see, but that's also a very exciting area. And then we have a couple portfolios of patents that we're looking to license. And, you know, one of them has to do with logistics, where we think that the platforms like FedEx, Aftership, Narvar, that deal with With orders should start serving digital ads in those platforms because, theoretically, FedEx would know more about our members because they're delivering orders from hundreds of companies to the same person.

So if you mine that data, you should know more about that person than one company knows. And then you can serve very targeted ads in the tracking pages and so on. So we're the only company that has patents in that area. We're looking to license them. So we're working on full space.

29:44 Julian Van Erlach: All of us are looking at as much automation as we can implement for quality, for throughput, efficiency, so that the company can reinvest in serving the customer with product innovation and so on. So, Robotics and warehouse control systems, which are managing multiple technologies and the flow among the technologies is an area that is going to be growing and we're going to be increasingly investing in it so that humans are doing less of that rote work of managing the flow between different kinds of operating assets within a warehouse.

And that automation is doing it, whether we call it AI, which is, I think, evolutionary, and it's gotten to a great point, or something akin to it, but we will be integrating robotics and various other technologies, along with the control systems that manage the work assignments and flows between and across those assets.

I think is going to be a big area. And I also think that last mile logistics innovation is going to continue a pace as companies that are doing the last mile continue to get more and more efficient and the way that they sort and deliver product to the customers.

I'm really excited actually to see. As you know, technology is just going to play a bigger and bigger and bigger role in our industry. Are there any pitfalls or recommendations you have that people should be avoiding or best practices? I guess you recommend as people are growing any any final tips in that area.

From a supply chain point of view, whether it's inbound and sourcing to fulfillment and logistics. So being very attuned to company strategy, attuned to world events that are going to affect you such as the crisis. So I didn't mention, but. Inbound was a problem during the crisis. So there were container backlogs at the Port of LA.

We bypassed those by going to private carriers like Matson, which have their own terminals. So we did not have those inbound problems. We paid a little more, but we had the product.

So being attuned to what's happening outside you that may affect you, attuned to your own strategies and preparing in advance and making sure that the team that you're working with is clear on what their objectives are, that they have the adequate assets to be able to accomplish the objectives that there are measurements that are agreed upon for those goals and that we address anything that can leverage wins and mitigate issues before they become bigger by watching those measurables.

And so I just love that reminder for all of us double check. Sometimes we're doing work just because. Everybody's doing it or because it's on the list, right? So

And it's usually around things that we thought we solved or optimized. So that's, that's the joy of it.

33:44 Julian Van Erlach: Strategically, we knew that the shipping, the volume of the order had to be optimized, the physical size of the order, which pointed to cubing logic. And we did our homework in terms of the offerings that were out there. And what we were looking for is the ability to handle a very complex order, 14, 15 units quickly, because we have to wave product to our floor and willingness to customize with us, such as, you start with a kit box and you have ecomm items some of the time.

And now we have to optimize the size of the kit box and combine the two and now give me the size of the kit box. I should use all those things. I wanted a partner that we felt would be willing to invest in the partnership and the customization, and we felt very comfortable with EasyPost's solution, which is why we chose it. And we're very happy that we did because that's a many, many millions of dollars savings per quarter in just the cartonization.

And then the 2nd piece is the ability to have a multi carrier network and to be able to rate shop orders. So rate shopping is absolutely crucial to be able to do that, where you are connected with the carriers. There are agreements that we have. And it's every node of every carrier, not just our carriers, but they have multiple nodes and each of those nodes is responding.

So that is the other absolutely critical piece to this. Before we make any of our orders, we are cartonizing it virtually. So those orders are not made, they're in the computers.

And we're cartonizing them by hitting your system with all the possible combinations of items, and you're coming back with a package size. And once we have that package size, now we know dimensions, we already know the weight, because we know the weight of the box and the items, now we go to the rate shopping portion.

And all that before an order is even way to the warehouse floor. And now we have the carrier and a tracking number, and now we make the order. So that's the sequence of events that our partnership entails. And it has been extremely productive. In fact, it's central to FabFitFun's success.

35:53 You are such a forward thinking company, so proactive, always ahead of the game, and just really an inspiration to me. So really happy to have you on today.

Any final thoughts or insights you want to share with our listeners? And then I'd also love to know where people could connect with you, if they're wanting to learn more about FabFitFun or just, you know, are you on LinkedIn? Can they follow you?

36:43 Lori Boyer: Couldn't say it any better myself. So thank you everyone for joining us today. As always, we look forward to seeing you next time. Bye bye.