DTC Brands Are Adopting DTC China Fulfillment Because of One Thing: Agility

00:00 – Dayu Yang: How have companies like Shein recently dominated the fashion retail space? And how are DTC ecommerce brands utilizing the exact same concepts to crush their competition and what that might mean for you.

Hi, this is Dayu and Simon from the ecommerce podcast. And today we’re going to talk about agility in the supply chain and how direct fulfillment from China enables some of the biggest players in the world to dominate their competition. And how you as a DTC ecommerce brand can learn from those same concepts and apply it to your own supply chain strategy. Today we’re going to talk about the concept of agile supply chain management, specifically just-in-time supply chain management.

And we’re going to talk about a brief history of where it came from, some big players that are using it today, and how we actually see it being used in DTC ecommerce with our own clients as well. And some tips on how you as a DTC brand might be able to leverage it, particularly utilizing direct-from-China fulfillment.

01:08 – Simon De Raadt: So you always hear this principle of agile and just in time, but actually what is it really? Maybe. Dayu, what’s your thought on this

01:16 – Dayu Yang: Yeah, sure. Actually agile can mean many different things. I actually used to be in software development, so agile means something different as well. But the entirety is about agility and flexibility and how do you make your processes as efficient as possible given the output needs. Now, specifically for the supply chain, the most relevant concept here is this idea of just-in-time production. Just-in-time supply chain management.

Now this concept was initially popularized by Toyota. It is one of the, I think, 14 principles as part of the Toyota way where this is the entire idea of being able to manage your entire supply chain. And thinking about Toyota, I mean, it’s a car company, there’s a lot of steps in their supply chain. So it’s somewhat more complicated than ecommerce. So it’s particularly relevant in how they think about adapting their production processes and plans to the demand of both the end customer and actually the demand of every step in the chain as well.

And this is actually contrasting from a traditional model, which I like to think of as the difference between a pull and a push. So in the traditional model, production plans are planned in advance, sometimes far in advance, and there is the hope sometimes that what is produced is actually sold or consumed by the consumer. Now the pull system, which is the core concept of just-in-time production management, is looking at the demand from the consumer with a next step in the chain and utilizing that to flexibly adjust your production or anything that is upstream to then adapt to that as much as possible.

03:07 – Simon De Raadt: Yeah. So when it comes, actually for me it was like just in time. It’s much more like inventory driven. It’s more the physical part and aligning that every step of the way. And then agile might be more like the process, the resources that you need, maybe the software just to make everything flow, so to say. Because I saw you just mentioned Toyota, I was just reading this case during COVID where everyone was out of these ships and they just simply have planned for it because they’ve had the hardships, they’ve had the upsets.

To actually plan for, we need to have enough of everything and that to be able to play with the pull and the push. And I think that’s a perfect way to describe how a supply chain should operate, considering not just there’s a push, somebody has an order, let’s go with it. But there are certainly a lot of other areas to consider.

03:59 – Dayu Yang: Yes, definitely. And the benefits of just-in-time supply chain planning should be pretty obvious. It means that you can be much more agile in terms of speed, in terms of faster go-to-market and a new product or a new product line. You can be a lot more flexible to adapt to changing demand situations. And also typically a big factor is it should vastly reduce your inventory risk and therefore balance sheet risk across the entire chain. Now, that being said though, and I want to get your thought on this, Simon, is that this is very theoretical. So back when I was in business school, we had a lot of theoretical discussions about just in time and agile.

And back when I was in school, I didn’t really fully appreciate some of the tangible implications of that. So it was great in theory, but in reality, especially what we’re talking about, like ten years ago, except for Toyota, it was not really that widespread to see this kind of model. And now, given my experience at EcommOps, I do realize that there are a lot of limitations physically in the production process that really makes it more difficult to achieve these theoretical benefits.

And given your experience, Simon, I’d love to hear your thoughts on some of that.

05:26 – Simon De Raadt: Yeah, I still feel like if I’m going to do an MBA program all over again, you have to look at it with new eyes, new angles, just applying it to your existing business. So it’s always fascinating how the theory can be implemented in reality. And you mentioned Toyota, but if we’re actually talking about DTC, like small medium enterprises that we’re actually helping right now, the SME brands can actually use the case of Toyota and implement it? Well, the answer is actually, yes, you can definitely use it. Because if you look at the supply chain, you actually can break it down until the spare part itself that you need.

Whether it’s maybe a bag that needs a zip, or whether it’s an electronics product that needs a chip, or it might be something else that is actually your bottleneck of getting the finished product ready. And that’s what we see for DTC brands. They are great in marketing and developing a concept of how they would like their brand to be and what it should be and how to reach the audience. And then the understanding of actually getting it produced is really something that is, I think will elevate their game if they have thought this through.

And think about how do I dissect my product into smaller pieces and have a discussion with actually the one producing and saying, okay, how long does it actually take? And they say, okay, like 30 days to produce. Really? 30 days. But what’s then actually the limitation? What’s your bottleneck? Is it a piece of material? Is it the fabric? Is it something else? Can I just order that in bulk in a higher quantity because I want to eliminate the bottleneck? Yeah, you can do. We had to like this case. We can just order the zippers and just get 50,000 zippers. And then your lead time becomes 15 days.

Whoa. I can just reduce my lead time into half. So you have these kind of conversations with your manufacturing. Think of the supply chain, not just, here’s my po, here’s my order. You start the production. I’ll wait until the actual production is finished, then I’ll contact my forwarder, I put it on a boat, ship it to an overseas warehouse, wait until it’s there, and then actually, I’m ready to start selling.

If you think about it. Actually, you can just dissect that into much smaller pieces and be in control from actually purchasing the raw materials till the actual physical delivery to the end consumer. And that’s, for me, really, the supply chain itself, it just goes much further than most people think. It’s more than logistics.

07:59 – Dayu Yang: Yeah. You mentioned lead time as a bottleneck, and I do want to talk about it in more detail. Before that, though, I do want to be reminded of our experience at EcommOps and that we work with a variety of different types of clients. And we have, what I’ve seen, kind of a spectrum of the awareness around supply chain implications, particularly around lead time. On the one hand, there are great DTC brands who really are crushing it with their marketing and their product strategy.

But I will be just completely frank here that there is not enough awareness and care in terms of the supply chain elements of it, which can actually be an extremely big value add you’re thinking of as a strategy decision as opposed to just trying to minimize your costs. And this is where for someone, or a DTC brand owner who may be more leaning towards the marketing side of the specialty, I do want to emphasize it is really important to think about the supply chain as well. As Simon alluded to. Now, on the other end of the spectrum, we work with extremely experienced brands who have a lot of supply chain knowledge.

Now this is where with traditional supply chain management, given the expectations for longer lead times, traditionally you might be thinking about one or two or three POs per year, right? And this is something that just is necessary because of the longer lead times. And that is also, I would not say incorrect. That is obviously the traditional best practice. But given a lot of the innovations in being able to ship directly to consumers, especially directly from consumers, from China, close to your factory, that completely changes, or I think revolutionizes the way that even a more experienced DTC brand or company can think about adding more agility to their supply chain through their fulfillment strategy.

Now let’s talk about lead time. I want to understand your thoughts around the place that lead time has in what we’re talking about. And we’d love to understand, kind of given your experience, what is that rough step-by-step process and where does lead time really come into that process and how important it is? Or what is the impact of being able to compress that lead time?

10:31 – Simon De Raadt: Yeah, so maybe I can just share a case study of an existing client that might help. Because when you think about supply chain, for us, the supply chain starts at the origin of where it’s produced. In our case, our clients produce. In China, we do fulfillment from China globally. That means actually that if you are not doing this whole sea freight, but we fly every single parcel all over the world to the end consumer, that has a bunch of advantages.

Because if we actually are looking at the manufacturer, especially for seasonal products, they have huge peaks in production, which they just cannot sustain because all the orders come at once. And actually, all the resources also need to be there at once. So they actually want to divide the resources, preferably over the whole year. But at the same time, they also are struggling to just be able to sustain their normal operations, a normal business. And the brand is just pushing, when is my product ready? When is my product ready? And the moment they’re receiving the goods, they already probably want to have the next batch ready or on the way.

So to be able to actually leverage this kind of timing of lead times, we always advise our clients to say, just take your product, order the raw materials, put them ready, and not place POs on a monthly basis or two or three times a year, what you just said, but maybe even weekly or biweekly. And whenever the first batch is ready, ship it to our warehouse. You have to wait until everything is ready.

You can still get good prices because it’s your overall volume that counts for the manufacturer. And it gives them also certainty to have stable production resources, labor, everything, the certainty that comes with it. And that’s something very crucial. So we had the case with one client that just came back from China as well. They didn’t understand well enough how the supply chain works and that you can talk to the manufacturer and let them educate you on how things are being done. What’s the bottleneck?

Can I order once a week? Can I order once, twice every month? Can I just send out goods to me without having a full truck sent to a warehouse? All the answers to these questions are yes, you can. But if you’re not asking the question, manufacturers tend not to advise you on that part. And this is also the only reason why we started this podcast, because we feel there is a good need for this kind of hidden, almost hidden operation and process.

For some sellers, just the goods magically arrive in the warehouse. That’s definitely something that we’ve experienced with smaller as well as larger brands not being aware that China shipping exists directly to the end consumer, or that you can actually have a conversation with the manufacturer and tell them how you would like it to be so that you can just grow and they grow with you. But also when you stop growing, they can scale down that flexibility, that agility.

That’s just a game-changer for any DTC brand owner.

13:33 – Dayu Yang: All right, Simon, so that’s really interesting. And I think that actually a lot of brands who do not have on-the-ground experience with factories, they may not actually know that these things are actually possible. So I wanted to hear more from you, given all your experience on the ground, is what is it about the factory process, especially in China, that actually makes this possible? And what are some of the tangible impacts that it might actually have in lead time or flexibility?

14:04 – Simon De Raadt: Yeah, I’ve been lucky to actually live in China for ten years and visit hundreds of factories. And it’s always fascinating because China itself actually, you can plot the map and you can say this is producing bags, this is producing lad posts, this is producing technology, this is producing electronics. Everything is so condensed, so centralized actually in a region, which means that when a factory is producing similar products in the same location, that means the suppliers, the raw materials are also circled around these factories.

I just remember driving into a city, I think it was like Dongwang, close to Shenzhen in the south, and there were tons of factories. They mainly produce either shoes or plush toys. And we just went from one neighbor factory to the other neighbor factory to the other neighbor factory and it was fascinating to see how close they are. And then you ask them, so what happens if you run out of raw materials?

Well, I just called and in a few hours, normally 2 hours, someone is delivering whatever it is I need. 2 hours? Yeah, of course. And that was mind-blowing, that it works like this, that it’s really just in time. Actually, the whole infrastructure is built around manufacturing. China is known obviously like the factory of the world, but they have really thought this through. They have actually looked at what kind of raw materials are located. Where should it be close to a port?

Should it be close to the original resource? Which area makes the most sense to produce these kinds of products? It’s fascinating just to really think about the concept and this is the reason why these lead times can be so short if you want to optimize it, because it’s all available. And it’s crazy if you think about the financial impact for a DTC brand because I would say that this is something really tangible a DTC brand would like to know is how can I reduce my investment, my cost, how can I increase my return?

We have a client now that they negotiated just now, last week with their factory that they can pay two weeks after it leaves the factory to the warehouse in one day or two days it’s in our warehouse and is ready to start selling. So basically they already sold within two weeks the products that they have purchased, technically, but they haven’t paid them yet, and then they can just kill again. So the cash flow and their biggest, biggest bottleneck, what they had before working with us is that they were shipping everything by sea to the US, had to wait two to three months.

Things arrive, then they start thinking about the next PO and like you said, two to three times a year they place the order and now they just do it weekly or maybe twice a week even, because that’s how lean it can be. And they don’t have to even have to prepay. So it’s almost like a drop shipping concept, but for a really sophisticated brand, high quality, focused on consumer experience and scaling and the supply chain, having this factory support in this all-game You is crucial now.

17:16 – Dayu Yang: So you brought up a great point around cash flow and this is actually one of the, by far, I think one of the biggest financial impacts of being able to achieve just in time supply chain planning. It’s your balance sheet. Now, typically when you want much faster lead times, it’s going to be much more expensive when you don’t have the option to, for example, ship directly from China. Now I will just say that when you’re thinking about the cost of shipping directly from China to an end consumer, let’s just say in the US, for example, the cost of shipping that end-to-end is going to be somewhat similar to if you utilize air freight as the first leg and last mile USPS, for example. Plus, actually, if you include all the fulfillment costs, custom costs, it’s actually going to be slightly cheaper than if you’re shipping in air freight anyways to a local fulfillment center.

Now, I will be very honest though, that direct from China fulfillment to customers is going to be a bit more expensive than you’re literally filling up whole containers to ship to your local US fulfillment center and last mile fulfillment. But the point though is that it’s not about that comparison only of the unit cost. In one example, in the traditional model, you might have to literally hold six months of stock at a time, given the longer freight lead times.

And to prepare to not run out of stock, versus you might need to just hold a week or sometimes even days of stock if you are directly fulfilling from China. Anyways, we have many clients who move to this model and to a somewhat extreme, might reduce their inventory risk on their balance sheet by 90-95%. And that’s crazy. I mean, it might be a little bit more expensive on an average basis, but it dramatically reduces their balance sheet risk.

And another thing that actually is very related to that, but maybe not all brands are thinking about deeply enough, is the avoidance of selling out. I remember taking supply chain planning classes back in business school, and there’s a very important point to balance out two different types of costs of inventory planning inaccurately. So first of all, I would just say, and Simon, I’m sure you agree with me this, I have never seen a perfect inventory plan, never seen a perfect inventory projection. It just doesn’t exist. It’s either going to be under or over.

There’s actually costs associated to both. Obviously, if you plan for too much inventory and you don’t sell it out or sell it out fast enough, then you incur not only additional balance sheet risk, but also potential holding costs or warehousing costs and just not being able to, you also have to incur warehousing and holding costs as well of that inventory. Now that is something that a lot of brands are actually focused around because it is the more obvious pain point when you literally have cash tied up in inventory where you’re paying warehousing fees.

However, the other side of the coin, which is also incredibly important, is the opportunity cost of selling out if you actually under-project your inventory. So that actually reminds me that my first DTC brand Pillar Learning, which was featured our Shark Tank a few years ago. Thankfully, that was a very great experience. However, that created a big problem for us. The Shark Tank episode was announced literally like a month, the airing date at least a month before it was supposed to air. And that was right at the start of, or actually, it was right in the middle of the Christmas sales season.

So it was a great problem to have. But by that time, we already planned for our inventory in the US at that time for the entirety of Q4. So after Shark Tank aired that DTC brand Pillar Learning, it sold like 1000 units within the day and it completely blew up our projection and we knew that we did not have enough inventory in our US-based warehouse in order to support the rest of Q4 sales. So we actually had to turn off all of our marketing and that was opportunity cost. Right now, the year afterward, we started primarily shipping Pillar learning products directly from our China fulfillment center and that completely avoided that problem in the future. However, that specific month, I would estimate that we probably left mid six figures or more on the table because there was so much demand from customers because of that Shark Tank airing and we just didn’t have the stock or the ability to actually fulfill on-time.

You know, that’s something that I do want to remind everyone is a big concern that you should be aware of to have the right amount of inventory. But also thinking about to make it more tangible with some of our clients. For example, is many of our clients who never experienced from China fulfillment. They have been planning for three, six months of inventory at a time. A big part because they don’t want to sell out, because they don’t want to leave money on the table.

Now, by being able to ship directly from China, even for part of the orders, a client that might have planned for six months of inventory at a time now might only have to plan for one month’s inventory, even to their US fulfillment center, because they know that if they do actually sell out, they can actually use China fulfillment as a backup. So that adds additional flexibility and avoids the issue of potential opportunity cost of not selling out.

And I think that inventory holding costs and cash tied up in balance sheets, that’s even more important these days. So right now it’s the end of 2023. Interest rates are high around the world, so the cost of holding inventory is actually much higher than it was back in 2021, for example.

23:11 – Simon De Raadt: I think it’s interesting how came to the same conclusion, so to say, like you from Pillar Learning’s perspective, having a brand getting stuck going through the momentum. And from my side, more from the supply chain perspective with logistics, where you see people shipping out products without having the stock and just getting stuck by not having the access to products even when they’re scaling. So we have the same experience from a different angle. The three main reasons why people are actually using fulfillment from China is like you said once, one is the backup option that you don’t sell out.

The second one is to scale geographically to actually target more countries than where you might have the stock lying around. The third one is just to test new products without committing to huge stock. You can just try new products and that goes for Amazon as well. Amazon sometimes has limited space, so you just say let’s do my fast movers. Actually, you could sell the other stuff as well, using for example, China as FBM option. I’m sure we’re going to get to that much more in detail during this podcast, but these are the main three reasons that we see it’s not being able to sell out, having a backup scale globally and launch new products.

24:28 – Dayu Yang: That all makes sense. And hopefully, the benefits of being able to one achieve closer to a more previously theoretical, just-in-time type of inventory planning due to the ability to ship directly from China is hopefully the benefits are clear. Now, I want to shift gears a little bit and talk a little bit more about how this happened in the first place. Like what is the history of DTC fulfillment from China? And I’ll add a little bit first, where this kind of agility in the supply chain already existed a long time ago. I remember maybe ten years ago I was in China and consumers would order and myself would order from Taobao, which is like China’s domestic Amazon basically.

And the expectation now. So Amazon buyers in the US, you expect two-day shipping, two-day Prime shipping, right? But sometimes longer. Now in China, even ten years ago, if you buy something from Taobao two days would be like late. You expect things the next day.

Right.

And at least from a consumer standpoint, if I’m thinking about consumers, like, that was just the expectation. Right? And factories and Taobao sellers had to actually keep up. So this already kind of existed in China already. But I’m now curious, though, from this first, starting in China, how do we get to here today? What is the history of this—also being able to ship DTC to around the world as well?

25:53 – Simon De Raadt: Yeah, I saw it from two different angles under China, consumer-centric part. My iPhone broke once at 08:00 p.m. And the same day, the same evening, someone came to fix it. Just the concept of serving consumers. And obviously, when you’re in a dense place, there is much more availability of actually getting the service you need. But back to the point of how it developed. I was lucky to be one of the first movers within this small parcel.

Delivery progresses, and it started with two solutions. Back then, this was 2012, we had China Post. People know that as ePacket, and you had express companies, FedEx, UPS, DHL, these were the two options. Then we at that time, as a postal company, we’re like, okay, how can we position ourselves? And then we said, okay, let’s stick in the middle. We get in the middle, like probably 25% of the cost of express, but it’s going to be three times faster than China Post.

That model just worked perfectly. So actually we were selling the postal solution to ecommerce sellers, including players like Yunexpress. That grew out to be Yunexpress, but also AliExpress and all these main platforms. The only thing is they had to combine all the orders, sort them, put them on a plane, fly, and then inject them. In this case, it was in Europe, they inject in Europe, and then it arrives in the country, and then again it goes to Canada, to Brazil, it goes to Australia. It completely didn’t make sense.

But that was the starting point, because either way, it was faster than China Post and it was cheaper than Express. And that just evolved from a zero euro business, zero U.S. dollar business, to a nine-figure business. It just took off because we were just the right time and the right moment to actually experience this growth together with China. This evolved into companies stepping in and saying, I would like to pick up your goods from your DTC brand. You pick and pack your orders yourself.

I’m coming with my truck to pick up. They put it all in one warehouse of a conveyor belt, sorting out all the orders, automizing it, book the air freight and inject it into the last mile. So suddenly you’re not flying to Europe anymore, but you’re flying directly to Canada, to US, to Australia. No need to actually stop somewhere else, but they can just inject it in the last mile, then suddenly the lead times go way shorter. We’re now at five to eight days at this point, and we came from 15 to 20 days, sometimes 30 days.

I mean, if you ask someone about ePacket back in the day, it’s maybe plus 30 days, it’s no longer slow and it’s no longer expensive. Maybe if you compare with Express, it’s so much cheaper and so much smoother. And at the same time, you had these online sellers that are using Aliexpress as a source, as a supplier, that got stuck with the consistency, the stability, the control of the whole supply chain, as well as the quality of the product.

Then it was the question, okay, how can that be resolved? And the solution is actually getting the goods faster into a network and injected directly into the last mile, arranging the customs clearance with the data that you already have collected, and then do the last mile delivery. That has been a game changer, but it’s been ten years, ten years in the making, and it’s not ending here, because I know already, like companies like Alibaba, they want to do 72-hour delivery globally.

I think now it’s more five to eight days. But if that’s going to happen, and I think both of us, we know why we do what we do, we know that the overseas warehouse makes sense sometimes, but financially it’s not going to make sense anymore. If you can do two to three or two to five-day delivery globally, it will be a complete game changer. And we’re educating the market to make them ready for this because the supply chain will be ready, no doubt, but is where the DTC brand owner is going to be ready in time to compete with whatever is coming, I think that’s going to be very interesting to watch.

30:02 – Dayu Yang: So ePacket, I remember those days during those years, five, six years ago, maybe seven years ago. That was when dropshipping in Western markets at least first started booming. And it’s actually interesting for those who don’t know, I’m Chinese, Simon is Dutch. But I think we were actually flipped in our physical location. At that time, I was actually in the US. And Simon, I think around that time you were in China, so you were more aware of the physical logistics chain. But at the time I actually started out in ecommerce, dabbling in dropshipping myself I ran some of my own dropshipping stores and at the time there was just ePacket. So from a store owner and customer experience angle, I was very aware of some of the implications of using something like ePacket or China Post. So it was cheap enough, okay.

Like it was one of the reasons why it was actually efficient to feel the boom of dropshipping back in the day. And it was fast enough, I would say, especially like in those days where honestly customers end, customers were not very aware of drop shipping and they were okay, quote-unquote, okay with maybe up to like 20-30 day shipping. But I honestly think it was because they didn’t know better at the time.

And there were a lot of issues with ePacket even on the customer experience. Outside of the speed it has Chinese on the labels, the tracking is terrible. And actually part of the reason why the tracking is terrible is because exactly of the original process you’re talking about and how China Post works is China Post would, is a Aliexpress seller or dropshipping supplier, for example, would send packages through China Post, basically equivalent to like USPS or Canada Post, whatever.

And then it would just kind of disappear for a while. There is some kind of process for bulk postal services to send packages to each country, but in reality, there’s very little transparency and control on that handoff process. So if it’s consistent, it is not too bad. But if during potential supply chain disruptions during Q4, especially during COVID times, for example, because of the lack of control, you are seeing delays for a month, two months at a time, and literally no updates in the middle.

So that was just a big problem with the customer experience. Now it took advantage of all the benefits technically of just-in-time supply chain planning. Right. You don’t have to hold that much stock. Technically you were dropshipping. So most dropshippers at the time, they didn’t even touch their stock. They had no involvement in the product itself. Right. However, the downside of that is you’re looking at like 20-day, 30-day shipping, even just with the postal service itself.

And customers are much smarter these days. And not to mention by the way, the other obvious problem are dropshipping. Having no control of your product, there’s quality issues, there’s just lacking control. So I certainly don’t suggest dropshipping as a way to scale up your ecommerce brand. Maybe it’s a good way to test, but definitely don’t drop ship from China as your scaling strategy. As we’re talking about this idea of agile and just in time.

A big portion of what drives this idea of just in time is actually a focus on the end consumer, right? A focus on the demand rather than the supply side. So I think that this is actually related to how couriers like Yunexpress or 4PX or CNE have actually been proactively aware of the actual needs of the market. So both in terms of the end customer for packages, but also store sellers who utilize them as a courier.

And they actually address some of the issues of those customers by exactly doing what you’re saying. Being able to control the entire freight process, being have full control over the handoff. And this is exactly how you’re getting four to eight-day shipping. Better tracking in English or in German, depending on the market. And actually, a label that actually uses a USPS or Dutch post, for example, last mile, all in the local language or in English as well.

And this is one of the biggest innovations in the logistics chain that really is focused on achieving the pain points or the goals of the end consumer and actually offering a better service that then actually enables more businesses to actually utilize a more consistent type of direct-from-China shipping.

34:49 – Simon De Raadt: What makes sense actually is you think about it, it’s postal to postal. So China Post is handing it over to another post. I don’t know about you, but post is good in the last mile. They’re not good in the global delivery. The cross-border part, this is still like, most of the time it’s semi-government or fully government-owned companies that are managing relationships all over the world. But companies like what you mentioned, Yunexpress and CNE all met their CEOs and spoke with them in person, went to some of their homes even.

And it’s just fascinating just to see how they say, okay, this first mile needs to be commercial. It should not be postal because postal is we buy a certain space, this is fixed, and we stuff it as full as we can. And if we don’t have enough space, it goes the next day. There’s no efficiency. It’s just based on scalability, skill. But all the efficiency is the commercial part. If you can control this first mile and then inject it into the last mile. Because a postal, the advantage of postal is that they have to cover every corner of each country.

They have to go everywhere. They not only focus on the dense areas, the cities, but even remote. It’s by law that they’re forced to actually visit as far as any remote area, which is making them a great way actually to utilize them as a last mile, the smartest way. What Yunexpress and all these players have done is dissecting the supply chain and saying this works well, yet let’s utilize that. This is something we can do better.

Let’s fix this. And that’s been great to see how that has evolved over the years.

36:25 – Dayu Yang: Simon, we could spend hours talking about the details of logistics. Let’s definitely plan for a deeper dive in a different podcast episode. Certainly, this is a deep dive area that let’s plan for in the future as well. For now, though, this more recent method of using something like Yunexpress this newer courier service that replaces the previous or doesn’t replace, but a better option than the previous postal service, is working extremely well, especially if you don’t have experience shipping directly from China. There’s always a very understandable concern about consistency, about customer experience, and we actually have data to show it works most of our ecommerce clients, so EcommOps we only specializes in direct parcel fulfillment from China to global customers.

And most of our clients have above four, sometimes almost perfect or perfect Facebook feedback scores, all shipping from China. So anyone who’s in DTC advertising knows how important the Facebook feedback score is. And I think that is just a very critical data point that everyone should know that shipping from China actually can actually achieve your customer expectations. I will caveat though, is that you want to set the right expectations.

Don’t ship from China and say it’s going to arrive in two days. Don’t do that because then your customers aren’t going to be happy about it. Be honest how long it’s going to take. Again, it’s not going to take that long. And over and over again we see brands not only achieving great success in terms of the flexibility but actually achieving very high ratings from their customers in terms of feedback scores as well.

38:05 – Simon De Raadt: Can people recognize on the parcel that is coming from China? No. In our case, it’s a white envelope with a last-mile sticker on it. You’re not going to see it. And the same is for the tracking. You can decide, do you want a full transparent tracking or do you want just the last mile only? It’s all possible. So when people are worried, and this is really a concern for a lot of DTC brands, they don’t want their consumers to know it’s coming from China. But having that just solved by just having everything white labeled, even branded, if they want, even the tracking can be branded. There are plenty of apps that can actually facilitate that process as well.

It’s just a game changer just to have people actually seeing it like a local experience, but actually benefiting from an optimized supply chain where one product is not being touched multiple times in the chain, which just adds money, adds cost to the whole chain itself.

39:00 – Dayu Yang: Yes. Now let’s shift gears a little bit, and let’s make a little bit more tangible and talk about one of the biggest brands out there today and how they actually utilize, direct from China fulfillment and utilize all the concepts that we’re just talking about to be crushing it. And that’s Shein. Some call it shine, but it’s Shein. S-H-E-I-N. They’re a great example of utilizing all the concepts that we just talked about.

Recently, they announced that they’re expected to IPO at roughly $90 billion. That’s $90 billion. And they’re absolutely crushing it in the fashion industry. I remember back in the day, actually, Simon, we were just talking about this recently, is your wife went to business school as well? I went to business school, and at the time, Zara, or Zara’s parent company, was like the darling of the fashion retail industry, because they were one of the biggest innovators in terms of fast fashion.

And what Zara and assimilated H&M were doing back in the day is that they actually revolutionized the fashion industry, because traditionally in fashion, everything was done in seasons, like three, four seasons per year. But, Zara overturned the model by innovating this idea of fast fashion, much more flexible supply chain planning, and getting closer to this idea of more agile, just-in-time inventory planning. However, Zara inherently has a big limitation, is that they focus primarily, especially at the time, on physical brick and mortar. So they have thousands of stores around the world, which regardless of how fast they can actually plan the production runs, they still can’t avoid that long freight time of distributing those goods to each of their stores.

And this is where Shein also positioned as fast fashion. Shein is killing it in this space. And I personally think that Zara and H&M are actually really in trouble in the future right now. Why is that, Simon? I’d like to hear more from your point of view and your understanding of how she actually uses their production supply chain and what are they actually doing that is actually enabling. 

41:16 – Simon De Raadt: So actually, Zara, I would say, paved the way a little bit for them because they have optimized where they could optimize, meaning having white shirts and black shirts that are selling all year round, just getting it from, for example, turkey or southern Europe, just to get the goods fast whenever you need. So they’re already managing their up and their low, and then having the seasonal products more in batches produced and then normally shipped from China or any other location.

But what Shein is doing very differently is the whole concept of actually stepping into the demand chain. Just the whole concept of not looking at how many orders am I getting, but how many clicks, how many views, how many likes. Most of the time they even launch the product online first to see what’s the uptake. Is it going to get enough traction for them to start production or increase production?

They buy the clothing. And clothing is very difficult when it comes to fulfillment itself. You have to think about sizes, colors, styles, seasons. It’s a real headache. But what they’ve done is they’re buying the rolls of fabric, they buy it by the roll, and how many items you can make by a roll is basically the unit that they have. So let’s get 100 or 200 out of that. And then because they are close to the factory, most of their factories work 90% or more exclusively for Shein. That is just mind-blowing that you actually have the factories on board without owning them.

And that’s where a lot of time, where Western companies sometimes get a little bit stuck, is that they own so much of their own supply chain that their costs are significantly higher. A lot of Chinese entrepreneurs, they look at fixed cost, forget about it’s fixed my variable cost, and then add a margin, which is a complete different concept of that. And that’s also what Shein is doing, is like, okay, this is my likes views.

Let’s just produce that, see how it goes. And then in the next few days, I can just get the new beds ready and I can ship in five to eight days and get it overseas. And I’m making sure that if there is an issue that it can be returned to somewhere locally and returns is a whole different discussion. But them understanding the consumer experience from production till delivery and even returning it has been a game changer, and it set the tone for them.

I think at some point Shein is going to have offline stores. I think it’s going to be a mix between offline and online. And Zara obviously has an online presence as well, but they’re using their stores or their warehouse or distribution centers to ship it out. So it’s a very different setup. It will be harder for Zara to switch to the model of Shein than vice versa, I would say.

44:14 – Dayu Yang: So you mentioned actually Shein can plan based on like a fabric row. Know more direct implication is that they can literally plan for a new product or new variant launching with just a couple hundred units in a batch. I mean, that’s ridiculous in terms of not only just traditional fashion, but especially a company that is potentially valued at $90 billion to be able to plan a batch as small as a few hundred units in a batch.

And this is something that Zara can do. And particularly traditional retail, they can’t really do. And a big part of that, or maybe the main part of that is because of the very long lead time that they usually have. Right. Whatever the lead time is, is not like within a day. So most of Shein’s factories are literally within a day. They can produce fast, they can send their products to Shein very quickly, and through the initial concept, to the production, to the initial marketing and testing, to the end consumer, many times it takes literal weeks.

I’m not talking about weeks to market or launch anything like weeks. To have a product concept, to have a small batch produced, literally then delivered to a customer’s door within like three weeks, that’s a little bit of, kind of like the extreme what Shein does, but they do it all the time. And the other implication of that is that they can be extremely flexible in how they adapt, that they can scale up from a few hundred units in a badge to 10,000 units within probably also weeks. I mean, it really depends on the production specs, right?

But then they’re able to not only minimize their risk to almost too extreme for the size of the company, but still minimize their risk, but also not be held back if demand spikes up. If something really crushes it, they don’t have to wait for three months to have another batch in to sell more of it. They could ramp that up in literally three weeks. So this whole process is one of the perfect case studies of being able to utilize direct-from-China fulfillment globally at very high scale. And this is exactly the reason why they’re able to crush it.

If you really think about it, what Shein is doing is in many ways almost like dropshipping from China. On steroids. On massive steroids. Right. What is the big difference, though? We did just talk about how we don’t really suggest scaling up with a pure dropshipping model, and Shein is actually very close to that model fundamentally, especially when they launch new products. This is something that I want to emphasize for especially those who are dropshipping or maybe have some dropshipping experience and moving on to a DTC supply chain is you can actually have the benefits of that flexibility.

But by having at least some control over your supply chain, you’re able to then have the best of both worlds as well. Now, Simon did mention that it doesn’t necessarily make sense for you to open up your factory, like to literally control your own supply chain, because that actually adds a high degree of cost and inflexibility into your supply chain. However, what we actually see to be a really nice balance is taking advantage of all the flexibility of shipping directly from China, but also having a certain level of control, at least mindfulness, of your production process.

And actually, one of the biggest reasons why, Simon, you have all these factories that Shein doesn’t own, but cooperative with this process is because they have very strong relationships. Right? And this actually brings back to a point where you can talk to your factory, you should talk to your factory actually. You should actually build a relationship with your factory, even if you don’t control their process.

And you should have open and creative conversations around how can you actually get additional agility and flexibility even in your production runs. And there are specific ways that you could talk to them about it, which is definitely a deep-dive topic for a future episode. But I want to emphasize that this is something that is not only possible and feasible to have that relationship and have that creative discussion with your factory, but literally, it’s being done both at massive scale with Shein and at certain levels of scale, even with our own ecommerce clients or any kind of DTC brand that has that creative relationship with their factory as well.

49:06 – Simon De Raadt: Realize as a brand owner that it’s not Shein shipping line, it’s available for everyone to use the exact same shipping line. We’re using the exact same shipping lines as Shein and Teemu are using. It’s all available, but it’s just that it makes it sound like it’s only for them or they can do not. I don’t know how to start. It’s available. And I think that’s something to realize that how the supply chain works and how Chinese players like Shein is obviously Chinese to leveraging that.

And for us as a Chinese fulfillment center, to be able to make it available for global brands to tap into that, that is why we are doing this podcast, try to educate you, give you understanding of what is out there, what is available, how are large companies doing this and how can it actually become available to you? And that’s all pure, getting the full understanding of what the flow looks like and how you can leverage it.

50:06 – Dayu Yang: Yes, definitely. And we certainly will continue to share these insights on what is exactly happening, especially on the China supply chain side I will also add that this is happening. Shein has happened, Temu has happened and continuing to affect the entire ecommerce industry and the entire retail industry. So this is something that is not just a fad or not just a trend. DTC China fulfillment is here to stay. More and more brands are utilizing it and I will just be very frank that any DTC brand, especially in a more competitive type of segment, if you’re not at least considering if direct from China fulfillment should be part of or supplement your supply chain strategy, at least then I would seriously reconsider that because you may very well end up being behind the game as your other competitors continue to innovate utilizing this method. Let’s wrap this up before we go though, I really wanted to hear what you think that you like our listeners to take away from this episode.

51:16 – Simon De Raadt: Yeah, it starts already. In the beginning of this episode, it’s about actually having the conversation with your manufacturer and dissecting what are actually the elements or resources or raw materials that are part of your product and how can you optimize it. It’s actually just putting yourself in a more humble position and let you be educated by your manufacturer on how you can actually do your production better, smarter, but also cost-effective. And they can advise you because they can tell you exactly where the costs are, what are the bottlenecks and how you can actually scale faster.

51:51 – Dayu Yang: And on my end, would love the listeners to really consider this idea of adding agility to your supply chain with just-in-time supply chain planning. Now, it doesn’t have to be from China. The core model of it is really just having your production as close to your fulfillment center as possible. Mostly that does make sense in China if your products are produced there. But again, at the very least, you should actually consider it as an option because this is where the entire industry has been trending to and don’t be left behind by at least not seeing how you can implement this in your strategy. All right, thank you everyone for joining us in this episode around agility in the supply chain and how DTC parcel fulfillment from China can help support you. Again, this is Dayu and Simon, co host of the ecommerce podcast.

Hope you enjoyed the podcast and found some useful insights from it and see you guys next time.