a16z Podcast - a16z Podcast: Where's My Stuff? -- The Lowdown on Logistics and Ops

Episode Date: November 21, 2014

The ease with which we can order anything online masks the tremendous complexity of getting that item to your door in a day or two (or less). Andreessen Horowitz's Jeff Jordan leads a discussion with four experts in ecommerce logistics and operations -- the tough business of getting things from one place to another. The views expressed here are those of the individual AH Capital Management, L.L.C. (“a16z”) personnel quoted and are not the views of a16z or its affiliates. Certain information contained in here has been obtained from third-party sources, including from portfolio companies of funds managed by a16z. While taken from sources believed to be reliable, a16z has not independently verified such information and makes no representations about the enduring accuracy of the information or its appropriateness for a given situation. This content is provided for informational purposes only, and should not be relied upon as legal, business, investment, or tax advice. You should consult your own advisers as to those matters. References to any securities or digital assets are for illustrative purposes only, and do not constitute an investment recommendation or offer to provide investment advisory services. Furthermore, this content is not directed at nor intended for use by any investors or prospective investors, and may not under any circumstances be relied upon when making a decision to invest in any fund managed by a16z. (An offering to invest in an a16z fund will be made only by the private placement memorandum, subscription agreement, and other relevant documentation of any such fund and should be read in their entirety.) Any investments or portfolio companies mentioned, referred to, or described are not representative of all investments in vehicles managed by a16z, and there can be no assurance that the investments will be profitable or that other investments made in the future will have similar characteristics or results. A list of investments made by funds managed by Andreessen Horowitz (excluding investments and certain publicly traded cryptocurrencies/ digital assets for which the issuer has not provided permission for a16z to disclose publicly) is available at https://a16z.com/investments/. Charts and graphs provided within are for informational purposes solely and should not be relied upon when making any investment decision. Past performance is not indicative of future results. The content speaks only as of the date indicated. Any projections, estimates, forecasts, targets, prospects, and/or opinions expressed in these materials are subject to change without notice and may differ or be contrary to opinions expressed by others. Please see https://a16z.com/disclosures for additional important information.

The content here is for informational purposes only, should not be taken as legal business tax or investment advice or be used to evaluate any investment or security and is not directed at any investors or potential investors in any A16Z fund. For more details, please see A16Z.com slash disclosures. Welcome to the A16Z podcast. I'm Michael Copeland. This segment of the pod centers on all things logistics, how packages get from point A to point B, the warehouse in between, the security, the networking, the data, the predictions, the whole balo-wax. Moderating this discussion is Andreessen Horwitt's own Jeff Jordan, and joining him are four experts in the space. Mike Smith, C-O-O from Stitchfix, Lord Duke, who runs Enterprise Supply

Chain at Zazel, Mike Swartz, who's a consultant and a long-time expert in the space, and then finally Dwight Gaston, Chief Delivery Officer at Julep. Jeff Jordan kicks it off, and then Mike Smith comes back with the first response. For each of you, can you spend a little time describing kind of what your business does and why your job is hard? So what unique attributes make it hard? And, Mar, you can pick whatever experience you want to lob in on that one. Yeah.

Okay, yeah. So our business is, again, it's a personalized styling service for women. We use data and analytics to be able to understand a woman's style. And we send them a box of five things that should work for them, and they can try it on. But like highly personal. Highly personalized. There's not been one fix of all the fixes that we've sent out that have been the same. So they're always different.

And it is meant to be able to try it on the comfort of your own home, the context of your own closet, almost like a fitting room, like a personal fitting room. And whatever you keep or whatever you like and you want to buy online, you buy online and you keep. and you send back what you don't want. You get a prepaid envelope to send back what you don't. That doesn't sound hard operationally. No. It's funny that you say that because I think in its form sort of sending stuff out,

getting stuff back and having it be sort of this whole reverse logistics thing and a lot of investors passed on us because they're like, that's a big returns problem. And we're like, returns is part of the model. Everyone has returns. And we just sort of operationalize that and it works for us. There's so much of my job today that seems so less. complicated than the job I had at Walmart because of the range of product that we had at Walmart

from diamonds to ready to assemble furniture to big screen TVs to chimneys we sold chimneys to kayaks I once woke up in the middle of night thinking we were selling yachts and I'm glad we never sold that but there's there is a complexity to the send out get back and making sure that the stuff that comes back is hasn't been like worn out at a party and so we have good quality kind of checks as it's coming back. And then the inventory turns really, really fast. And so you have to have a pretty dynamic warehouse. And I think the other complexity of the model is just managing the growth. It's been crazy growth. We've gone from, I'll give you just the warehouse numbers. When I first started at the company, we did pick pack and ship out of 500 square feet,

which was half of our office. Then two months later, we moved to 1,000 square feet. Then two months after that, we moved to 9,000 square feet, and now we're in 450,000 square feet in two different warehouses. So managing that growth and scale and making sure that, you know, you make really good decisions about when you change your process or think about adding systems into when you're growing that much, and the business is changing as much as it has, I think, has made the job complex and keeps me up at night. Good to hear. So Zazzle. I work at Zazzle and Zazzle is a customized marketplace. So it's a marketplace or a platform where you can put any of the world's content on any of the world's products. So you can imagine taking a picture of your children, putting it on your iPhone case, you know, taking artwork and putting it on a print. And really it's a very dynamic model that has,

A few tiers, it has our makers, which are the outsource partners, as well as our own internal production, which still does a large percentage of our business, balanced out by, so we have the production being made, and then we also have our contributors that are contributing art. And that can be anybody from our large partners, like Disney or Marvel, to individual contributors that are contributing artwork. and they're putting artwork on those different products, right? And so I think the complicated part about my job ends up being, you know, we have everything from a very large organization

that is shipping that product to very small makers that are potentially only shipping a couple items a week. And we want to create really an end-to-end customer experience that is the same for everybody regardless and so that those small makers can use the same logistics model, which really is creating more of kind of a peer-to-peer a logistics system that doesn't really exist

much out in the marketplace today so that a customer or a small maker can ship to a customer and leverage the contracts and the technology of the larger platform and really kind of have this great end-to-end customer experience. So that part is pretty complex, but my returns is easy because customizable market doesn't have much in the way of returns. So that just kind of shows the difference in different types of operations

and complexities and how different they can be. Perfect. What company you want to pick? Well, you know, I can talk in general. I do a lot of problem solving, and I get called into a lot of situations that are challenging, both culturally and just the environment is so different, especially when I go to different countries. And what's counterintuitive is that it's really the soft stuff that's hard. It's not the hard stuff that's hard.

So, you know, figuring out the process and figuring out what needs to get done is actually the easy part of the job. The hard part is getting the buy-in and getting people to recognize for themselves what needs to get done. getting them to acknowledge that there's a problem and then the execution on that and I find over and over again that especially with startup companies that where they tend to fall short and really need a lot of support isn't something that they think they're good at which is execution so I spend a lot of time if I look at the total time spent with a client I spend a fair amount of time building trust and building rapport a little bit of bit of time identifying problems and a lot of time helping them through the soft skills side. Now, execution, buy-in, the organizational change part of it. That hasn't changed since my Amazon days. There's the same issues there. Yep, I bet. But that's probably the biggest challenge that I face. Great. So for me, I think a lot of the current complexity is just the stage we're at. I joined six months ago and before that there was nobody really focused on operations. And

And so the basics just aren't there. So everything's breaking. So just trying to figure out how do we build out our call center and get that, you know, the leadership and structure in place to handle calls appropriately. How do we deal with fulfillment? We were operating out of a small fulfillment center about 11,000 square feet in Seattle. And no systems, it was just really, really struggling. So we made the decision on my second day there to outsource fulfillment. And so now we're shipping out of a third-party fulfillment partner in Columbus.

And so that's a big time suck right now. But longer term, I think what's going to be really fun to really figure out is the supply chain. Because we're generating about 30 products a month. that are brand new. And some of those are just new nail colors, but a lot of those are new other cosmetic products. Which, by the way, is revolutionary in the beauty business. Typically, beauty companies do two sets a year maybe

because they, you know, we need to manufacture it, need to support it with marketing, you know, just so done, you know, it's a beautiful target for digital disruption. Right. So it's a huge part of our model, but we just need to make sure we continue to get it right. And the other challenge with, that is that we have a hard deadline. So every month

we put our new products into our subscription box, and so every month by the middle of the month, we've got half that new product in our warehouse ready to ship out. And so that is just fraught with risk. A lot of nail polish flew first class

before you came. Yes, it did. I'm trying to put it back on the my favorite jewel of challenge is the community is a rabid community. And they've ordered their, you know, they've customized their box at the last minute, and then they just won it three days later. And one thing that happens is nail polish technically is a hazmat, I guess.

And so they found out Dulip was using air to deliver, and they went crazy and stopped them. You know, no, no, no, you can't use air. You have to drive it. And it says all of a sudden all the mavens who are waiting for their product are, you know, it's not getting there in time. because the postmaster general said they can't fly it. It was a disaster. That was day four. As a board member, I found out yesterday.

That's okay. I wouldn't know that. Yeah, so it turns out, you know, first class mail, which is a great way to get things across the country from Seattle at a low cost, at low cost, suddenly was no longer feasible. So we had to ship our next subscription around using our other, low-cost method, which is D.HL Global Mail, which takes up to 10 days to get across the country. So we had this rabid customer base was just up in arms. They actually started a petition

on Change.org demanding that Julep break up with D.HL. So we couldn't get it to get our business to Ohio soon enough. So a lot of you came from fairly large enterprise. and joined your enterprises when they were fairly young. Talk about that adjustment. Yeah, for me, it wasn't that hard. I mean, again, my exit was a little complicated, but most of the things I'd worked on at walmart.com, again, I joined when there were about 100 people.

We had just done $150 million in revenue. I left. It was a lot bigger, but most of what I worked on were small company things, and I just realized after nine years there, and sort of getting, like Mike talks about, getting things done through influence and change management that I had had enough. I really wanted to have more direct impact. The sort of warehouse staff at Walmart.com versus where I was in my

position, there was at least eight layers, and so I was being held accountable to things that would happen in a warehouse that, you know, they didn't even know my name, and I didn't really know their name. And that became more challenging. So it wasn't a big adjustment to go small for me. I took a huge pay cut. That was probably the biggest adjustment that I had done the math and said, I could make it work, and I made it work. But boy, the first couple months of paychecks, I'm a big wine person. And so not being able to buy my wine was a little, they sell it in boxes. I have heard that. My parents still buy it that way. I'm a snobby California. Yeah, yeah. You've gone to health.

But, you know, sort of sitting behind, like I sat right next to our CTO for the first six months. And so if something was breaking in the warehouse operation in the systems, I'm like, Jeff, we've got to get this fixed. And that was so empowering and much better than, you know, trying to get something on the product roadmap at Walmart.com and waiting for six months to a year or longer to actually see it happen. So it wasn't a big adjustment for me. It was pretty easy. Was it a big adjustment for anyone else? I think there was adjustments. I mean, for anybody...

For anybody that has gone to a startup, I mean, you guys all know, it's not all sunshine and unicorns, right? I mean, there's challenges, and I think ironically, the biggest challenge for me was actually what I went looking for, which was creativity. No, granted, I left eBay, I came to Zazzle, and there was only 30-something employees and, you know, a few million in revenue. and it looked a lot more like chaos than creativity to me. So I think that adjustment of being able to, you know, even though I had this kind of mindset and this of big company and working through significant processes that, you know, were well ingrained and a lot of them were holding us back and slowing us down.

But at the same time, I really had to kind of sit back, resist the urge to fix everything and actually kind of really recognize the creativity and build on that. Now, I do think that there's a fine line between creativity and chaos, and I think kind of, you know, managing that line still takes some finesse, but there's, you know, that's a lot bigger now, but we're still kind of heart and soul startup, and I can't say that the chaos is gone from my life. But I definitely have found an ability to kind of eliminate those chaotic elements and kind of photos on the creative side.

Like, Dway, when you first show up small company, there's no team. So how do you go about building a team? And then, you know, particularly, how do you balance the rewarding the people who brought you to the party, you know, the young, aggressive, you know, type versus, you know, bringing in talent from the outside, you know. I think one of the, I was thinking about some of the children. challenges, it kind of goes to with your first question, is the skills and the people that got you there won't get you to the next level, you know, recognizing that. And I think having

conversations with people early is a big part of that challenge, you know, that it takes a certain type of person in the early stages of startup to succeed. But that person, especially if you're on a really high trajectory growth curve, they're not going to be necessarily the same people that take you to the next level and you can risk losing some really good people if you don't talk to them early about how their role is going to change and how they're going to have to go maybe more narrow and deep and not be broad in their responsibilities all they see is i'm losing control i'm losing control and i feel less impactful um so i think people in general is the biggest shock you know um even in the the time that i spent at amazon and kbc we're we're still very

very entrepreneurial early stage kind of companies. They were growing fast. And I underestimated how much time you have to spend recruiting and hiring. You know, I would spend 80% of my day sometimes interviewing and trying to find the right people. And even at Amazon, after my facility was staff, we started, we had a five million square foot expansion in 1999. And I was recruiting for other sites. So I would recruit all day long and then do my job. You know, from like six to midnight, I do my regular job. So I think that was really a big stressful part of it, you know, is putting the time into hiring and finding the right people, making sure you don't lose the good people that are there and helping them understand what their role is going to be going forward and then doing your day job. Yeah.

It sounds like you just walked into a green field. I did. each area, each of the three areas, or I have. And so it wasn't so much that I needed to, you know, build a team from scratch. So that was nice because I've been able to kind of evaluate people. In customer service, the team was so incredibly junior. There was just, there was a clear need to bring somebody in. And the nice part was, everybody loved that. The junior people who are trying to, you know, deal with this, you know, chaotic situation suddenly had this, you know, role model and mentor. So that was, that was great. It was easy decision to bring somebody

in, because it was clearly necessary, and it wasn't disruptive. For the other teams, what I'm trying to do is figure out who should stay, who can take different roles, and then others in the organization have been coming, expressing interest in joining operations. So I'm trying to not make decisions until I kind of suss out kind of what internal candidates there are. So just try not to, you know, change things dramatically by bringing in a bunch of new people because that can cause damage. Ben Horowitz has written a blog that I really like about how

every, in these hypergrowth companies, the job requirements change so fundamentally so quickly that basically everyone in the organization has to almost reapply for their job each year. You know, just it's that dynamic. So that's something that stayed with me for a while. How do you guys define success in your operation? I mean, just what is, what is success? How are you held accountable? How do you hold your teams accountable? Do you want to start it up? Yeah. Go ahead.

I mean, I think an operation. Not everyone doesn't have to answer every question. It's okay. This might be oversimplifying, but in operations, I think it all boils down to either, you know, cost control, doing things faster or doing things at higher quality. And so it's determining for which each area, what are the priorities. I mean, all of those are good, but really deciding which is most important and then figuring out the right metrics. metrics. And just a couple metrics can be really helpful to focus everybody. But for me, it's just setting those and then having everybody really focus on managing those and

dealing with it as we grow. There are trillion metrics. What do you pick? So for us, I think we've got in the call center, we want to measure customer satisfaction and then service level. And those are the two things that are most important. down to efficiency and quality. Right. And then in operations or in fulfillment, it would be on-time shipping and then cost per order to manage that. And then we're still figuring out supply chain.

I get asked this question a lot. And the question usually gets phrases, well, what do they do at Amazon? Or what's Amazon's metric? Or what's best in class in X, Y, and Z? Z. And my response is always the same. It's like, why do you care? Right? So what's really important is, I think the measure of success is, do you understand what's driving your business? Because what's driving yours might be different than what's driving Amazon or another company. Two, is, are you doing better today than you are, than you were yesterday? And three, how aligned are the people in the

organization around these two fundamental questions? One is, what's important? And if you you ask that of everybody in the organization from the founder all the way down to the guy picking and packing the order, you should have alignment. And often you don't when you ask what's important. And two is, how are you doing right now? And if people can't answer those two questions, you can have a lot of chaos. Right? So I define success as do you have alignment and are you doing better each day? And are you taking steps to understand and reduce variation? in each of those metrics. So it's not the mean.

On average, I can have a hand in a bucket of ice and one in a bucket of hot coals. On average, I'm comfortable. You know, that's not the truth. And even well-established companies I work with don't understand variation. They do everything off of means. The only other thing that I'd add

from a metrics perspective is that it's not only what you measure, but when you measure it. So if you're looking at, let's say you're looking at your metrics, monthly and you're a startup. You're moving so quickly that's like driving down the road at 90 miles per hour and only looking in your rearview mirror. You know, you've really got to look at the metrics as current as possible and even start to find metrics that are leading indicators.

You know, so when you're looking at on-time delivery, not just looking at on-time delivery, also looking at backlog, which might tell you what delivery times are going to be in the future and what customer inquiries are going to be in the future so that you can start looking at metrics that actually start to look a little forward and as current as possible, rather than just waiting a month when the damage is already done. I agree with that. What kind of mistakes do you see startups making in the operational front? I mean, what are, you know, pattern recognition says?

Well, Dwight gave up a good one. It's just not focused on it fast enough, I think. I mean, I got lucky in that, you know, Katrina, the founder and sort of the, the, you know, the investor's early stage said, this needs to be a core competency because we're sending stuff out and getting stuff back. And I mean, it's shocking to me now, and I'm very grateful that they sort of hired a COO as employee number four, you know, and that's very early to do that. But I think it's not focusing on it fast enough. And then, you know, there's times, I think, when startups and even bigger companies where you start to lose, like the senior people start to lose

connection with the work that's being done, and I think that's a mistake too. There's got to be ways that you're always staying connected so you understand both on the, like what Mike said, on the softer side, what kind of culture do I have? And are we, you know, do they understand sort of a vision, the purpose of what you're trying to accomplish every day because those jobs are really hard and keeping them motivated to do them and have low turnover is an important part of the job? And I'd say the other part is just like understanding where you have process flaws or productivity, you know, where you're not meeting productivity goals. So you need to stay close to it. And I think there are some leaders that, like, it's not my

problem. Like, it's my, you know, supervisor on the floor is a problem. So I always walk the floor and stay as close to it as I can. We're going to come back to that one. Okay. Other, no, I think it's really important. Other, other common laws? Sure. I think one thing that I've seen is, um, uh, uh, not negotiating. So when you have relationships, there's kind of this with startups because we're moving so fast

is that you get this kind of grab and go philosophy as far as setting up vendors and suppliers and big, huge partners, that you're going to try to get something in place really quickly and put it in place so you can focus on all the bigger issues. And there's a lot of times, you think you're small, you don't have a lot of volume,

there's not a lot of leverage there for negotiation in the first place. But I think what we're missing is the fact that even the biggest partners know that the value of startups in this economy, and they can look years out. So if you just take the time to get the right people in the room and actually kind of talk through your vision, you can ask for what the big guys get, and you'll be surprised. And it doesn't take much time, and you'll get significant payback in terms of margins and customer experience. Set a twice a year meeting with UPS.

and just talk to them about how big you've gotten since the last time you were there. And it is fairly remarkable. Yeah. There's two things, even in early stage startup companies, two things that come to mind. One is really understanding and staying focused on your customer. Who are they? You'd be surprised how often I ask who the customer is and I get 50 different answers. So getting clear about your customers and making sure that everything you're doing is aligned

with their needs. And the second thing that I find quite often is a poor or maybe the wrong attitude about defects and about things that are wrong. People tend to hide them and they get in trouble if defects are present. And they're always there, right? I mean, nobody's perfect. So I think that's a fatal mistake early, is not putting systems in place and metrics and really embracing problems for what they are,

you know, when you drive them down, you don't see them, you can't do anything about them. So I think developing a strong culture or attitude toward making defects public, making them something everyone can center on is a very powerful thing. Yeah, and when defects occur, making sure that the root cause analysis

is not attacking the people involved, it's attacking the process. It's so important to make it safe to raise these mistakes and talk about things. If you fix the root cause, it's about fixing the process. It's not about, you know, somebody making us a mistake. If you have that culture, you can really drive much better improvement. So putting a mirror up, any personal mistakes you've made along the way in the career that you think might be illustrative for people to learn from?

Long list. Yeah, I've got a really direct one. I got on the phone with a customer when I was not in a good place to be. talking to a customer. I was too sort of logical, rational about dealing with what they were asking for and it wasn't good. I mean it almost turned into sort of a big PR issue for

Walmart and so I was glad that this dish fix the opportunity came along? That's you. No, I think yeah, it was a challenging situation and it was you know I just I wasn't trained to hand

an escalated call at that level, and I should have opted out. Yeah. I think over delegating is one mistake I made once, and it was pretty painful. And it relates to understanding as you're growing fast, who's kind of keeping up with the needs of the company and who's falling behind. And we were doing a big expansion in our fulfillment center, Blue Nile, and we needed to buy a second vault. We have these big, very secure vaults that we built.

And long story short, the person I put in charge of that didn't do a lot of research, and the salesperson didn't do a lot of research. And they bought a vault that would have fallen through the floor of our warehouse. And what was the problem with that? We discovered this when the 25 trucks were driving from Colorado with all of the pieces. And after a really ugly negotiation with the vault manufacturer, had it sitting outside our warehouse for six months while they tried to find another buyer. So it was a nice reminder of this huge, expensive mistake we had made.

Which is always good in Seattle. It doesn't rust for anything. I think one of my lessons that come to mind very quickly is, you know, I used to have adversarial relationships with finance, right? And to the point where I'd call them CF knows instead of CFOs. and I learned early on that it's better to involve them early and get them to partner in terms of coming up with what your true costs are and making them part of the solution

rather than somebody that you present to at the end to debate with you. And that was very helpful on a lot of levels because they were more involved. I think we got better results. Yep, absolutely. And it was better for the business. Good. Some companies almost take operations for granted. It's a bit out of sight, out of mind. You know, it just, it happens till it doesn't. And, you know, what are great, what are some mechanisms to try to keep, you know, have the entire company keep at that operational vantage point and, you know, thoughts in mind?

That it's a holistic company that, you know, and not a detached, you know, work still doesn't work. for me two things come to mind uh one is just making sure that at sort of the executive table that you are seen at the same sort of light and peer as like the chief merchant or chief marketing officer a lot of that is like your own leadership style and and how you present how important your group is not in a political self-promoting kind of way but more just how this is impacting the business and why it matters. That's one. And then a very tangible one that I've wanted to do in my old job and have done at Stitch Fix is having customer service agents that are always in headquarters so that people and sit amongst the business so everyone can hear defects and

exceptions and things that aren't working. So that also keeps it front and center. That feedback loop is critical. Yeah. I think I think another thing that has worked for me personally is is having some discussions around a shared metric using something like gross margin, where gross margin isn't owned by one group alone. It's owned by so many. And having all the department heads and key stakeholders in discussions so that marketing, as they're trying to hit their revenue target, they can have that discussion and say,

you know, I want to send out this promotion with this discount. And operations is right there in the room to say, okay, well, this is what that does in terms of capacity. maybe we could talk about using a different product that we have more capacity on, things like that. So you can have those kind of cross discussions in the same room, and they can understand the challenges. And then they get to considering those as they're driving the business, even when they're not in the same room. Yeah, I'm going to echo one of the things Mike said. I think transparency is huge.

And if you look at call centers, a lot of companies look at call centers or contact centers, like they're a cost center. and really call centers don't generate calls they're responding to things that go wrong somewhere else in the company so I think creating transparency there is huge the other thing is finding opportunities even as you get very large for everyone to participate in what goes on in operation

so during holiday peaks making sure that inviting people from the front office that technology people especially invite them into the warehouse invite them into operations. Make sure that your merchandising team, that somebody's there to physically touch and see the products

and how it's coming in from the vendors at least one day a week. Making sure you just kind of keep the doors to your operations open is huge. I know when I was at Amazon, more code got written in the fourth quarter when we would get deployed to the fulfillment centers

than any other time of the year. More things were fixed. So very valuable to keep those. I laugh only because be careful what you asked for and how you implement because I can tell you our CFO is really bad at making ties. So when we do that, we just have to be very careful about what you give them if you're some shots. That's a good point.

I got a good quick story on this point too. So it was a Friday afternoon and one of our chief engineers was in town and he went down to the warehouse and just wanted to kind of pickpack and ship and do some returns. he came to me at like 5.30 that day and was really upset that we had put, you know, these associates through a really bad, very manual returns process. By Saturday, he had an RF gun that he had ordered. By Sunday, he had written code that basically could return, process returns in a system way.

Monday, we rolled it to the whole warehouse. At that point, we only had probably eight people working returns. But when you get that level of engagement, you actually get to see it. There's huge returns. And he just thought I was the worst operator ever for letting them go through that for even, you know, for six weeks. And there was just huge dividends for being transparent.

Take it to the floor. Don't take it out of the conference room. Yeah. That's great. And I'll open it up for questions after this last one. Security, privacy, brave new world out there. How does that, what complications does that bring? So at Blue Nile, we had a big, you know, we were a big,

target for fraud, so credit card fraud. And is that kind of part of your, yeah. And so we really had to be world class at that. And there are a lot of tools out there now. People wanted to steal diamonds? They did. Yeah. No, who would have thought? And so for us, I think most companies have a kind of automated, if they have a fraud prevention process, there's an automated screen where orders go through and kind of get a score to see, you know, how risky they are. And we had that set to be very, very sensitive so that almost all of our orders would get kicked into a manual review team. And so we had four to five people who would look at these orders, and they would have, they had some ad hoc tools to kind of do some further research. We would sometimes call

the card holder. Sometimes we would find a different number to call that person to make sure that We didn't call the number that the person who's ordered it gave. We, so it just, we had a whole very, you know, kind of hardcore approach. But I would say that there are a lot of tools out there now, third-party tools that can help you configure the rules and such to match your business needs. Yeah. I have two comments.

I mean, I ran a jewelry vault for many years. and, you know, always had, you know, between $150 and $250 million in inventory. So I used to joke that, you know, my job was to walk around every day thinking like a thief. You know, how would I steal? And even though that was my, those are my times at QVC, even though the company invested millions in surveillance tools and all kinds of seen and unseen cameras, we had metal detectors that would weigh both your ferris and non-ferrous metal

and your body content, and it was programmed into your badge. And even with all those tools, the most effective tools were human beings. Whoa! Programmed into your badge? Yeah. So when you got your access badge, your base metallic weight was programmed into your card. So if you were over or under, you would go through a secondary screen. Wow. And the structure had to be three feet off the ground.

It couldn't be near swinging doors. It was crazy. But even with all that money and proximity alarms on doors, you could. couldn't just hit an exit door. There were delays and all sorts of things. But the most effective security systems were people. Because nothing does a better job of pattern recognition than a human being. So having tools for humans to use and really relying on people systems is probably the best way to secure a facility.

And the other thing I took away from that was not designing your security. security systems and your hooks for the 99% that aren't a problem, right? You don't want to punish 99% of your customers for the 1% that's going to get you. And, you know, kind of keeping that in mind that you don't want to over-engineer it so that you're creating a bad experience for your customer. On the network security side, Blue Nile used to have hackers. We'd hire hackers to come in and try to, you know, get through our systems. And that was a real helpful way to get a good their web business is being started now, marketplaces

or white hat hackers to come and pound on your infrastructure. I mean now is at eBay and PayPal, I mean, hundreds of millions of dollars were running out the door and so it was hand-to-hand combat. It was really entertained. Would that open it up to the floor? Questions?

So I guess there's one trend in e-commerce that is about customization. There's another trend clearly on having your stuff same day. doesn't really go together. We do both. I'm at HP. If we customize your laptop, we'll get it to you tomorrow.

How do you think about that from a customer's perspective? I'm not so worried about the supply chain, but how do you determine customer value? I can give you a choice, but having a customer choose doesn't always necessarily work either. So everybody's looking at me.

I think that we have, so we have that dilemma all the time. You know, the immediate kind of instant gratification of this current on-deprivation of this current on-demand economy, everybody is an Amazon prime customer and is used to getting things next day, two days. And sometimes when you're actually making it,

it takes longer than that. So I think we've done, from a customer perspective, I think we have found that it's a lot about expectation setting. So it's about getting out there and really letting them know, hey, it's so much storytelling at this point. we're really getting to is now is saying, this is coming from this maker. And, you know, it's a small organization in Kenya that is going to be making this shirt. And that is what you're going to

get. So that storytelling is something that really, you know, we've seen this happen in a lot of industries. We've seen this happen in food from the, you know, where people want something that's locally grown and then move to their table. And that kind of story, storytelling, you can really latch onto, and the customer gets that. So if you use that to really explain, here's some of the things that you're getting and where you're getting it from, you can then explain the extended time of customization a little bit better. But at the same time, so one is setting expectations and explaining it, but then the other

is shortening those times. So we actively, every year and constantly, are working on shortening our lead times for all of our production so that we can actually produce things, most of them within 24 hours, a lot of them same day, and get them, there are a lot of products that we actually do deliver next day at this point. So I think it's striving to do a little bit of both. So HP can say you're manufacturing your computers and small visits. I think it's also creating some visibility into your supply chain and letting them see how it's progressing. They don't want to just wait and have it magically show up on their doorstep if it's going through different phases at appropriate times without overwhelming them.

Yeah, I was going to say, I mean, I think that's the best app and I think sort of setting expectations and turning your supply chain out and showing the customer. I know it sounds crazy. He said Domino's is the best app. Well, it's the best app for this. Yeah, yeah. For sharing it. And we have a, on our product roadmap, we have a Domino's, you know, pizza tracker or Stitch Fix tracker.

Goes wrong with mine, I've told him. Totally good. But I do think it's about setting expectations, and I do think they are misaligned. And I'm not a huge believer in same day. I'm a very contrarian, I feel like on same day. I just, it's hard for me. We did a same-day test. in 2003, 2004, we almost invested in a same day in company way back then.

They had already tested a lot of different products. I don't buy that there's a lot of product demand for same day. I think that Amazon will do same day for grocery because it makes sense on fresh. I believe they'll do next day on everything else. Or you can do Apple and just promise four-week delivery. Yeah, yeah. Yeah, yeah. Yeah, I had a question regarding the leadership style.

Everybody worked on big companies and then you guys moved to the startup environment. How did you change your leadership style in this new environment if you did? Sorry, quick, because I was going to talk about this earlier, so it's top of mind. I had to change a lot because I was managing two folks initially. We were a really small company that were 22 or 23 years old. and I think when they heard the COO of Walmart.com was joining the company they thought that I knew everything

and I had to spend a lot of time telling them and it's hard because it's like I'm telling you that I don't know everything I'm telling you also I'm not an idiot so like there's a balance between saying I want you to challenge me I want you to sort of ask good questions and make sure we're making good decisions

but when we make a decision you need to trust that I know enough that this is the right decision At Walmart, I was used to managing VP-level people that, you know, they challenged me, and that was just the way it was. I had to train and teach really young people how to be challenging in the right way. So it was definitely a style difference. My experience, when you're running big functions at big companies, you actually forget how to be proactive. You are reacting constantly, and the level amount of stimuli you're getting is just keeping the plate spinning is a major accomplishment. You show up a startup, and, you know, it's all about proactive.

You know, and so when I went from PayPal to OpenTable, I was like, hey, someone should run the, you know, the financial planning team should run a model on this. Crickets, you're like, oh, there isn't one. I'm back on Excel. I mean, that's a tough, you know, it's a tough adjustment. You know, at the risk it would sound like a contrarian, I would say my leadership style didn't change.

But, you know, I get this question a lot from guys. Should I be a directive or should I be a collaborative kind of leader? And, you know, I think it's situational. And you have, and maybe in a startup environment, you have to be more directive sometimes than collaborative or vice versa. And I think it's just recognizing when, which approach is most effective. You may have a bias toward one way or another. But, you know, if the house is burning, you don't have time to call a meeting and say,

what does everybody think? Which exit should we use? You've got to get out of the burning building. So, you know, I would say personally, from my own perspective, you know, I've always been very hands-on. I've always gone to where the problems are. I've always tried to communicate, and I'm always direct. You know, if I took, you know, I've played a lot of athletics, and I think I learned a lot from the coaches I had. I never loved my coaches, but I respected them because they always told you if you're doing well quickly,

and they told you if you're doing badly quickly. And if you did something that was going to hurt the team, you heard right away, right? Too often, I think leaders lose that perspective, and they only give that kind of feedback when it's time for the annual appraisal or time for the annual performance review or semi-annual. And I think it's important to do that every single day. When you do this, this is what happens. These are the consequences.

Don't do this. Do more of that. It's pretty basic. I would agree it's situational. For me, it was my concern coming into a company after being somewhere for 15 years was like how do I balance the need to learn before, you know, deciding or recommending things versus the need to get things done. And for me, I quickly realized I was the been there done that guy for customer service and fulfillment. So that was easy to just go. And then I've been more in the question asking mode on the on the other areas. So trying to kind of adjust that way. Yeah. If you look 10 years out, when it comes to supply chain and ops, what do you think is going to be the biggest change that will hit your functional area? Yeah.

Biggest change. I think everything is changing right now. That's what's so exciting about supply chain and operations right now is that in this kind of on-demand economy, it's a complete blank canvas for new operations and creative operation solutions. I mean, if you think about a lot of the operation solutions, a lot of the methodology was built back in, you know, the 80s and 90s of the mass production retail era.

And we've been kind of working off of that. And so I think that the changes that are happening right now are amazing, you know, from peer to peer logistics to personal shopping, to same-day delivery, to drones. You know, there's just, there's a lot of things that are changing. So I don't know that I can say what I think it's going to be. I just think that what's happening is that from an operations perspective, rather than seeing operations kind of behind the scenes doing the optimization,

we're starting to see operations come out and really drive revenue and be entire business models. And I think it's gearing up to be a major disruption, like kind of the next major disruption, I think, in the e-commerce space, that I don't know that I can nail it down to what the biggest thing is going to be but I think there's going to be a lot of them I think that's why

maybe somebody else has a nail down I think if I knew I wouldn't be sitting here I'd be building it I'd be getting funding for the next big thing I do think what's a trend that you see happening is that smaller startups are starting to

are enabled or being enabled to provide some of the same levels of service that larger more established companies have only been privy to in the past. So, you know, everything from the technologies and material handling systems, having, you know, cloud-based telephone systems, you know, used to have to have a big box in your warehouse. Now you can just subscribe to a service. And I think all those kinds of disruptive technologies are making it easier to provide first-class service without having to have really deep pockets.

So I think that's a trend, which I think is kind of exciting. It's, you know, I think the Amazons of the world are going to have a lot of competition from smaller startups on the service front. I think in physical goods, lead times have to get shorter. So in jewelry and in beauty products, we're just dealing with this old school industry that operates on the model of, you know,

it's going to take six months. And the retailers are all, you know, just trying to act as fast as possible. It just doesn't work. Like, we're trying to disrupt our space, and we're going to be pushing our suppliers to figure out how to get faster and faster. And I imagine others are, too. And I just feel like, you know, the world of an, you know, 18-month product launch cycle just can't maintain itself.

Something's got to break. I think it's going to force companies through that entire supply chain to get more. flexible, to get more nimble, and then they'll, you know, they'll be able to win. I mean, it's interesting. All the three companies up here are all personalized. You know, they're sending out a personalized product, shutterfly is in the house, sending out a personalized product. We're seeing a trend towards not, you know, not towards MassCob's customization,

but the ends of one. You know, more and more business models are being pitched to us are, you know, personalized service to every consumer. And so that has massive operational implications. Shout it out. What legal issues are the biggest pain points right now currently? What legal issues are merging that you know you're like to deal with? I'm maybe the only lawyer.

Patent trolls. If you leave, we'll address the end. Patent trolls are a certain, a pain point. Blue Nile, we dealt with IP, you know, litigation threats. and Jula, we got our first letter, so that's top of mind because it's current. But that just seems like an ongoing problem. Sorry, go. Can you finish with that?

Sorry, a lot of the people marketplace things we work with are running into big labor law. You know, they'll visit a contractor as an employee. You know, we're competing with the union labor force. So that is seeing a lot more of that. Yeah. A little bit more on the infrastructure side. What systems are you using that maybe other companies don't know about, something beyond your ERP or what are you doing to enable your operations pieces

that you think we ought to be looking at? I don't have, we're building it all ourselves. And so we use Zendesk for customer service. But I'd say the tie-ins to Zendesk are very proprietary in terms of like how tickets how we think about tickets related to customer segmentation or how we think about tickets related to holding business owners more accountable to better operations. But it's not that we're so, you know,

it has to be us that builds it. It's just that when we have researched outside parties to talk to us about how they can fit into our model, our model is funky enough and different enough that it doesn't fit. And so we've just sort of said, will listen, but likely have to build our own stuff to run the business the way we want to run it.

And that's really empowering to engineers. One of the challenges we've had in our business is getting in front of engineers because it's a women's fashion company and that's just not where we're getting as much kind of in the front end of the funnel people coming through. But once we show engineers what we're doing,

there's a lot of excitement because of the systems that we're building and also just the data and analytics and how engineers can work with the data science team in a very proprietary and cool way. So it's for us a competitive advantage once we get in front of an engineer building our own stuff.

I'm seeing a lot of that in my companies. There's a lot more is built than bought just because the models are different. You know, Zulity and FAB, it's almost everything. It's a big commitment, though, once you decide to go that route. Now you're saddled with maintaining it, and that's a global issue. You know, finding platforms that handle most of your needs, and resisting, either resisting or going both feet in on owning the code is a big decision.

One more question? Can you talk a little bit about sort of in-season demand planning and sort of who should own that, where you've seen it owned successfully and how that sort of what the interactions are. Thanks. Both Blue Nile and Julep, the demand plan is with

the merchandising team. They're trying to drive the revenue with the product assortment and the promotions and that makes sense to me. And then we couple very tightly with that though on the operation side and we'll take that and do our own translation into

orders, units, calls, and that sort of thing. So, you know, they're closer to what we're going to sell, and then we take it from there. Well, and it's also being responsive, I mean, because the plan is just the plan. And, you know, that's the, that's a long and probably a never-ending battle between the people who do the demand planning and the operators, right? So what you describe is very common. You get a sales plan that's expressed in dollars, and then somebody tries to convert that to orders, and then they may extrapolate that to units, and they may take a monthly sale plan and then try to water it down to a weekly or a daily, or sometimes by shift plan, it's always wrong. By definition, it's always wrong.

So the biggest challenge from an operation standpoint is how do you build enough flexibility into your capacities to handle not just the plan, but both sides of that plan? You know, how do you respond downward so you don't throw a lot of money away? And how do you flex upwards so you don't blow customer service during those periods? Yeah, that's got to be part of it. And also, what we found is that when we've had, like for a while, we asked, we asked the, the planning team on the merchandising side to generate the units and orders. And what we found is they have less sort of skin in the game in terms of that accuracy. And so we wanted to own that because we could make the better estimates and also understand the kind of margin of error better so that we could understand what variability to build in.

Yeah. And depending on the business you're in, you really do have to build a church for Easter Sunday. because you have to be able to handle the worst-case scenarios or blow sales that you'll never get back, possibly lose customers that you'll never recover. So I think from an operation standpoint, staying ahead of that power curve was always a big challenge. A couple of things that. So demand planning at Stitch Fix reports into merchandising, but we do it a little bit differently. It feels right to me, but it's because I went from church, for Easter Sunday and really big peaky season, like a holiday season, to at Stitch Fix.

We try to have quality be the foundation, and the three constraints being quality of inventory, how many stylists can pick the five things after the algorithm runs, and ops capacity, and that drives what we actually do. So essentially, it's a little bit of the tail wagging the dog, where we say by day, by size, and kind of a really cool algorithm, this is how much we can do and still keep quality. across all of those dimensions and the customers come into that now I just left a meeting where you know marketing saying add more capacity we got more demand why can't you do more and we have really tough conversations about sort of demand planning as it relates to keeping quality

because what's great about from an operator's perspective is I tell our two warehouses many weeks out this is how many fixes you're doing and they can operate that very well and that's when when you run it like this, that's where I can see where we have process issues or cost issues. It's harder from my perspective to see how to get a really good process when one day you're shipping $6,000, the next day you ship $12,000, the next day you ship $2,000. I can see it when I get to ship $6,000, three days in a row, because then I can see where we need to improve. So we manage that way. Your models tends towards linear versus... It has. We don't have a C... Yeah, we benefit a lot by having a non, pretty much a non-seasonal business.

Like the shutterfly is non-seasonal, right? Yeah, I'm used to peaky too, and I think it's hard to manage peak and be held accountable to costs and quality, because like Mike said, you have to build the church for you. You either have to invest in technology or have a flexible workforce. Or both. Love to thank our panelists for a very stimulating conversation. Thanks, everybody.

Thank you. Thank you.