In this episode of eCommerce On Tap, we dive into supply chain and vertical integration as decisions that can make or break a brand’s success. Nathan Resnick brings us an enlightening conversation with Justin Brown, Dollar Shave Club’s Chief Supply Chain Officer. Justin’s vast experience in supply chain management offers valuable insights into the intricate art of vertical integration and strategic supply chain decisions.
The Birth of Dollar Shave Club’s Vertically Integrated Factory
Nathan dives straight into the discussion by addressing the elephant in the room—the company’s vertically integrated factory in Israel. This factory is where the majority of Dollar Shave Club’s razors are produced. Given the complexities of supply chain management, Nathan’s curiosity about how this facility came into existence sparks the conversation.
Justin begins by outlining the driving factors behind this strategic move. One key element was the abundance of engineering talent in Israel, particularly in the razor manufacturing industry. Justin notes, “You have years and years and years of experience, specifically within the razor manufacturing industry itself, of engineering talent that’s located there in Israel that we were able to take advantage of.”
Additionally, the climate in Israel, characterized by its arid and dry conditions, aligns well with manufacturing processes where rust can be a significant adversary. Justin emphasizes the importance of assessing geographic locations when making such decisions.
However, collaboration with the Israeli government truly set this move apart. Justin highlights how this partnership provided invaluable support in establishing the factory. Despite its geographical distance, this facility allows Dollar Shave Club to remain competitive through cost-efficiency and control.
Timing the Vertical Integration Leap
As the conversation unfolds, Nathan delves deeper into the decision-making process behind vertical integration. He inquires about the ideal stage at which a brand should consider such a move. Justin’s response is insightful: “You can look at vertically integrating way earlier than the 250-million dollar mark. The 100 million mark probably makes some sense from a logical threshold standpoint.”
Justin emphasizes that the decision to vertically integrate isn’t solely based on a revenue milestone. Instead, it should be influenced by various factors, including the specific function being considered. Dollar Shave Club chose to pursue vertical integration selectively, focusing primarily on manufacturing and distribution.
The Cost Analysis Driving Vertical Integration
One cannot discuss vertical integration without scrutinizing the cost analysis that underpins such a decision. Nathan probes further, asking about the cost savings percentage that would justify vertical integration. Justin responds, “Somewhere in the 20 to 30 percent range, I think, is a meaningful savings opportunity that should justify looking into something a bit more deliberately than maybe just a passing glance.”
However, Justin also highlights the importance of flexibility and control. Vertical integration brings control over processes, quality, and flexibility in product development that can be just as valuable as cost savings.
Product Development in a Vertically Integrated Model
Regarding product development, Nathan inquires how vertical integration impacts Dollar Shave Club’s ability to innovate and develop new products. Justin provides insight into their approach: “It’s a bit of a mix where, from the razor side of things, which is obviously the bread and butter of our business, we have vertically integrated that entire operation.”
Dollar Shave Club has consciously chosen to internally handle product development for its flagship razors, fostering a continuous flow of ideas and innovation. However, they maintain relationships with third-party manufacturers in other product categories to balance innovation and cost-effectiveness.
Strategic Bets in the Ever-Evolving E-commerce Landscape
The conversation takes an intriguing turn as Nathan explores the strategic bets that Dollar Shave Club has made in response to the rapidly changing eCommerce landscape. Justin highlights their shift in supply chain strategies in the wake of the COVID-19 pandemic and the explosive growth of e-commerce.
One key strategy is diversifying its supply base outside of China. Justin emphasizes the importance of exploring new regions for sourcing and materials, reducing reliance on single points of supply. This proactive approach allows Dollar Shave Club to adapt swiftly to market fluctuations and cost-effectively manage its supply chain.
Another critical strategy involves investing in automation and process improvements within their fulfillment centers. Justin underscores the balance between automation and human labor, enabling them to maintain flexibility while optimizing efficiency.
Navigating Supply Chain Diversification
Justin shares valuable insights into how Dollar Shave Club navigates diversifying its supplier base outside of China, a complex endeavor. Their approach involves a combination of research, expertise, and boots on the ground. Justin mentions, “Understanding the pattern of behavior from customers, Amazon, in particular, has been a challenge to get your hands wrapped around in the past in terms of forecast accuracy.”
Dollar Shave Club has evolved its approach to supply chain diversification, moving from a traditional forecasting model to one that emphasizes inventory-based strategies. This shift aims to mitigate the challenges of forecast variability and build redundancies within the supply chain.
Metrics That Drive Supply Chain Excellence
In the world of supply chain management, metrics are the compass that guides decision-making. Nathan inquires about the key metrics that Dollar Shave Club tracks to maintain supply chain excellence. Justin provides a comprehensive overview:
- Performance metrics are tracked monthly across the entire supply chain.
- Metrics related to shipping efficiency and on-time delivery are monitored daily and weekly.
- Customer service, inventory availability, and inventory levels are critical financial metrics.
- Cost analysis, including labor management and production cost per unit, is paramount.
These metrics collectively form the foundation for Dollar Shave Club’s supply chain management, allowing them to optimize performance, reduce costs, and meet customer expectations.
The Hard Lesson of Preparedness
To wrap up the conversation, Nathan asks Justin about the hard lessons he’s grateful to have learned in his extensive supply chain career. Justin reflects on the lessons learned during the COVID-19 pandemic. He emphasizes the importance of being deliberate in investment decisions, particularly in responsiveness and flexibility.
Justin highlights the need to identify and address single points of failure within the supply chain, ensuring preparedness for unforeseen disruptions. The lesson learned from the pandemic is clear: redundancies and proactive strategies in place are crucial to navigating the ever-changing supply chain management landscape.
Pinpointing the flaws of inventory management based on fluctuating demand forecasts, Justin advises brands not to make decisions solely based on presumptuous statistics.
Takeaway
Justin Brown’s insights from Dollar Shave Club offer a compelling perspective on the intricacies of supply chain management, vertical integration, and strategic decision-making in the e-commerce industry. As e-commerce continues to evolve, the lessons shared in this conversation serve as valuable guidance for brands seeking to master their supply chains and thrive in a dynamic and competitive landscape.
Justin’s experiences underscore the significance of agility, flexibility, and continuous improvement in achieving supply chain excellence, and his wisdom resonates as a compass for success in the ever-evolving world of e-commerce.
Get in Touch with Justin
Follow Justin on LinkedIn.
