Padhu Raman of Project Verte shares how to overcome the modern day challenges of running an e-commerce company.
- E-commerce companies are testing different delivery systems, like sending multiple sizes or styles of a product for consumers to evaluate.
- Inventory is the name of the game as it effects location sizes, locations, transportation, material handling methods, etc.
- There is a mindset shift with returns and reverse logistics as your customer’s returns aren’t the final stop of inventory. Think of consumers making returns as suppliers of used goods. How can return value be optimized?
- Having a unified online system can turn your supply chain from predictive to prescriptive because of how you are able to better manage inventory.
- You need to have a seamless view of inventory to be able to manage it for retail stores, from customer returns, in distribution and fulfillment centers and optimize what amount of inventory needs to be where.
- Project Verte connects to all demand channels to consolidate demand for enhanced inventory decision making
- Increased visibility leads to e-commerce providers making the right mixture of kits
- Warehouse automation and robotics are what enable the fastest shipping methods. You can’t get there with traditional methods.
Here is a 2-minute clip from Industrial Insights Podcast with guest Padhu Raman.
Listen to the full episode below and subscribe to the podcast on Apple.
- When e-commerce comes to play – 8:02
- Machine learning and artificial intelligence – 10:13
- What’s the inventory challenge? – 10:44
- Technology inside the warehouse – 15:23
- Predictive analytics – 21:03
- Having all data in a centralized platform – 24:57
- The complexity behind the scene – 28:37
- Having execution capabilities – 32:55
- There are different types of centers – 37:51
- Warehouse automations and robotics – 38:45
- Fast shipping and the delivery process – 39:57
- Thinking on what level of automation do you have – 43:34
- Third party logistics warehouse – 48:31
- Connect with Padmanabhan Raman
- Connect with Justin Smith
Justin Smith: Padhu, how’s it going?
Padhu Raman: I’m doing good. How are you?
Justin Smith: You know, more than we do. We know everything about the market in the buildings, but that’s your specialty is what goes on inside. I find it’s always enlightening to talk with folks in your world, and I’m excited that you came back and had enough time to spend with us to go over a couple of different topics.
Padhu Raman: Absolutely, not a problem. I’m happy to be here and I think the same way. I know what is happening inside the building, but generally about the building and Information about that I’m also learning. It’s mutual, that’s how we learn, collaborate and develop.
Justin Smith: No doubt. Then just background for you, I was remembering you had mentioned Manhattan Associates. What was your experience there? You were there as long as I have been at Lee. I imagine you had a lot of project experience and a lot of client interaction. That’s enough time to really develop an expertise.
Padhu Raman: To give you a background as well. I am currently chief product officer and founding team member at Project Verte. I’ve been in this supply chain, ecommerce retail industry for almost 23 plus years. Prior to Project Verte, I was with Manhattan Associates. I was part of multiple different teams at Manhattan Associates. I started with the implementation of various management solutions at different retailers then went back for a small stint to work on optimization and labor productivity tools. Develop that as part of R&D, keeping the warehouse management integrated.
Justin Smith: Grant, Manhattan Associates is like a consulting practice.
Padhu Raman: It’s a consulting as well as it produces a software for retailers, the backend retailers. There are two parts, one is it produces a product package and then there’s a second part of the consulting practice, which basically takes the product and implements it in all retailers or all distributors and providers and match us to their requirements and then answers it. Then also since it’s exporting supply chain, it also looks at multiple facilities. It’s not within the facility as well, it looks at multiple facility to find the best way to source an order and ship an order in the most cost effective. So it has an auto management view and it provides a full suite to also plan what inventory, where and how to store them. Those are the aspects management focuses on. If you think about the modern e-commerce scenario trend both retailers and an online shopper. When I say retailers, I’m using the traditional brick and mortar retailers who are migrating online and online retailers who always started the digital storefront front, and probably moving a little bit of retailers all require that kind of broader supply chain technology solutions to answering some basic questions. Where do I place my product, what should I procure, and what is the best way to ship a product to a customer because in the traditional retailer’s world, the process is set. I take the product source it from China or any other places. It comes to a certain hub from there it goes to a distribution center from there it goes to a store. The path is optimized and refined. All the retailer’s processes were designed and fine-tuned from that perspective. But coming digital online, the entire supply chain part is not changed. That’s where I think the need was. and that’s my journey at Manhattan. Same thing I’m trying to build as part of a different perspective, making a model for digital oriented because most of the solutions were captured from a retailer’s perspective, the brick and mortar and adapting to them. But from a digital small brands perspective who basically want to be an online presence and not everybody can afford an enterprise solution. At this point, what I’m doing is taking those experiences and then focusing on building enterprise solutions for all. So that’s the aspect that we started and just a quick background about me.
Justin Smith: I feel like now is such an exciting time where enterprise solutions is widely diversified. Never has there been so much power at your fingertips as a business owner, as you’re trying to cobble resources together.
Padhu Raman: Correct.
Justin Smith: I feel like within industrial real estate, it has become more mainstream for people to learn more about e-commerce. For people to start to conceptualize warehouse automation and robotics. Then a cold storage is now something that’s becoming a bigger topic in the development community as we go to shopping online as well for groceries. I feel like that’s where most people hear about the topics, but you had a couple of different topics that really are in the weeds of all of those. Some of these like prescriptive supply chain, recommerce and first mile. We all know last mile, right. That’s finally something that we industrial brokers and developers are cognizant of, but I feel like first mile, unless you’re in logistics, that’s not something you’re exposed to as much. Becoming aware of it as real estate brokers, helping our clients have a more holistic conversation. I feel like those are all great topics that, that you had brought up and would be happy to delve into those as you like.
Padhu Raman: Absolutely, we can do it. I think the idea behind the Project Verte itself, is to cater to the need of make it more relevant which is the current need and how we’re going to help small and medium retailers to grow better. There are new innovation models also from shopping coming up. An example is a business model where people want to send products and you try it. You’re trying your shoe, you’re getting three different sizes of the shoe. You try one and return two. Traditionally retailers thought returns as a pain that they didn’t want to endure but still they had a lot of returns. All the effort was to meet, how do I optimize returns? How do I reduce returns? How do I make my first delivery more streamlined and better? Which is still the case, but there are models itself, which is basically forcing you to do some level of returns. That’s where the recommerce has come into play. Now your customers are becoming your suppliers as well because in the returns model, you’re going to pick up inventory from all your customers and then get it into the digital platform to make it available to sell immediately, because that is your model. Previous returns was always a last step. Like no batch mode, I shipped to you, I get it back and it may go to a return center. Separated distribution centers dedicated returns, the processing would take five days, 10 days. Nobody paid that’s okay because I want it whether it’s salvaged. It was okay to delay that processing. Now with the model changing, that’s our big focus. Companies like ThreadUp and Poshmark, the mini companies who are thriving on that returns business. Now, I’ll optimize where I get products from my suppliers in this case, customers get as fast to an hub from there I get it to a center where I can resell it, and it has to happen faster to get the maximum record profits on that.
Justin Smith: Padhu, soon you’re going to have the customer shipping it to the next customer.
Padhu Raman: That model is still thinking about eBay. So, eBay as a model it’s blending of that models. It was a different context, one customer shipping to another customer, C2C. Now, how do you blend your business to business, business to commerce and customer to customer it all one centralized platform? The key thing is a unified repository because you need to have a visibility to make it a more effective plan. That’s another thing we are doing at Project Verte, we’re going back to your comment about what we are doing is that’s prescriptive supply chain because it’s humanly impossible to make that decision. The system, the technology, all about machine learning, artificial intelligence, this terminology because what it does is it enables the systems to make those decisions. So that you have a very efficient system or platform to monitor these businesses or execute these businesses. That’s that idea behind it.
Justin Smith: The inventory challenge is not just on a new product, now it’s on returns. I could Imagine how one unified platform to keep track of all that is a minimum maybe and then from there you can be empowered to then make better decisions.
[00:09:01] Padhu Raman: Absolutely, right. Inventory is now becoming the concept, I’m not sure if you heard the word, a physical internet, that is something it’s coming up in a very big way. What it fundamentally says is you as a consumer, when you go to Google and you type in a search, you really don’t know where the information is stored. You get the information. Same concept where you really don’t know where the inventory is. All you’re doing is I am going to shop or I’m going to request a product either in the physical store or a digital store. I really don’t have seamless view today. Same concept from a brand perspective aspect. I’m just sending to a centralized platform. It could be Amazon, it could be a Walmart. It could be any platform providers. When I say platform providers both from a commerce as well as technology. They basically store the inventory in many places, the system takes care of it. The system is going to recommend based on a pattern where the customer base is small. and where it is economical to store the inventory. Then if one odd order comes from Nebraska and maybe California and all that area. It might be makes sense to open a distribution center or find a distribution center in Reno, Nevada. Factoring many other aspects tax laws, labor laws, challenges, capacity and you find a new store inventory there based on the need. Say 80% of customers are satisfied now, 20% of customers in the East coast are ordering that product. It might be okay to ship the product from Reno, Nevada, and the other way it must’ve majority of our customers are in East coast. It might make sense to have a facility in Atlanta. So all those decision-making and all those things encapsulated from a brand or an end customer perspective, the providers with their system and their physical network make those decisions, distribute the inventory and at some point you can only pour so much concrete as an own. So you need to work on a cooperation model that you work with network of providers, and then you build an ecosystem of inventory and a platform and manage accordingly.
Justin Smith: I could see your platform be something that you use yourself for your own business, as much as you leverage it for customers can leverage it.
Padhu Raman: Absolutely. This is evolving. If you think about Project Verte as an entity we are an operator. Think about what Verte is, we are an operatable, we have team of members, we’ve been in the retail business, we’ve been in the technology we’ve operated warehouses, we’ve been in the transportation. I come from technology, my CEO comes from retail business, my COO comes from operating 3PLs warehouses and my CFO comes from transportation. My network partner comes from transportation. So, building that ecosystem of stable technology or a robust technology which enables to connect all the warehouses using technology, managed inventory and ability to connect to all the demand channels from an orders perspective. We have an underpinned by an artificial intelligence and blockchain framework to basically enabling the businesses, the small, medium retailers to become smarter and more competitive. So that’s the idea behind Verte and all these things enables them to be fundamentally enabling the experience. Cranking the digital experience and the physical experience. That’s what Project Verte is.
Justin Smith: Not to mention all of the technology that’s taking place inside the warehouse that you don’t see, and that even your customers don’t see or experience. That’s part of where you get to help create the magic, which is the experience within the warehouse that helps make that possible.
Padhu Raman: I do the outer part as well into technology and inside the warehouse.
Justin Smith: Tell me about this topic of sustainability and supply chain and influence of stores. What’s that mean exactly?
Padhu Raman: Sustainability is a challenge today. Everybody wants to focus on sustainability, but it is easier said than done. Generally, what sustainability fundamentally from an overall business perspective is focusing on the environment, focusing on the economic and also focusing on the social factors. Focusing all the three pillars very effectively. From a social perspective, we have to work with a group of companies or enable brands to work with a group of companies who are following all the labor laws or the labor situations, enabling local job options, finding the right product ethical sourcing, and supporting a traceability of integrate. That way, the business where you’re sourcing is traced. The second factor from an environment is how do we reduce the carbon footprint? We can build two ways. We can build a big rattle source with energy efficiency methodology and packaging. So that we have sustainable packages so that we are able to recycle them. That’s one option. Alternatively, you can have in some gigantic warehouses, make it a decent distribution centers and have more micro, smaller centers in urban areas that does a maximum reach of the demand and create an urban spoke model. One big warehouse, you create multiple small medium-sized warehouses at a smaller denser fulfillment center. In such a way that you, replenish through a traditional urban spoke model in an efficient way. One time drive from the DC to the store and from there, you basically deliver through a last mile through maybe a bicycle ride or an efficient electric vehicle. More sustainable practice in so that the carbon footprint is reduced and it’s environmentally friendly as well. Number one, it also ties back to the social because now with retail stores shrinking, the employment shrinking from a retail stores perspective. These stores, which is urban, these fulfillment centers are probably getting converted or dock store concept is providing the employment a different way from a delivery perspective. From a processing perspective. You’re maintaining that social balance of work. The third is making it more economical for both the brands, the customers and the sellers because now what happens if somebody ordered a product, it goes to the DC. From there, it goes to a third-party carrier, it goes through a hub, it goes to 10 legs before it comes to you. So you are paying a huge for shipping, even the product is small. You’re paying a huge shipping cost. It’s not beneficial to the brand or to the end consumer. Now you optimize it such a way that you are reducing the shipping charge, because now you’re consolidating and delivering to urban fulfillment centers. From there you are delivering in a more modernized and sustainable measure. Your transportation cost is coming down for your overall logistics cost is coming down. So you’re getting in better economic benefits as well. That’s all the aspect of sustainability comes in in terms of environment, economic and social and tying them together with these sustainable urban practices, urban fulfillment centers or hands-off fulfillment center, micro fulfillment centers, and also experience. Now with Amazon, everybody wants to have almost two-hour delivery. Okay, fine but not every part needs a two-hour delivery, but that’s the aspect of it. The platform data is critical because of prescriptive supply chain. The system will tell you what products needs to be where, which product is better and might be more applicable for a two-hour delivery and place those products near to the denser location. The products that you can wait for two or three days, people are okay, based on the pattern of data over a period. We have enough data. If you go to retail, they have been doing the business for 10-15 years, they have enough data. They know which product, which one is selling better. It’s just that they’re not able to tie the planning and execution effectively because it’s all different systems. They talk to integration; they don’t exchange seamlessly. Now bring all the data in one centralized platform. It knows exactly what’s happening. Systems prescribes and provides a better data management to make those decisions. That’s what I think the future is changing. The sustainable practices is enabling to be a better supply chain for the planet.
Justin Smith: For you Grant, you hear a lot of people talk about predictive analytics. So, when Padhu says prescriptive, right as opposed to predictive may tell you where you should put your inventory or where you may need to fulfill them. Where prescriptive may provide you with the suggestions. Maybe you can unpack that a little bit Padhu.
Padhu Raman: That’s a good way of doing it. There are four levels, if you think about it. There are four descriptive, diagnostic, predictive and prescriptive. In all these things is if you take from an, a diagnostic or a descriptive perspective all you’re saying is, Hey, what happened, why did that happen, what happened when this happened. Giving you more detailed level of data. Example, an order is being shipped to a fulfillment center, they’re not able to fulfill those inventory damage or inventory shortage. That is more descriptive describing what happened. The diagnostic is why it happened, how do I make it better and then how do I plan it better? So now I’m expecting a shipment tomorrow and then shipment out. How do I plan better? What things happened before? How do I make it seamlessly operational? Making it more what if scenarios running through it and validating it. The next gradation level is the predictive, where I have data. I’m looking at finding the right methodology. I’m putting a strategy and still there’s a human factor in wall in deciding how much to make, where to make, where to put it, and making a more combined decision-making capability with system data and system reporting. The broader aspect of a prescriptive, which basically looks at all the diagnostic data on day-to-day basis. It looks at descriptive of what happened because of historical information as getting built. Looking at what the system is, delivering you to predict what it’s going to happen and how it’s going to happen and then effectively making a decision in a more seamless manner, which is better from all aspects. That’s the prescriptive supply chain because human linking, it’s impossible to think of every scenario and every way to execute it. Let the system make the decision and system drive it. That world is moving towards, and that’s already happening. An example would be most of your emails or Google chain. I would recommend to you. They’re predicting certain based on your factors but there are many other aspects which can automatically say you need this product, and you automatically ship the product to you. If you think about like concept called stitch labs, which is basically they’re building a subscription. They’re looking at your likes, they are looking at the other aspects of what happened and they’re shipping you a package which is more suited for you and this is what you needed.
Grant Labounty : Kind of like a subscription box, knowing where your past likes are, they generate it through that information.
Padhu Raman: I mean, that’s one way, that’s a business model where the company is still probably predicting it. I am going to sell this, but now if I tailored, make it more personalized for you. I need to understand about you completely and then basically delivering that experience to you.
Justin Smith: You’re not doing that for one product and one customer. So that’s a platform that you provide for multiple customers that all have their own different products that are all have their own specific customer.
Padhu Raman: Correct, that’s the biggest aspect of it. So traditionally, each one would have different systems. You think about you have your email, you have your word document, your PDF, they’re all in different places. They all have data, but they’re not talking. If you bring all that information in one centralized platform, right. Let us take a use case. That’s maybe easy to explain you as a customer are shopping at Amazon. Similarly, Justin is also shopping in eBay. Different marketplace, different products. I am shopping in Walmart. Now in a traditional system, these three don’t talk but whole three may be shopping the same product. Different distributors. Different aspects. Now all of these three products probably going to different distributors, and then it’s going to different manufacturing. They might probably say manufacturer, but the manufacturer has no visibility that it has been sold this way. I have all three, but which one is much better? Justin always returns back. That means, which one was the better customer. All those decision points, all those things. If it’s consolidated in one centralized platform, so what we have developed at Verte and we are trying to enhance it and everyday making changes as one. We connect to all the demand channels, 99 plus demand channels or in good video store, we connect and making sure all the orders have captured consolidate in one place. Now, similarly, we also connect to all the inventory systems. It could be our own fulfillment center that you are seeing behind, or it could be a fulfillment centers from anybody, any other cooperative partner that we are working with, or it could be their store. We have other 3PLs we connect so now we have order. Now we have the inventory. Now we have our customer information as well because customers ordering from different demand channels. So now in our unified repository, I have which customer added what product, which demand channel came from. I’m going to orchestrate, where does the customer? Which is a right fulfillment center to fulfill? I fulfill the orders from that. So now when I go to the supplier or manufacturer, or the brand is going to manufacturer a more detailed information to make an effective planning. Now with the combined information, I’m able to really predict almost a procure what to procure, where to distribute, where to store, what price to publish and sometimes it be a kit. An iPhone goes with AirPods as well, or AirPods goes with a battery case. Finding that right mixture of kits based on the customer where they shop, how to ship, how much safety stock I need to plan, when to ship, what product to focus on, providing that information will be predictive to the seller aspect. Other aspects from a brand’s perspective and making it more prescriptive, tell them where to sell, what to sell, when to sell, who to sell, how to sell and which part is profitable. How do you deliver better? Which is sustainable or not? Then making those decisions effectively. What to promote? Making that unified commerce platform is providing both the predictive and prescriptive aspect of it. There’s a good demand prediction. A good demand shaping and able to segment the inventory well, plan the inventory value, plan the orders well, serve the customers well, and then even providing a prescriptive solution from a customer perspective. So all those are encapsulated. I know I told a lot of things, but end of the day, that is the complexity that happens behind the scenes. We simplify and encapsulate from a brand or a customer perspective. Going back to my original aspect, making a simple physical internet. You as a customer, you as a brand, don’t worry about the backend. All you say is, this is your product from brand coming to sell on a platform. You come and say which platform you want to sell. Just tell us that and we will do all those things. Just say there’s a product. We will take care of everything. From a customer perspective, you just going and shopping and getting product delivered.
Justin Smith: That’s awesome. Grant, I think that gives you a good holistic understanding. So think of like the past year and supply shocks. How did you guys experience last year on March 13th and the 90 days thereafter, it seemed like everybody rode this roller coaster. I’m curious there were so many shocks to inventories, to retailers, to shipping and product being out to sea or not being received. So I’m sure you also learned a ton of lessons that probably can help you improve upon the platform.
Padhu Raman: Absolutely, so one biggest thing was it was a challenge but the same time a opportunity as well, because we were already there. Our platform was ready, our systems and the solution was in place. We are able to help retailers who couldn’t even open the store to migrate to be online, digital. So all we did was basically took inventory out of their current facilities because it’s locked down, they cannot ship, or their stores are closed their inventories and so they send the inventory to us. So that we can process and send them, we can onboard them quickly and ship them from here. It was good for us from a business perspective, because we are ready and you’re able to capitalize on that. At the same time, they had challenges because they didn’t know where the inventory was before. We tried to solve the problem by getting them connected because our systems are easily deployable. We can deploy it in our own fulfillment centers, or we can deploy it in their store or in their fulfillment center and connect to them. We are able to collect them easily and onboard them, so their inventory visibility increased that way. They’re able to manage what we could control, where they are sourcing. We give a recommendation because the challenges were, we do what we knew. We really didn’t anticipate especially for certain brands because we are just providing service from a platform, a character different channels and fulfill. Sourcing was handled by them. Now that’s where we learned, we need to provide a better sourcing model to them. A sourcing solution, we developed it for a short period of time and helping them to improve in that area. Helping them with the inbound transportation. You’re more focused on outbound execution and inbound, I would say not that heavy. Right now, we realized that the better experience is not really providing an outboard execution, also focused on inbound sourcing. I’m seeing the capability there both from a process and systems perspective, and that’s a big lesson learned and that’s where we are making lot of next RNB investments into that. That’s where the prescriptive supply chain and the directional predicted supply chain really scaled up. Now we’ll see this as we go along, and I’ll be there to plan for peak and what we learned from last year. Sometimes you need to have a spike. Now, we can nominalize and say, this is your spike and system. You introduce those data points and input points so that we can make a better decision. So that’s a lesson learned from our standpoint, we have not only focused on execution capability or outbound auto processing focus on inbound sourcing and answered that as well.
Justin Smith: Is that in any way related to first mile optimization?
Padhu Raman: First mile although it’s more focused, yes. First mile is two ways. First mile is more from a supplier to the initial about distribution. We are focusing on that and improvising, but if you do a reverse play for returns, your customers are your suppliers.
Justin Smith: Got it, that makes perfect sense. I was thinking almost like from the manufacturer to the distributor because some companies, do their own distribution. That would be something that many may not be as cognizant of as they’ve manufactured first and distributed second, and then maybe not adjusted along the way. Then drones in the warehouse, checking inventory. It’s funny, I hear about that and I see a little bit about it, but I feel like so much of this should already be taken care of with warehouse automation and robotic systems that it seems like that wouldn’t be necessary.
Padhu Raman: It depends on type of laterals that is there. If you are using a traditional rack case, pallet storage then drones make sense because that’s all we can try to go do the inventory capture and they’re coming up innovative technology step. We use a different type of robotics. We use two types of robotics. One call a person to goods and a goods to person. In a goods to person robotics, if you know about Kiva robotics or the bot which Amazon uses, similarly, we use a different robotics.
Justin Smith: You have one in your background, right?
Padhu Raman: Yes, so that robotics has their own confined system. You put the inventory in, system knows that the inventory is, it manages a slotting thing, it knows everything, and it brings the goods to you. So, you really don’t worry about inventory. I mean, you do inventory count, but the drones are not going to help you in that aspect of it. Second, we use a person to good system, which is more like associates walking with the robots, and the robot is telling them to pick. Maybe there’s drones that can be used to cycle count but that’s the next level, because there are also a technology coming where you actually value glass. Like a Google glass or any of the glass, which basically drives and confirms the inventory and accounting. There will be continuous evolution in that. In the traditional shopping experience, you actually go to a physical store. Your physical experience and your digital experience were happening at the same time and the story of different marketing ads and everything. What has changes, not online, your digital experience and a physical experience is separated. Your fulfillment center is, comes exactly in between as the extension of the last mile and extension of your customer order. It has to operate at the highest optimization level, highest efficiency level. Previously the cases in balancing cases out to retail store. You know exact milligrams, you know exactly what time, what date now, the order of the coming changes, the profile changes across different marketplaces, across different channels. You really don’t know when your orders are going to be slowed. Your fulfillment has to have a most efficient way to operate. I’m forced to say the only way is automation. That automation has to be non-conventional. It has to be disruptive. Disruptive, could be robotics. It could be even a conveyor system. It could be a Google glass. It could be a drone that will be continuous evolution in that area. Such a way that you are able to operate your warehouse in a more prescriptive manner. You have all the world of automation. You get a product, and you got an order in machines do all the work and then you’re shipping a product. That doesn’t mean there’s a loss of labor, but the labor has been retrained to do different jobs. It’s urban micro centers. There’ll be different types of centers. So that’s a change. My point to your question on drone, I know I took a long way to answer that because there’s not a simple answer to that. Are drones going to occupy the warehouse? Is that a benefit? I would say yes, when we are there, we don’t know because there’s a many technology coming in. People are going to try different ways. For each technology we need to find the gap eligibility, product process eligibility. Some operations drones might be good. Some operations, you don’t need drones. Some operations, Google glass is good. Some operations, you don’t need Google glass, so based on each process each and the focus is optimization. What optimizes the best way of process and implement that solution.
Justin Smith: Grant when some clients will ask about warehouse automation or robotics and how it applies to them. What their product is, how big it is, their velocity and how many they’re bringing in and out determines so much.
Grant Labounty : What they can actually use in the warehouse.
Justin Smith: For many it’s more about their product and their velocity.
Padhu Raman: It goes back to that experience. I mean the online, if you think about the current metrics said in one of the recent publications, the reason customers choose online is because of fast shipping almost 36%. You’re not going to get a fast shipping, if you have an old, traditional way of picking and processing. It’s impossible to do that. So there has to be continuous improvements in your book when it’s the last mile delivery. It also improves the warehouses because again, connecting the digital experience to the physical experience, your warehouse needs to be the most efficient because that’s how it connects to the delivery and delivery to the customer. The people are buying online is because of the fast shipping and the delivery process, which is an analytics process. You have no choice. You have to make implements.
Justin Smith: Padhu, I’m curious being a real estate broker, we deal with the C level all the time and help them make the warehouse specific decisions and go on searches. I’m curious if you have a role within your team when it comes to opening new warehouses? When it comes to managing existing ones, footprints, the size and different commitments because on one hand I hear a founder and founder is usually someone that has a hand in things. When I think of like IT related sometimes that has to do with the systems, the manage and then usually we’ll find CEO and sometimes we’ll delegate to CFO or to the next rung down when it comes to facility related decisions. So I’m curious what your role or experience has been, just so that we can learn a little bit more about how you think of real estate and how it relates to you and your role within the firm?
Padhu Raman: Sure, it’s a good question. We have our fulfillment center, and we apply the questions you ask when we are sourcing for a word pull from a network partner because we just cannot build continuously fulfillment center. We just need to leave the others in the market and real estate with the market and our partners. First is our platform providing a broader ability to look at views and moment different parameter perspective. First, we understand what the product requirements is, going back to your first aspects, the cold chain coming up. We have a lot of partners who are operating cold chain warehouses. First, we look at, okay, what is the product, what type of product, and which will fit in what type of facility. Does that product feasibility match? Next, we look at a more of an inventory and a facility capacity. Our smaller footprint, it definitely cannot old a lot of quantity of refrigerator. You need a bigger warehouse and if I’m having a refrigerator warehouse it’s so big, it might be not economical to have lots of small or big modules. We just look at it from all other perspective, whether I’m using only for storage. Looking at geo approximately, looking at contracts from our transportation aspect. I’ll give you an example, last year, although we were ready and everything, FedEx just refuse to come and pick up because they’re had it at capacity in this particular Southeast region. They didn’t have capacity so looking at what all the transportation companies serve there, they could move more of a commonsense perspective. The velocity of the orders is going to come, looking at the asset details, looking at the facility, how many shifts they operate, what storage locations they have, what attributes of the product you’re already talking about and then understanding the ability for the warehouse to do a returns process or an e-commerce. If it’s existing facility, what level of automation they have? If I have to send out a new automation, what it would take, but there it’s not automated. What is the challenge of change management and the capital involved there? Also looking at the contracts, because sometimes the contracts could be ten years and then coming almost to the end of eight years. When you’re selecting some facility, we need to think about long-term perspective, how much duration they have, what is the ability they can manage and then checking the buying patterns. From a real estate model perspective, if it is a lot of small products does it make sense to source smaller denser fulfillment centers? If It was a bigger product then I need to go for a broader, bigger fulfillment centers. All those things go into that thought process. What we also have in our software, which tracks everything, capacity, ship, people, location types, zones, product visibility and then they basically look into data. Then we also planned for billing and invoicing. That’s an onboarding process that we evaluate and onboard customers, and then when an order comes in, it finds the best facility to fulfill and the pricing. The pricing as well, what it takes to find the right mix and match. Those are the broader aspects that we evaluate in selecting a partner.
Justin Smith: That makes perfect sense because it fits into the platform that you operate. If you were expanding into the Pacific Northwest as an example is that something where you would expand through a 3PL’s facility or one where you would get your own and then you would operate it for your customers?
Padhu Raman: In the future, our roadmap is to expand whether we go through partners or our own facility and pro-technology. Even if it’s a partner, they are using our technology, so it’s automatically part of the network. It’s simple plug and play and because we have the automatic divine channel connectors, we have the unified commerce platform where we find all the data. We are auto management, who orchestrates and own fulfillment system solutions, WMS. So, the partners can operate our WMS, or we can all integrate to their WMS. It becomes seamless and now it becomes that we have to own the building or with the VR to run it, or somebody can run it. They can put a technology indirectly while still managing it and still have the ability to execute it.
Justin Smith: I’ve found it is so tight right now that people are coming up with different arrangements, where they may go to a third-party logistics warehouse. They may buy instead of lease, or they may try and expand within some of their other landlord’s portfolios. I’ve found for everybody; they have to answer this question for themselves. Not only do we just lease it ourselves, but do we outsource to third parties and how do we get the space we need? It’s difficult out there for a lot of companies so that’s why I asked.
Justin Smith: The last couple of questions that I generally just try and understand how people lease their own warehouses, because usually it can help us understand the challenges people are facing out there because it’s tough to find warehouses of a Class A product. Distribution centers are hard to find the ones that are being built are being committed to sometimes before they’re even completed and so we’ve had to go through some alternative methods for sourcing distribution space in some high barrier to entry markets. I didn’t know if you guys had a challenge there too or if you found more people come to you because they’ve experienced their own challenges.
Padhu Raman: Unfortunately I’ve not personally experienced that because our focus has always been finding warehouses with in our network or already operating warehouses and just finding that mix of our technology and managing that gap. New warehouses I have personally not encounter. I know that’s a challenge. In fact, glancing through your book as well, it’s like 125 million square foot for every billion dollar of e-commerce sales. If you think about it in the future, it’s going to be close to $200 billion in sales, 49.5% up in e-commerce, then multiply by your metric of one 125 million square foot. That is not enough concrete. That’s the reason we said, okay we will make these warehouse spaces as a hubs and then convert the retail space. The JC Penney’s of the world, and many other open spaces into a micro, urban fulfillment centers, create an urban spoke model and then try to manage and build from that.
Justin Smith: Got it. That makes perfect sense and then last question, I guess, is just you guys are in our neighborhood. Are you in Orange County or could you imagine the inland empire being in your future?
Padhu Raman: Yes, I we are going to expand in those areas in future right now, we primarily operate in McDonough and in Atlanta and that area. Part of a network in Mira Loma and in that area so that is next where we will probably explore.
Justin Smith: That’s awesome. I really appreciate you taking the time Padhu. It was great to learn more and I know for Grant we had two minutes while you were logging back in so he was just saying that there were a lot of things that he hadn’t heard of before that he was just starting to learn more about that. You helped him kind of crystallize and clarify a little bit. I imagine a lot of clients and other people listening to that’s not everybody is on the cutting edge of this part of the market. They hear about the headlines that they read in the papers, but they don’t really understand all that goes on behind the scenes. I feel like that was a great illustration.
Padhu Raman: Thank you. I’m happy to help, if any of your clients need any of our help or services. I’m happy to plan that and it’s always a partnership.
Justin Smith: [Cool Padhu, I think that’s it for now.
Padhu Raman: Thank you.
Justin Smith: Thank you, Padhu. Have a great one.
Grant Labounty : Thank you.
Padhu Raman: Bye.
Justin Smith: Bye-bye.