Setting up a Supply Chain (an Interview with Doug Heffernan)

Joe Heitzeberg
August 25, 2013

After a successful crowdfunding campaign and once manufacturing is in place, teams need to figure out how to get their goods to their backers and beyond. We spoke to Doug Heffernan of TransPak about some of the issues crowdfunded projects face.

_Doug Heffernan has over 15 years of supply chain management. Over the years he has helped companies build supply chain solutions on a multitude of levels; companies starting from scratch to expanding small programs into multimillion dollar global solutions. He has worked on both sides of the table, selling solutions to businesses and building solutions from within. This has provided him with great insight and visibility into the supply chain process. Doug holds an MBA from Santa Clara University. _

Q: What does supply chain mean to you?

A: When I think about setting up my supply chain I always start with the customer and work backwards to manufacturing. Then I think about the most cost effective way to get my product from the manufacturer to the end customer.

Q: We’ve seen a lot of Kickstarter and Indiegogo projects cut corners to save on shipping. On the other hand, shipping is a major cost component. How should people think about the tradeoffs?

A: When the customer receives the product they want to be excited to open the package and remove the product. The package needs to be clean from the outside, secure on the inside and easy to remove from the box. We’ve had customers that want to cut corners and ship in bubble envelopes to save money. The customers received the product with holes in the bubble envelope and some minor damage to the product. The customer’s first thought is; this company is a onetime wonder. You don’t want that.

Because you sold your product via social media your customers are very savvy with the social media ecosystem and will use it to help promote you and your products or put you in a hole. First impressions are critical and contagious.

Q: Another thing crowdfunded projects do is add tiers and options — it’s a great way to drive more pre-orders but it complicates logistics. How should campaigns go about weighing the tradeoffs?

We worked with a customer that kept getting deeper and deeper with new customer offerings. I know it’s exciting to have all these new customers but be sure you can satisfy the initial order without delay. Again, customer experience is most critical. This customer got so deep that the additional offerings arrived late so they held up the kitting process and for some customers additional shipments had to be made which caused additional shipping costs. It reduced the overall margin of the project and delayed product to the customer.

Q: Any advice for collecting data from customers for shipping and managing that information?

Q: Is your data clean? No PO Boxes. Get Phone #’s (required for some countries). If your backer count is high it’s best to work with an outside source to help sort through the data and automate your interaction with the customers so you can get immediate feedback. Also, be sure to ask all the right questions the first time you send an email blast. Multiple email blasts will delay your follow up and can muddy the data.

Bad data creates extra costs and lost time in getting product into the customer’s hands on time. In some countries a phone number is required. With no phone number the courier can’t follow up with the customer which may result in the package being returned to sender. The sender is you and that means more costs and another customer without product in hand.

Q: What are the considerations for international shipments?

A: Extra costs: international paperwork, compliance, customs, VAT/GST and duties. Cost of shipping verse the retail price of the product.

If you work with a knowledgeable 3PL provider you will have a much easier time with navigating international shipments.

The first customs requirement is determining your HTS# (Harmonized Tariff Code). This is a classification code for traded products. It determines if you will need to pay duties in some countries. We had a customer that came to us ready to ship and when we went through our compliance process it was determined that their product carried a 2.3% duty on imports into the US. Don’t wait until the last minute to establish your HTS#.

Customs paperwork is relatively easy if you know what is required for entering each country. Failure to generate accurate paperwork could result in customs delays and sometimes the return of product back to the shipper (you).

There are schemes in some countries to avoid VAT/GST. We saved a company $7,000 of VAT exposure for shipments into the EU countries and $1,500 of GST into Australia.

Q: What are some of the optimizations for shipping to customers around the world?

A: A good practice is to drop ship from the contract manufacturer directly to regional areas or countries. An example is to drop ship in bulk to Australia, Japan, New Zealand, Canada and Europe (EU countries) and use a local representative to cross dock the material and use a local courier to forward the product to the end customer. By drop shipping break bulk to different regions and on-forwarding freight to the end customer with local couriers we were able to save a company 25% on their freight spend. With a trusted 3PL you can get creative.

Q: What are the top questions you hear again and again?

  • “How do I determine my international shipping costs”- You need to determine the size of packaging, the weight and the value of the product. With these three pieces of information you can get a good ballpark shipping rate. Determine this before you post on Kickstarter or Indiegogo.
  • “When the campaign is over we had much more volume than anticipated”- This is not a problem. The difference now is you will have a hard time managing the distribution from your house or garage. A third party can help manage this and in most cases provide a cost savings because of the economies of scale.
  • “How do I know what documents are necessary for international shipping”- Easy, leave it to a 3PL to manage your customs and compliance questions. On your own, you can spend hours researching this information.

There are many companies that can support the outsourcing responsibilities. With startups, Kickstarter and Indiegogo companies you want an outsource partner that is flexible, willing to provide value add services beyond warehouse/distribution services and be nimble to provide ad hoc services.

Photo courtesy of Sven Laqua

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