The secret ingredient to leading e-commerce supply chains is not technology, but experience. That was one of my takeaways from a visit to an Amazon fulfillment center this past February. You just learn stuff when you’ve been shipping hundreds of millions of packages, or more, year in and year out. And, in Amazon’s case, experience has taught it how to focus on delivering an unparalleled customer experience at a reasonable cost.
That concept was echoed in an interview I had with Jason Murray, an Amazon veteran, and the co-founder of the Seattle-based startup, Shipium with Mac Brown, a Zulily veteran. Last December, GeekWire reported that Shipium landed a $2 million seed round led by PSL Ventures, the venture arm of Pioneer Square Labs.
Among his duties at Amazon, Murray worked on projects related to fulfillment processes at distribution centers, helped develop the Fulfillment By Amazon initiative and from 2010 to 2016 worked on how to redesign Amazon’s supply chain using data science to reduce the cost of shipping for the Prime program, which guaranteed 2 day shipments. “What we found is that the biggest lever in reducing that total cost was to get inventory as close to the customer as possible to reduce the shipping cost,” he recalls. “If we weren’t close to the customer, we had to pay a penalty to fly the shipment. We spend an inordinate amount of time determining how close we had to place inventory, and when we had to split a shipment.”
Murray says that the lessons he learned at Amazon, as well as those Brown learned at Zulily, led to starting up Shipium. Essentially, the “behemoths of ecommerce,” as Shipium refers to them, were founded by entrepreneurs and risk takers and are now training grounds for the next round of entrepreneurs. On its website, Shipium notes that it sometimes seems as if the big guys “are using the dark arts to gain an advantage. But their advantage comes from relatively simple ideas that other companies can adopt.” Of course, they seem simple now because the behemoths spent all those years learning by trial and error.
“Mac and I chose logistics because its what we know and learned,” Murray says. “I came out of school as a computer scientist and knew a lot about pilot programs. When I was at Amazon, the lightbulb went off that this is a fascinating problem, it’s not easy to solve and it has massive cost implication to the business.” Moreover, he adds, “logistics is usually the highest or second highest fulfillment cost behind labor, it’s a black box and its under-served. It just made sense to go after it.”
Shipium’s idea is to provide tools to improve the customer experience and reduce fulfillment costs in the e-commerce channel. “Our observation, and what we’ve been hyper-focused on, is to make the trade-off on optimization – how much is a company willing to pay to provide specific SLA’s and do they want to do that across the board or in a targeted way – and then to improve the way a site communicates relevant information to the costumer,” Murray says.
So, how does it do that? A couple of ways, all through data science and analytics. First, are tools that use analytics to understand the performance of different delivery options. With that, a company can understand in real-time “the fastest delivery date [it can] promise shoppers” based on criteria set by the company. That allows the company to display estimated delivery dates on product detail or cart checkout pages. That can increase cart conversion. Next are tools to automatically pick the fastest and most cost-effective shipping method based on package specifics, carrier contracts and policies and then send the decision to fulfillment partners. Last are supply chain analytics tools to improve customer-centric metrics.
The company has clients now who “are larger in size and have some form of shipping contract through a 3PL that they want to use,” Murray says. As the platform evolves, with more data to analyze and numbers to crunch, he believes the tool will provide information that customers can use to allocate inventory and design their fulfillment networks. “Solving the logistics and fulfillment challenge has multiple variables,” Murray says. “That’s the attraction that keeps us going on this.”