A few months ago, I attended the Home Delivery World, Click & Collect Show USA, and ETail Show USA joint conference in Atlanta. I’ve written a few Logistics Viewpoints articles from presentations that I attended at the show. The majority of those presentations and articles were geared around store operations, and the role of the store in omni-channel initiatives. From what I’ve written, there were two main camps. Those that believed buy online, pick-up in store was the way to go; and those who thought ship from store was the way to go (at least as the first step of creating an omni-channel experience).
One presentation I saw was a bit different than the others. I watched Tim Lorenz, Vice President of Operations at PetFlow describe how they view the omni-channel customer, and how they have chosen to deliver merchandise to their customers. Founded in 2010, PetFlow is an online store that sells almost 150 brands of pet food, treats and supplies. The biggest difference between PetFlow and the other presentations is that there is no physical store. Everything is shipped from warehouses to the customers’ door.
According to Lorenz, when it comes to pet food delivery, service is key. This means a lot of things. The order needs to be shipped and delivered on-time. The customer needs to feel good about the quality of the product. The customer also needs to comfortable with the return policy, or know that any other issue they have will be resolved in a reasonable manner. For this reason, PetFlow follows the corporate cliché of “the customer is king.” But, for PetFlow, this means looking for the right customer. With that idea in mind, the company overhauled their warehouse operations and policies to make sure they were servicing the right customers for the company.
The first thing the company did was move to primarily temp workers in the warehouse. This gave PetFlow more flexibility to increase order volume based on customer demand. The company would now have the appropriate amount of staff to pick, pack, and ship orders without too much down time or back-ups. Additionally, the company increased productivity 20% through system and process enhancements. One such policy was to shift difficult orders to the day shift.
The biggest policy shift the company made was around their shipping rates and order minimums. PetFlow moved exclusively to shipping with FedEx. By using one carrier, the company was able to streamline the entire process of shipping merchandise. The company began offering free shipping on all orders over $50. At the same time, it set a minimum order value of $17, as this is where the company starts making better margins. This eliminated lost margins on small items, as well as wasted packaging for these same items. The customer receives an alert when they attempt to check-out if they have not reached the $17 minimum order value, as well as if they are close to the free shipping offer. This has created a two-fold effect. First, conversion rates are down 44%. This isn’t always a bad thing. PetFlow now didn’t have to worry about small orders backing up their shipping operations or turning a relatively low (or no) margin. The second effect was on average basket size, which increased 1.6X. The company was now attracting the customers it wanted (profitable ones), and getting them to spend more money. With a flexible workforce in place, PetFlow could now maximize its shipments to ensure customer satisfaction.
The goal for the company was to ensure that all customers would receive their order within three days. When a customer needs pet food, time is of the essence. PetFlow has two distribution centers in the US, one in New Jersey and one in Las Vegas. This allows the company to ship East and West, with zone skipping to the MidWest. The end result was exactly what the company was looking for: all orders could be served in three days.
In conclusion, PetFlow made systematic changes at the warehouse level to improve their profitability and customer satisfaction. By putting minimum order values in place, the company sacrificed conversion rates for profitability, and ensured they reached the right customer. With two distribution centers covering the east and west coasts, and the use of zone skipping to the MidWest, the company was able to reach its goal of servicing every order within three days. These changes have resulted in higher basket sizes, higher customer satisfaction (of actual customers), and the ability to truly deliver to the omni-channel customer.