Andrew Stroup (00:06)
This is Leveraged Supply Chains, real operator stories and the math behind faster, more profitable supply chains. I'm Andrew Shroop from Leverage AI, your host. We skip the buzzwords and focus on what actually matters, what doesn't, and what to do next. When does same day actually pencil out without the burn? New research says precise delivery promises seven day carrier services and weekend fulfillment lift conversion and repeat purchases. Yet
most brands still show vague delivery windows. Today, Corey Apirian of DaVinci opens a playbook so we can see the math network, science and the decision logic. Corey, welcome to Leveraged Supply Chains. For folks new to DaVinci, one line on what you do and the problem you solve.
Corey Apirian (00:53)
Thanks, Andrew. Love the relationship we've built over the past few years. Love what you guys are building also and really grateful to be here on the podcast with you, Jam. DaVinci Microfulfillment is a physical location network of micro fulfillment centers, so miniaturized FCs in hyper local areas that manage forward deployed inventory backed by our technology, which meets supply with demand so we can integrate to any channel for a brand and help them understand
with our AI tools how to predictably place inventory. So they're selling the right item to the right channel with the inventory in the right time, handed off to the right carrier for a very precise delivery. And what that does is it creates a growth engine for the brand so they can be in this omni-channel environment and turn their inventory faster while having the lowest total cost of fulfillment. And this is a very unique thing. This is not new to what Amazon does. This is very new to the third party logistics space.
Most traditional third party logistics companies may have multiple buildings, but don't use their multiple locations as a network. A lot of them also have pricing models that are built around moving master cards and pallets. Ours actually lowers the total cost per unit and is very much philosophically and financially and technologically tied to that idea of forward deployed inventory and creating inventory turns versus storing inventory.
I've been in the business for over 22 years. was one of Amazon's first drop ship partners in the early 2000s. Most major retailers like Walmart and Sam's Club and Costco and BJ's, their first integrations and fulfillment. I've been building brands, building pick and pack models, building integrations and building content out in the e-commerce ecosystem for a really long time. And I like to say I've stepped on every landmine in the process. So I really enjoy helping brands not step on those same landmines.
Andrew Stroup (02:46)
I love that I'm sure you've seen a wealth of diversity of experiences as well as some great war stories. I would love to take this back and let's talk about what broke in the D.C. to door dynamics. What changed that pushed you towards micro-nodes over anything else?
Corey Apirian (02:48)
Thank
that's a great question. Again, it's the landmines that I stepped on. historically my businesses were wholesale distribution companies. And then shortly after that, I started building my own brands, and use my wholesale footprint to deploy my inventory into retail and, e-commerce channels. But there's really a few things that happen. number one, you go back to early 2000, amazon.com starts, they had six warehouses across the country.
Most brands didn't know who Amazon was. And, this was like the dot com bubble. So like, are they just another dot com that's going to bust? Who are they? it was like eBay and Amazon kind of at the time. And really like brands didn't, couldn't go direct. Amazon was very smart. They built their supply chain on the backend by, hiring a whole bunch of Walmart executives who helped them build, that initial infrastructure.
routing guide and everything else that went into how brands interacted with Amazon. And you had these two components. You had the marketplace of Seller Central, where Jeff Bezos was famously selling books from every bookstore across America so that you can get this one random copy of Frankenstein that was a limited edition. they didn't have to carry it or find it. It's just that one bookstore in the middle of Indiana had it, and they could sell it on the Amazon platform.
And then you have this other side of it where it was the vendor central side, which is the wholesale side, where they really wanted to be Earth's largest store. And in order to do that, they had to have some of the marketplace and they had to have some of this like wholesale inventory so they can get brands like Brita and Mr. Coffee and Colgate and all these major consumer product companies that they wanted to have for sale on their website. And brands were terrified of them. Brands were terrified of single piece fulfillment.
in their ERP and the actual like muscle, they still are, right? This is why we exist. They're also terrified of single piece returns and they didn't have any of the technology. They still don't in many cases. I think it's more of a matter of they don't want to do it now, but it really didn't exist back in the day. Even EDI was like, you know, something that brands like tried to avoid where they could. And ultimately there was this, you know, evolution of like the brand needing this wholesaler in as the intermediary.
Andrew Stroup (05:14)
early.
Corey Apirian (05:21)
to go to market to a lot of these e-commerce channels. And in the early days, it was really just Amazon, but Amazon grew very fast. So I remember bringing one of the top sporting goods brands to market, Coleman Camping. We launched this one single SKU in 2005, and it did a million dollars of revenue in the first year, in the first month, excuse me. It was wild. And within six months, Coleman was direct with Amazon.
They didn't even want to look at us as the distributor anymore. So like there was a piece of us doing all this work to like seed the business and then losing it. And then there was this also other piece of like, the reality of like, what is the value that the distributor is offering to these brands? And when you like multiply that by the thousands of brands that exists out there and like the evolution of all these channels and marketplaces, Shopify marketplace, one P drop ship channels, these brands ended up over that like
2010, 2012, 2014 timeframe of thinking that they could either sell to all these different distributors across the country and increase their business and or go direct with some of these retailers and e-commerce platforms. And what they found out was that when they sold to the distributors, in many cases, those distributors were just taking that product and selling it back to Amazon or on the marketplace or to Walmart or eBay. And that became a race to the bottom fast.
And it completely destroyed the entire channel strategy. Separately, you also had these marketplaces and channels becoming more wise and bringing some of their own inventories to market from their stores. But they also had these extended assortments, which transacted, probably in 2019, extended assortment, which is stuff that's not in the store online was like close to eight, $900 billion per quarter, like across.
across the industry that you're talking Target stores, Walmart stores, Coles, Macy's.com, et cetera. So massive amount of opportunity. And most of it was done transactionally from either this distributor network, the in-store network, not happening at all, or from one building that was in Florida shipping to Seattle, in the most extreme example. And all of these retailers were getting wise to on-time delivery rates and like parcel zones and spend and like...
It wasn't profitable just to be drop shipped because you didn't own the inventory. All these other things matter to like where the inventory was placed, what item is selling, who else is selling that same item? Is this appealing to the right demographic? And I had exited my last company, which was a manufacturer and a distributor. And I grew very, very fast with that business, but was shipping everything from a million square feet in Long Island to the rest of the U.S. and went from zero to 50 million in like a year.
basically, and the tariffs really hurt that business. So I exited it. That was the original tariffs that happened in 2016, 2017 and so. But the lesson learned there was, you got to get inventory closer to the customer and your assortment that you sell online really matters. And these are muscles that I've learned over my career and have done successfully. And I basically was famously reading
Walter Isaacson's Leonardo da Vinci biography, hanging out with my one and a half year old at the time, who is now my oldest son of three. His name is Leo and kind of had this aha moment that like, wow, like this forward deployed inventory could, be the answer of using smaller buildings. So you could actually make money, turn the inventory, get the inventory closer to the end customer, use technology to manage inventory placement, integrations, meet supply with demand.
and put it all together and where DaVinci comes in is the Bertrubian man of everything in direct proportion and the mathematical principle that everything is connected with math and science. And ultimately I put all of those things together and built this engine of DaVinci micro fulfillment following the evolution of e-commerce and what brands really needed to be successful while adding the right value to them. So you don't have your hand in the middle of a cookie jar that doesn't belong, so to speak.
Andrew Stroup (09:37)
Well, love the entire journey that category. actually had no idea that your son's name was Leo and the tie into DaVinci. that's also great. And obviously Robert Isaacson is an exceptional writer. mean, let's dig into the model on this front here. Like for deployed inventory, OMS, WMS integration, CapEx first, OpEx and where they live, which love to have like the model a little bit more specifically and then keep digging from there.
Corey Apirian (09:46)
Hahaha
Yeah, so the idea is to understand where the brand is shipping today. And if we can understand how their unit volume is turning, we can get some ideas on how to provide an initial bill and like a total unit economic for that brand. And we do that in a variety of ways. We look at their assortment, we look at the channels that they're fulfilling for, we look at if in that channel, are they responsible for shipping? Is it a category of a product that can be decentralized? Because not everything can be decentralized.
You're not going to take high fashion apparel that has one master card of a polka dot dress and a extra small or a double XL large, right? And like try to split that across six buildings across the U S that's duplicating your inventory costs at that time. So you have to take those things into account. Is the consumer going to convert more? Is this a channel that you're fulfilling through that is actually going to allow you to convert more? Is it a product that has a ⁓ cubic velocity that is actually going to have
Meaningful gross margin dollars not gross margin percentage return for decentralizing that inventory not everything works for everything all the time, right? Like in that, heavy generalization So we look at those data points and then we also try to really understand What would it look like if it had come through our network and then we'll use our algorithm that we built to manage our network optimization and then Run that through to give us a model
that says these items belong in this building, these items belong in this building, this is what your average zone was, this is what your average cost was, this is what it will be, these are the inventory turns, this is a conversion you can expect, but most importantly, these are the cost savings that this will bring you. And in many cases, it's not just about the inventory turn or the cost savings, in many cases, it's the capabilities also. There's not a lot of logistics companies that venture into the multi-channel agnostic
Amazon Prime, Walmart one day, TikTok one day, know, fulfillment model. it's not an easy thing to do and there's a lot of nuance behind it. And we've done a really good job on Amazon Prime specifically on both vendor and seller central and attacking that problem. And I think that's one of the things that we stand out, but you need the technology, you need the network, you need the expertise and you really need the precision of the delivery and the carrier base to manage something like that.
And all that ⁓ comes from experience and density and all these things that we're trying to build. myself and my, my leadership team, and we have over 75 plus years of the e-comm experience and, know, we have a great team and we really take care of our customers and partner with them. And we try not to bite off more than we can chew. Although sometimes, it doesn't go always as planned, but, the model really works. And when you, when you show that you can add the right inventory closer to the customer,
you can double, triple, quadruple your unit volume. We've seen it time and time again.
Andrew Stroup (12:58)
I love the piece on the channels because I think that's the most complex piece that I've read about and we've talked about in the past. mean, obviously there's MCF versus MFC. multi-channel fulfillment versus macro fulfillment center, which is on the backside where DaVinci sits. just, how, how do you steer that checkout channels and managing margin? Like, when do you send to?
MCFs, the multi-channel fulfillment versus your micro fulfillment center network. What's the key decision logic in the metric that you really think about?
Corey Apirian (13:31)
Yeah, great question. there's a few components to it. Number one, Amazon is the biggest and baddest out there in the US. They're over 50 % of the domestic e-commerce volume. Their carrier is, which is SWA Ships with Amazon is the fastest growing carrier in the US that delivers a lot of their shipments from their own network, the majority of it. Some UPS, some post office, they're entering into new opportunity with FedEx that is very public right now.
Andrew Stroup (13:52)
Hmm.
Corey Apirian (14:01)
⁓ And ultimately they're going to be the cheapest date for a lot of different items. They don't want slow turning inventory. They don't really want oversized items in their network. There's a lot of guard rails around that. And, if you're a brand, starting in January, you have to prep items to be in FBA. This is the seller central side yourself. You can't just drop a container in Amazon, not touch it from a factory.
and let it go, you used to be able to do that for the past 15 plus years. And that was a big unlock and cheat code for a lot of these sellers, whether they were the direct brand or not the direct brand. And Amazon's trying to weed that out, right? Cause they want to pick and pack and have something that ships in own container. And like they just put a label on it and it goes out the door and it's got to be high turning for them also. Otherwise it's punitive for the brand. So if you're utilizing their cubic footprint and there's no cubic velocity to it, that's going to cost you more.
as a brand. Now that's not so different in our network. But what you can do in a DaVinci's network is you can use that same item and sell it against Shopify, TikTok, Target, Walmart, wherever, and Amazon. It's about Amazon and. And I think Amazon actually really understands that. So back to multi-channel fulfillment, if you have an exclusive item on Amazon and it's the only place that that item is sold, it's probably not going to sell as well.
as something that actually has placement in brick and mortar and other online channels. That's one big thing here. Amazon knows this. So Amazon wants to help you as the brand expose your item to as many channels as possible. The problem is back to what I originally said is that you lose control as the brand. like if you're an SMB, I think multi-channel fulfillment is an easy button. And if you don't have the resources to manage an external, logistics partner,
If you don't have the resources to build differentiated assortments on all these different channels, you don't care about that. Maybe you have one item in your assortment and you're doing, two to five, $10 million of revenue online in totality. You're probably going to be okay in Amazon. Multichannel fulfillment, it's expensive. It's more expensive than most logistics companies. The order to cash is really slow on it. If the item doesn't turn, it's really punitive.
The receiving times are very long. So, there are some brands that are working on tight cashflow and it's just not, sustainable to do that type of thing. Also, if you bring that inventory into Amazon and you want it back, you have a problem now and it's going to be, kind of destroyed and like stickered up. So you can't really use it for another channel again. But like you're going to get a good service level with Amazon.
probably the strongest out there. You're going to get a fair price from your shipping perspective. It's all the other nickel and dimes that are going to hurt you. So if you're not careful, multi-channel fulfillment can be painful. But if you're a large CPG brand that has 10,000 SKUs or 5,000 SKUs or even 50 SKUs of brick and mortar, and you're trying to differentiate your assortment on walmart.com versus Walmart in store, which by the way, not every brand looks at it this way.
Most big brands will segment their merchandise assortment from a Costco store, a Target store, a Walmart store. They've learned that lesson, but they haven't all applied that same lesson to target.com, walmart.com, Costco.com. And I think that's a big piece of what DaVinci tries to bring is the capability and the strategy of how to do those things because you can sell the right item to the right demographic and turn it faster. You can't do that in multi-channel fulfillment.
You can do that with a micro fulfillment center because you're hyper local and you're getting that data real time. So like you're able to connect marketing efficacy to operational efficacy in a model like ours, which is really exciting and powerful for brands. And you can't do that in multi-channel fulfillment. You can't do that with a traditional third party logistics company, especially if the brands are one passing them the order and things like that. So there are like some key benefits that are tangible and intangible.
in having a network partner like DaVinci versus a multi-channel film at our traditional 3PL.
Andrew Stroup (18:06)
I'd love to double click and zoom in on some of the operating math around that. from our pre-show notes and we were chatting a bit, you talked about, rule of thumb. If it's more than four pounds or $40, DaVinci often pencils out, but if it's less than a pound or less than $20, it's no man's land unless optimized. Can you talk us through why those boundary zones exist?
Corey Apirian (18:29)
Yeah, I mean, I think the biggest thing is that any anything one pound or less for anybody that's in the parcel industry knows is that between a lot of ⁓ post office price increases, consolidation for partners that inject into the post office and some of that rules of engagement, some of the things like UPS mail innovations, which have now become much higher price points, 35 plus percent increases in some cases, you just be able to ship, a CD
for like $2 back in the day, right? This back to the evolution of the early days of e-commerce with this male innovations program. It's like meant for like media and things like that. Um, and, and, and that was arbitrage too, just like some of the de minimis loopholes and things like that, uh, out there over the years. So a lot of these companies, like it was unsustainable for them to run that type of stuff through their network and it was not profitable. And a lot of the carriers now are focusing on profitability, uh, versus just sheer volume. it's a balance, right?
Cause density brings profitability. So you need the unit volume to get the profitability, but then you also need to make sure that your unit economics are healthy as well. can't give stuff away for free, especially when you're giving drivers increases and things like that. Um, and investing in technology, which all of them are. And that's a great thing for the industry. However, you're really not going to do much better than like, four to six bucks on like a one pound item. So if you're selling a $10 item.
Like half of your revenue is going to go toward shipping. know, so like your total percent of operational revenue is going to be 50 % without even touching the product. It's also like with a model like post office, you're essentially going to, have the slowest, know, less precise shipping time with a product like ground advantage or FedEx ground economy or UPS ground saver. they're all quality programs. There's just no precision to it.
And I think consumers, one thing that they really appreciate and will convert against is precision. So it's not necessarily having a 30 minute delivery. It's about the consumer knowing that this is going to be on my doorstep, between 10 and 12 on Saturday versus five to seven days, right? That's what all the data shows. You alluded to that in the beginning of the show. I think we all read the same on track article that just came out, which was really powerful for the industry to see that.
And something that Da Vinci's thesis has been built on. So, once you start getting over one pound and you start really getting into like the four, five, six, seven, eight, up to, 25, 30, 40 pounds even, but that sweet spot of like five to like 20 pounds, there's real tangible savings when you start using local regional and, zone based pricing for zone two and zone three versus five, six, seven, eight. And you're talking about,
five to seven to nine to $12 per shipment at that point in time. And if you're a product that's a low value, high weight, it's table stakes. Like beverages, as an example, like you can't survive unless you're closer to the end customer. There's damages, there's cost, there's the customer experience. Most beverages, someone could just go to Costco or a grocery store and go pick something up, but they want to order it online for that variety pack or it's too heavy.
or it's too big to fit in their car or they didn't have time to go do it, right? All the reasons we shop online, but like there's a real benefit for that, but you can't do it unless you're closer to the end customer. You can't use a regional carrier unless you're in the region. You can zone skip and you can air freight and things like that, but now you're adding costs and complexity into the model. so I think these are all really powerful reasons why people are understanding that they have to get that inventory closer to the customer. And it's really hard to get the inventory closer if you don't know what you're selling.
to where you're selling it, and that's why all those things are connected.
Andrew Stroup (22:16)
Totally. That's super interesting. mean, I'm curious on, you know, when you think about all of these metrics and the criticality and relationship with them, you know, when it comes to things like average ship distance or zones per order, same next day percentage, partial value order, how do they all intermix? Cause I'm sure that's part of also a little bit of your secret sauce, but the model for how you're doing the calculus in your head too, right?
Corey Apirian (22:39)
Yeah. At the end of it, all of these things are completely connected again, back to the protruding man, everything in direct proportion. If you get your inventory closer to the end consumer and you're in a zone two, zone three zone, comparatively to a zone six zone, you're likely going to ship it within one day. It's going to deliver within one day. It's going to have a gross margin dollar savings.
So you're going to increase your conversion in most channels between anywhere from I'd say 15 to 40 % increase in conversion. So consumers are more likely to buy an item that they know is going to deliver tomorrow versus a seven to 12 day purchase. That's a true metric for Amazon, Shopify, Walmart. Most channels will measure that and has data that is very public for many, many years on that side of it.
The zone side of it, everyone has a different rate card, right? From your UPS and your FedEx, et cetera. But for the most part, that is also something. When you look at all the surcharges, which is where a lot of the cost is, extended area, delivery surcharge, like you have the ability to lower some of those things with the less amount of sorts that get, handled by these carriers. If you inject into their sort centers also, there's cost savings and that is a byproduct of being closer to the end customer.
and using these local and regional carriers where you have more point to point deliveries, that is also a byproduct of getting closer to the end customer. Amazon's sub same day buildings are a byproduct of getting closer. And it's this new regional film and model that they've designed, which has brought this massive profitability for them. So going back to your question, it's all of these things are completely connected. And we've seen that most people, most brands in the industry are shipping well over 700 miles, an average of
zone five, zone six out in the industry and using a single, maybe two carriers out there. Very heavy with post office because it's a cost thing and also very heavy with like your ground economy and your ground saver products from FedEx and UPS. And until you felt the pain of trying to do seller-fulfilled prime with Amazon or get, stepping outside of Shopify only and being in a true multi-channel fulfillment environment where there's real gradable metrics by
service levels and KPIs for retail channels as well. That has actually a really strong benefit to your bottom line and top line. If managed the right way with the right technology and the right physical location network behind it and how to use it.
But ultimately those things are so impactful to the business that you have to find ways to do that. So everybody's looking for ways to do that now. But it's all about precision coming back to that. So we can lower well under 700 miles per delivery. We can get you to zone two, zone three because of where our real estate is purposefully placed and how we utilize the network and the inventory control to make sure that we're maximizing that.
We rarely see stock outs in our business against it. We usually see actually the opposite where we create about 12 to 18 inventory turns per year for our brands and continue to increase their order to cash cycle because of these things that we did.
Andrew Stroup (25:51)
Interesting. know, obviously, and we'll get to inventory turns in a little bit as well, but, ⁓ the network science of this is very fascinating to me, right? I I would love to dig in a little bit on the trying to decode some of the node placement specifically as you were talking about how to manage the different zones. when we were chatting earlier, you're talking about aiming to maximize two day and mostly one day and same day in major metros. We even chat a little bit about the
comp of following cities that have NFL teams on, right? And the real method, however, starts with the carrier zones themselves and the lanes, but working backwards to demand. Would love to have you talk through those inputs and that decision logic.
Corey Apirian (26:34)
Yeah. Football teams have people around them, right? So, you you go where the people are. Our network is 99.7 % today. There's this like sliver in Washington state, Montana, and, the Grand Canyon that is not heavily populated. That's a three day zone from our network of six locations. So there's a diminishing cost of real estate, number one. And we have a building in Denver.
that hits most of those regions in one to two days. But even by being in Colorado, there's still some areas in Colorado that are three day because they're very mountainous, they're hard to get inventory into and so on and so forth. Not as worried about those zip codes, no offense to anybody that lives there, it's beautiful there, all three of those areas, but not where we're targeting density. When you look at historical e-commerce shipments, New York,
Metro, know, so that's your Jersey, your Philly area, Chicago, Florida, Texas, and California. Those are your main areas for that's, zip code destinations. Why? Because they have the most population there. There's a, demographic of consumer that ship that buys online historically always has, things have changed significantly since broadband access is, now the norm across the U S 20 years ago and Amazon started.
broadband access was not the norm, right? Like Amazon's consumer in the first 15, 10 years of their existence actually had a household income of over $120,000, which is wild if you think about it. And most Walmart shoppers didn't have a credit card. Think about how that's evolved and think about how broadband access has evolved. And now you have this level playing field, right? Where everybody shops online.
I think that maybe that's a problem now because now everything's buy now, pay later, which has created its own set of issues out there, but I don't want to talk about that. Ultimately, that evolution has driven a lot of the purchasing across the network. Inventory can be decentralized across the US now. When you look at these main national brands, they have a very even split in many cases across a lot of these zip codes.
Andrew Stroup (28:26)
you
Corey Apirian (28:44)
but it does change seasonally and regionally. So if where the carriers are delivering from, from their sortation center, and ultimately where the population densities are, and you understand the channels that you're serving and the service levels from those channels, you can kind of work backwards to paintbrush where your real estate should be. And that's what we did. We started from that ground up. a lot of our competitors in the order fulfillment space, I don't think we really have a competitor in the micro fulfillment arena.
We are an order fulfillment company and we're just doing it in a different way. But the really big companies that have acquired all these businesses, they may have, four buildings in Seattle or three buildings in Jacksonville, right? They advertise they have 12 buildings across the U S but really there's clusters because of how they've acquired or they have a single tenant building that they're doing contract logistics for. Like our network, right, wrong or indifferent is a living breathing network and it's used completely together.
and not as a single node in any instance. And the data really dictates when and where you put inventory and our ability to correct itself is built in with this forward deployed model where we're not storing inventory and it's faster, two to eight, 12 week turns of inventory. So if we miss, we're mostly optimized, right? And we're never missing in a zone six, zone eight mentality. It's usually missing in
zone two to zone three or zone three to zone four at the worst case scenario. almost all of our shipments deliver well within 700 miles of the end customer.
Andrew Stroup (30:14)
This is great. Yeah, the network piece of it has to be a very time intensive mental capacity focus point. think inversely to that, I'm curious on some more counterintuitive or maybe contentious topics. I know something that we've talked about before has been this mantra, like never perfect, but always optimized, right? This variability of geography and buying patterns that you've observed. I think the topic we were talking about was something around the coffee maker and
Just the example of like what might happen in Pennsylvania for Father's Day or Texas for Mother's Day and Black Friday. Can you talk to me about like the craziness that people just don't think about that is a little counterintuitive?
Corey Apirian (30:55)
Yeah, a hundred percent. And it goes back to what I was just suggesting is that like, you don't have to be perfect. great is the enemy of good, right? so ultimately, yes, we want to be, I love the book, Good to Great. So we want to be a great company, but in order to be a great company, there's things that we can do that are better, that are really powerful for our brands. And if you can understand that a customer who's buying a coffee maker,
on Amazon, that identical coffee maker sold on Walmart, Target, or Shopify is going to have a different buying pattern because there's a different consumer. Is there a Venn diagram of the same consumer buying that coffee maker? And a coffee maker is a one-time purchase that has a lifespan to it. And then they'll buy a new coffee maker when that breaks or they move into a new house or there's a basement needed or an office, whatever.
you look at items like toothpaste and that's a replenishable item. That's a fast moving consumer could. So that has a different buying habit also. And the consumer who buys online is buying that very differently than when they walk into the store. Back to my point about target versus target.com, consumer can walk in and buy a Crest toothpaste on target.com on Target in store. Target merchants and buyers know that that tube of toothpaste on the modular is
needs to produce X amount of cubic velocity and X amount of profit for that cube that it sits on the shelf in order to maximize the real estate, maximize the inventory turn. And you have to buy X number of inventories to fill up this network of target for the demographics that you're serving across the network. And that's why these logistics companies and brands are built on moving master cars, pallets and truck loads. Inserttarget.com completely different muscle, completely different.
form of buying completely different delivery mechanisms. Like I want one tube of toothpaste for $3 and spend $6 getting into the consumer. No, that doesn't work, right? So like I need to match a three pack of toothpaste. And as a consumer, I have three boys under the age of seven. Like we may not use the same type of toothpaste. However, there are brands that are putting the adult toothpaste with the kids toothpaste as a bundle now because consumers are going to shop.
Right. Or they put the toothpaste with the mouthwash, or they put a three pack, a variety pack of toothpaste because my three boys may want three different flavors, which is something that I did just buy and it worked out pretty well. so ultimately if you can get wise to what item is selling where you can work backwards now to this, this network plan. Right. And I, and I think that's the key, that's the key differentiation that a lot of people, a lot of companies, a lot of brands are.
either not aware of or starting to become more aware of. And that's really what the science like stems from is like understanding that buying habit and that market basket purchase and then working backwards into where the inventory needs to be placed. But as the year goes on and the 12 months go on, those season and regions are going to change. No different to the target store merchant who's putting inventory in a regional target network very differently.
in the Midwest than they are in the Northeast because it's a different consumer. It's a different demographic. It's a different buying habit. In some cases, different price point. So the quantities change, the price points change, the pack sizes change. All of it changes. And you have all of these inputs and variables of channel cost, service level freight carriers that you're allowed to use within freight, right? Inbound planning.
MOQs and lead times in, and you have to tie all these things together in a model that says, okay, we don't need to be a hundred percent, but we need to be like 90 % accurate here in what we're doing. And we need to make sure we're backing ourselves up with redundancy. So when you start to look at the map of like A and B movers, and you bring in eight to 12 weeks of inventory, you can correct yourself without having pain or too much inventory on hand, but you get to work backwards from all those variables to really.
build something that increases conversion, lowers the cost of fulfillment, brings repeat purchases, manages subscribe and save type inventory at the right time. All of these variables that go into all these nuances of all these different channels into one.
Andrew Stroup (35:28)
Interesting. I love that you kind of talked about like what, how to structure like, uh, that good enough structure for an ideal case. The inverse of that. I'm curious. Uh, and it's always, I found it be important to also think and talk through this, like less ideal fits for DaVinci. mean, I know we've talked a little bit in the past about, wide and shallow assortments, not being impactful that has low turns versus realistically your sweet spot being short and deep sets with steady demand.
curious, know, who isn't a good fit on the Dimenshii side that you think, there's the other options that they should be explored.
Corey Apirian (36:04)
Yeah. We talked about high fashion apparel, high skew count, that wide and, narrow assortment is not necessarily, you for a micro fulfillment network. And again, like if you have high fashion, yes, there's instances where consumers may want a next day or same day delivery. For the most part, I think that category has proven
that consumers don't react the same way that they do with beauty or fast moving consumer goods, beverages, food, health and personal care, OTC, baby diapers, formula, all that type of stuff. if you think about a CVS corner store like your Urgent Care, this is one of my favorite examples of micro fulfillment that I think is very prevalent out there. And I think CVS has done a really good job with this, with their Urgent Cares. Tylenol, children's Tylenol, given that...
the bad press of Tylenol in the past few weeks. But usually children's Tylenol, especially with having three boys under the age of seven, is it, have a bottle of that everywhere for my kids because someone's jumping off a table somewhere that it shouldn't be. And I can't really change that behavior. So I can keep the Tylenol around. But that's in every corner store in CVS, like Allegra, every corner store of CVS,
Vitamin C, vitamin D, every corner store, diapers, shampoo, know, Dove soap is in every single CVS probably across the US always, right? These are like key staples. These are the items that are always turning and there's a CVS urgent care on every corner and you can get a flu shot there. If you have a cold or a sinus infection, you can get like, an antibiotic that's very generic there and you can go pick it up. But like if you break your arm or you,
have strep throat or something like that, you're probably not going to the CVS urgent care, something that's more specialized. And if you need the non-allergic formula of children's Tylenol that's generic, that doesn't have a key ingredient in it, you're probably going online to find it or the brand's website or whatever. Maybe a bad example, I'm not Dr. Apirian and my father was, but follow with me on this. And that makes sense for a microfilament center.
fast moving, repeatable, decentralized product that's always turning, that's going to benefit from knowing that the inventory is always going to be there because it's going to sell. At like sign Louisville slugger, that's like the random purchase, while eBay probably sells a decent amount of those by, favorite player of the month, that's going to be in like one CFC in Kentucky, Louisville, Kentucky, because it's centralized.
And you don't need to decentralize an Aaron Judge or me Yankee fan, Louisville slugger. But it's very possible that people around the country may want that. Yes, it's going to be catered to New York, so let's put that in Kentucky. I don't need to put that bat everywhere that's signed because it's so random, it's so expensive, whatever. the children's Tylenol, I'm going to put that thing everywhere I can because everyone's going to buy it.
Andrew Stroup (39:08)
Absolutely. All right. Well, look, let's do some ⁓ lightning rapid fire kind of questions. I would love to get your feedback on, especially being an expert in the space. Biggest blocker that you think typically happens, whether it's not enough volume for a multi-node, no more FBA versus SFP shift. Like what's the one that you typically see like biggest hurdle initially?
Corey Apirian (39:30)
Yeah, I think it's ⁓ brands who either have never done it before in the e-commerce space, which believe it or not, there are a lot of very big brands that throw stuff into Amazon and Walmart store network and that's it. And they do hundreds of millions of dollars of e-commerce volume that way. But the multi-node, how do I align my inventory control, my technology, my ERP? How do I manage this? How do I not duplicate inventory? That's the biggest fear. There's no doubt.
Andrew Stroup (39:59)
Got it. right. And then the most overrated metric in fulfillment is.
Corey Apirian (40:06)
I don't know the answer to that. I think they're all actually really important. on time delivery is really important. If you don't get your orders at the door on time, you don't get your carrier for scan on time, and then you don't get your on time delivery. But I would actually probably say carrier for scan might be overrated because sometimes that's not a good judge if it's getting there.
on time, it just tells you that like, did you really ship it and did you manifest early? So it's like important so you don't cheat, but I would say that's overrated.
Andrew Stroup (40:32)
I love that. All right, well, the inverse and the underrated metric ops leaders aren't watching enough is.
Corey Apirian (40:41)
Ops leaders not watching enough is different than channel metric for channel metric on time delivery. That's the key. Everybody needs to pay attention to on time delivery. That's what matters the most. For the operations perspective, it's, it's labor planning and managing direct versus indirect labor and how you manage that in a fulfillment environment is actually very different than a distribution.
Andrew Stroup (41:05)
Interesting. All right. Well, let's talk like myth busters here then one thing people believe about same day. That's just wrong.
Corey Apirian (41:14)
It's more expensive.
Andrew Stroup (41:18)
There, all right. And then any future forecasting of whether it's like agentic AI, robotics that you have a hot take on?
Corey Apirian (41:26)
it's here. It's not going away. agentic AI in the warehouse has dozens of applications. I've spent a lot of time with some really strong leaders in the industry and people are building some amazing stuff. And there is not a use case today where agentic AI or a robotic system is taking over a hundred percent of a building or a human's job. It is making repeatable tasks easier.
And it is going to continue to evolve at a rapid pace. And one is going to help the other evolve. think robotics is something that is going to take over in decades, not like in five years, not in two years. I think there's still an ROI that has to be proven with it and not every size fits all and not every product is the same and not every warehouse is the same from the layout, infrastructure, technology, systems. There's a long way to go there.
Agendic AI is moving fast and it's learning fast and it will replace some jobs in the very near term. But you need humans to manage Agendic AI and you need guardrails and policy around Agendic AI. And I think that is the place that companies should be looking at first and they should be starting, in my opinion, for a logistics company. There's so many moving pieces in fulfillment specifically. I have chosen to start with workflows.
And that is a place that allows us to learn and allows us to get immediate time and cost savings.
Andrew Stroup (42:53)
All right, I definitely agree. I've yet to see any supply chain workflow or space where it's just completely takeover. There's obviously a lot of hype cycles of people saying, we have these agents that solve all your problems. And the reality is you have to operate out of exception. You have to have humans in the loop. Ultimately, we're moving atoms still versus bits here. And so the atoms require humans to move the actual atoms and make the final judgment call. OK, perfect.
The final question I actually have, love this, always just the advice to younger Corey or someone who's starting a fulfillment ops today. But, give me a couple bullet points of things you're like, you should definitely have paid attention to this.
Corey Apirian (43:32)
That's a great one. I took the hard path. I built a division within an existing wholesaler when I was really young. Because of the Coleman camping success that I had, Amazon's sporting goods teams reached out to me and offered me a job when their stock was in the red. I turned that down. I wouldn't have my family today. I wouldn't have learned everything that I have through e-commerce. like,
I wouldn't say I regret that decision, but I really wanted to work at Amazon for the beginning of my career. and I got the opportunity and I turned it down. I don't regret that decision. but like the learnings that I had, and the evolution, probably would have like knowing what I know now would have pivoted a lot earlier into this type of model, versus continuing to be a distributor. and there was a lot of money burnt in the way.
so, you have to take those, those pain, and, know, just growing up in the world as a young company, as a young guy, probably having success early, you know, I probably mimic kid Icarus flying too close to the sun, for a little bit. And, know, you got to learn those lessons also. And now, it's all in with DaVinci and, I actually look back at, at all of that. And, I'm happy that those decisions were made because.
it brought me to the place that I am. But, things could be different right now.
Andrew Stroup (44:45)
Absolutely. Well, that's it for the show. You've been listening to Leverage Supply Chains. If today's sharpened your decision model, follow and subscribe. Share this with your ops and finance leads and check the show notes for additional resources. I'm Andrew Strupp. See you next time.