How Amazon's fulfilment services are shaping the way businesses scale-up

Dobell
Dobell
Christian Annesley
Staff writer
BusinessZone
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The challenge of scaling up is there for all ambitious business owners, but it takes different forms in different contexts.  What’s the scale-up challenge for those businesses that ship product?

The way that businesses grow has changed a lot in recent years. For many tech businesses the capability to scale quickly with a global offer has redefined what’s possible – and reshaped the business landscape along the way.

But other growth journeys march to the beat of a different drum. For those that ship product, what’s developing is still transformational, and revolutionised by scalable technologies, but the toolkit is specialist in other ways.

And it’s the scale-up challenge for a business with a product to ship that we are here to explore. Here are three company stories to unpick some key developments of recent times.

Pay-as-you-go fulfilment

For companies that ship product, the landscape is radically different even compared with ten years ago.

Why? Because the back-end technology and systems, and warehousing and logistics to fulfill customer orders are now available as ever-smarter services.

The likes of Amazon have changed the rules by offering a growing stack of critical infrastructure as a service to other businesses, from Amazon Web Services to Fulfillment by Amazon and more.

What does this mean for a company with product to sell? For the specialist travel accessories site Urbane Traveller, set up three-and-a-bit years ago by co-founders Richard and Claire Barrell, it’s been a game-changer.

Barrell says: “In 2016 our business strategy was focused on back-end systems, and fulfilment and inventory management. That’s because we launched in 2013 and we’ve recently outgrown our current set-up.”

In the early days, Barrells says, the business was updating stock on three different platforms and things sometimes got out of sync.

“The potential upshot of that is unhappy customers. So we went about fixing things, deploying a multi-channel ecommerce platform called Channelgrabber to streamline all our marketplaces and synchronise all our stock.”

The related challenge for Barrell and Urbane Traveller is warehousing and shipping, with a growing warehousing need as the number of stock lines grows.

“The solution has been to outsource warehousing and shipping, and to ensure it all ties into Channelgrabber. It’s the only sensible option really, since the alternative would be to borrow tens of thousands to take a lease on a warehouse and to employ staff to run that warehouse. As it is, we can take that looming fixed cost and turn it into an affordable variable cost.

One day Barrell thinks it might make sense to bring warehousing and shipping in-house – but not for some years.

“In the meantime, we can focus on our strength, which is retail curation and solving the problems of a particular customer group we think we understand well.”

FreestyleXtreme’s old-school investments

Urban Traveller’s options for scaling tell one story of change for those shipping product. And it stands in contrast to another journey from a company that started about a decade earlier, the moto and action sports retailer FreestyleXtreme.

There’s no escaping that FreestyleXtreme has a different story in partly because it launched in the noughties.

MD Shaun Loughlin says the company jumped in feet first with selling around the world when it launched online, and it needed to invest the infrastructure to support its ambition.

“We were doing cross-border business before it was called that. When we launched the websites [in 2004] we took a big-bang approach, with sites in eight languages and five currencies. When you look back, it put us miles ahead of the competition in terms of our sophistication and reach.”

What was different for FreestyleXtreme, compared with Urbane Traveller, is that it couldn’t outsource across the board in quite the same way back in 2004.

“The costs of being in so many markets were great then and they are still considerable. We ran the company at a loss for a few years, with some big overheads, but it kept on growing.”

In 2007, FreestyleXtreme turned a corner. “We took on a sophisticated, 15,000 sq ft warehouse – ten times bigger than the space we’d had – and stepped up a gear.”

Loughlin makes the point that, along the way, it simply had to keep investing to be in the game.

“We got into international fulfilment before the likes of Amazon started offering pay-as-you-go options. So we’ve done it all ourselves. Today we do use some software-as-a-service back-end systems but we’ve mostly developed proprietary software for our needs. It’s part of the value we’ve created in the company, even if we might do it differently if we were starting out now.”

FreestyleXtreme

Outsourcing needs trust

Not all outsourcing is a commodity service, it should be added. If the likes of Amazon have partly succeeded through process-driven professionalism, delivering disruptive services that other businesses can buy with confidence to cut risks, it is still crucial for producer-manufacturers and retailers to get to know business partners.

For the beetroot-ketchup startup Foraging Fox,  which is expanding quickly from a standing start, relationships have been crucial so far.

We had some money behind us to carry the proposition forward, but only if we outsourced nearly all functions and kept the core business nice and lean.

One of the co-founders, Desiree Parker, says the company got a lot of early interest from a trade show and she and co-founder Frankie Fox knew then that supplier relationships held the key.

“We knew we couldn’t hand-make the product at scale; we also knew we had a window of opportunity to follow through on interest from potential customers and to prove our seriousness,” she says.

Topping the list of things to do was to find a trusted manufacturer that could scale production of the ketchup for the startup to start fulfiling orders. Alongside that, there were raw ingredients suppliers to find – and the thorny question of trouble-free fulfilment.

“We had some money behind us to carry the proposition forward, but only if we outsourced nearly all functions  and kept the core business nice and lean.”

How do you approach that challenge of finding partners? Parker and Fox did it by looking for recommendations and working out their priorities before talking in detail to the companies they wanted to target.

“You have to trust your instincts and your ability to understand and to challenge those you want to work with,” says Parker. “Part of our success in the past two years is certainly down to the picks we made across the board. We are still using the same partners now, which is a testament to how smoothly things have gone.”

It’s a question of getting out there, too. For example, Parker says they interviewed nine fulfilment houses before making their pick. Clearly there was rigour applied and a willingness to attend to the detail from the off.

The Foraging Fox

An end-to-end challenge

Every distinct market where a product needs to be shipped runs on different terms and has its own dynamics.

Back in a clothing niche, for our final example, is yet another take on the scale-up journey. Dobell is an online retailer of men’s smart clothing. It launched in 2006 in its earliest incarnation, but in the past three years it has really scaled, rebranding the business from MyTuxedo and climbing from a turnover of around £2m in 2013 to £12m in 2016. Another surge in its top-line numbers is expected this year.

Keith White, editor and head of PR at Dobell’s Eastbourne HQ, says the growth experienced by the company has driven changes to back-end systems in parallel with the more public journey of the business and brand. Dobell in recent years has massively expanded its range of products, changing the profile of its whole offer, and moved into new markets overseas.

“We are still on that journey, I should add,” says White. “The business started off selling black-tie dinner suits to students for university balls, and then moved into the wider smart wear market as MyTuxedo. Now we are Dobell we go even further, designing, marketing and selling thousands of styles and items of own-brand smart clothing, shoes and accessories, plus designer label products too.”

As well as the brand and customer service evolution of Dobell, fuelled by thousands of five-star reviews through online review systems, White emphasises that behind the scenes it has had to reinvent itself in short order to keep up.

“The headcount has been growing at 20% a year. We now have over 50 staff and could easily reach 70 by the end of this year,” says White.

Our manufacturing is all in China, so the new centres mean we can ship from there straight to these fulfillment sites for high-volume items.

The skills agenda in-house is, he says, a big part of the challenge.

“The model for the business is that we design our clothing and accessories in-house, so that’s a growing aspect of the business. But the growth in headcount has also created a need to reinvent ourselves and develop processes, which puts pressure on finding new skills or in-demand skills and attracting them to our home in Eastbourne.”

Part of this work is the company’s unavoidable business change agenda, which means recruiting for developing new systems and new management approaches.

“For an SME that requires a change in mindset: these are skills and needs you find in corporates and that corporates expect to recruit. So that’s been a journey for us, but a crucial one.”

On the technical side, the business also needs web developers well versed in Magento to drive its ecommerce offer, and White says that’s another headache.

“Part of the way you approach this stuff is through getting the internal story of the business, and its culture, right. It has become a big focus as that is how you find the talent you need, and how you keep people motivated, productive and happy.”

Future focus, future finance

The scale-up picture White paints is about a company at ease with its evolution: it's moved from a day-to-day, operationally driven small business to one that is far more strategic and more able to plan ahead.

“The two founders of the business, Mike Dobell and Tim Grimaldi, took more control of the business back in 2013, after things had plateaued for a time, and they have been living this transformation ever since, with support from mentors and others in their business networks.

“They have helped everyone see where we are heading and how, at every stage, it is about having the right foundations in place for the next phase of growth. That’s something they have driven by trying hard to anticipate and plan for the company’s needs as we’ve grown.”

Financing at the start of that growth journey was important, says White, with the company taking a loan in 2013 that let it kickstart its scale-up agenda by investing in warehouse software, process change and brand evolution.

“The investment was just enough, in retrospect, to get the business on the right path: to let it start picking off opportunities and growing with confidence.”

What next?

White adds that the next phase of growth includes physical investments in fulfilment hubs in the US, Spain and Germany, for a business from which half of business now originates overseas.

“Our manufacturing is all in China, so the new centres mean we can ship from there straight to these fulfilment sites for high-volume items, making US and European shipping much more effective for many orders.

“That will ease some of the pain we sometimes feel with fulfilment. The other bottleneck I expect us to keep working on is our development team and keeping up with the wish-list of changes. That is something that never stops for an online business like ours.”

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