Is This the Ultimate Supply Chain Model?

On one end of the supply chain spectrum we have pricey duties and slow overseas shipping. On the other end we have direct shipping from China…but with a delocalized experience. On this 137th episode of the E-Comm Show, Andrew Maff interviews Izzy Rosenzweig, CEO and founder of Portless.

In this episode, Izzy Rosenzweig illustrates the biggest cash flow culprit of them all: inventory. When your inventory is held up in shipping or takes months to arrive- it’s hard to capitalize on opportunities and plan for sustainable growth. That’s where Portless comes in. With Portless, your goods are available for sale within 48 hours of being produced. How do they do it? You’ll have to listen to find out…

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Is This the Ultimate Supply Chain Model?

SPEAKER

Andrew Maff and Izzy Rosenzweig

CONNECT WITH OUR HOST: AndrewMaff.com | Twitter: @AndrewMaff | LinkedIn: @AndrewMaff

Izzy Rosenzweig
Izzy Rosenzweig, a veteran of the DTC industry for over 10 years, gained recognition by launching his first DTC company, Browze, in 2012. Browze, specializing in home and kitchen products, successfully delivered over 2.5 million packages worldwide. After opening his own China-based fulfillment center to improve customer experience, Izzy recognized an opportunity to assist other e-commerce brands with direct shipping to their customers, leading to the birth of Portless. With Portless, Izzy aims to revolutionize the e-commerce industry by massively improving cash flow and profit margins through direct fulfillment.

00:03

Do your research. We're just very confident we're the best in this part of the business for Western brands Hello, everyone and welcome to another episode of The E-Comm Show. I'm your host, as usual, and I'm sorry for that. My name is Andrew Maff, and I am so excited for today's show. I am joined by Izzy Rosensweig, who is the CEO of portlets I was so confident I was gonna get your last name right.

01:19

I was perfect. I told you, you got it. Got it.

01:22

Obviously, Izzy, is he thank you so much. I'm gonna butcher your first name now. Thank you so much for being on the show. Super excited having a show I love this is an area we don't get to talk a lot about. Because it's just it's so it can be so complicated. So I'm so excited to have you on the show so that you can obviously help kind of weed our way through some of those challenges. But obviously, let's do the usual thing, pretend no one knows who you are. And if you can tell me a little bit more about portlets. And we will take it from there. Absolutely.

01:50

First of all, Andrew, thank you for having me. Very excited to be on your show. High level on myself and the company. My name's Izzy Rosensweig. I have a company called pointless, in short to a pointless does we refer to as direct logistics. So if you think about a typical ecommerce business, direct similar business, the typical supply chain is, let's say I'm selling this polo shirt, and we're gonna manufacture 10,000 polo shirts, I'm going to put on a boat, and it's going to take probably around 45 to 6070 days on water. And only once it gets to the states, am I bringing it over pay import duties, moving it from the port to my US facility. And only once it's unpacked my US facility, could I start selling to my customers, you're looking at two to three months and a pretty standard supply chain expectation. That's a long time to wait to sell inventory. And then once you get the order, then your shipping it would take four to seven days on average across continents. US that has been EComm since really since the beginning. We take a very different approach. So we say hey, once you're done production, don't put on a boat Senatus we're based in Shenzhen. If you're in the Guangzhou area, we'll get your product within two, three hours. If you're anywhere in north or west of China, we get a two to three days. But basically instead of two to three months, two to three days your products in our facility. We're connected to Shopify, any software you're selling on inventory gets fed to you that you now have inventory. You could sell it to your customer, we will deliver it to your customer on average in 5.2 days in the US USPS driver USPS tracking number USPS label 100% local experience. So from your end, the consumers and 100% make a transaction five and a half days later USPS USPS driver dropping off a package got scanned in LA they delivered your house in San Diego local us experience but for the brand. Lead time just went from months to days, your cash cycles much faster. inventory needs go down to that need 10,000 shirts will need 10,000 shirts and I had to wait three months now maybe have 2000 shirts and you could reorder as you're selling. And then the idea of overproduction goes away because you are much more agile and under production when you sell out November 10 of this year will typically supply chain you missed the season we say no go back to production November 20. It's ready yet Black Friday. Capture demand. So that's a agility and demand agility and inventory. Be warehousing with us is cheaper pick and pack rates are cheaper. No container cost we don't use containers. No import duties section 321 import duty free as long as your average order value is $800 or less sorry under $100 It's important duty free so no tariffs no duties and shipping rates start at five bucks. Again our focus is light items like apparel, cosmetics jewelry, small atronics small products so for those lighter items, great shipping rates and third thing we do this in 50 countries around the world UK will mail Australia Australia Post so not only do you have less inventory and and like we better cash flow. You now can sell around the world super metrics but marketing there and the consumer Oh assessing local experience, that is what we do for portwest. We take a whole different look of logistics and supply chain.

05:06

You're either the world's best salesman, or there's a hole that I'm missing. I don't. How is that? So okay, so you're basically fulfilling directly from China overseas, I don't need to put it on a boat, wait two or three months for it to show up and get to my three PL or my warehouse, whatever. And so yeah, there's just a huge hole there that I'm missing of, like, I don't understand why is that not a thing? already? I know. And keep in mind, and as I'm sure all of our listeners know, my knowledge in operations inventory. All of that is like, impressively low. So like, it's amazing how long I've been in this industry and how little I know about that side of things. So explain to me how that's not already a thing. Why is why are we not just delivering straight to the consumer, at least a portion of the inventory directly from overseas? I'll

06:03

explain why. So first of all, this business has been around this model has been around for over 10 years, I've been around in this business model for almost as long as it's been around. Now, it does exist, how does sheen run their supply chain? How does Tammy run their supply chain? Right, using the supply chain? Now they're not very good at given the local experience, they're gonna shine a tracking number often from them know how to separate the the last mile from the first mile, and give that consumer a US experience. But it's been around for a long time. Now, the reason why only now is getting only now are we helping other brands do this at a much more aggressive scale. Because it only in the last two and a half years, did eight, it become a 100%. Local us experience, it used to have manager on the tracking number manager on the label, right. So it'd be very confusing for consumers so wouldn't be very relevant for American brands. But now it's 100%. Local us experience and speed time is now five and a half days, right, we're used to be two weeks for delivery, because it went down a different model, you should go down like the package China Post model, we don't do that model. So the last two and a half, three years, the direct injection model, which means we get orders, we put on pallet, we sort it based on where the US where the customers in the US put it on pallets, and then we put an air cargo planes if you think about it, how long is a flight? Well flight from trematodes, you know, 14 to 15 hours on average, overnight can be in the US. So the idea of getting something here very fast, make sets and we had at USPS near the customer. We do injection in California, Chicago, New York, Arizona, Texas, Miami, Atlanta. So no matter where you are, we're handing it to USPS your your newer customers. So zone one, zone two. So really, this business model has been around for a long time, it wasn't very good. For the last 10 years, the last two and a half, three years have gotten extremely good. And now, again, not for everybody because this is models built for later products like apparels, big cosmetics, jewelry, small atronics small accessories, for very heavy stuff that you know, you're not gonna send a microwave or you're not gonna send a fridge down this model, because it needs to hold many different orders in order for the economics make sense? Yeah, as long as stuff are light, we there's no stop off at a three PL it's on a plane that that night handed to USPS delivered to customers front door, fully local experience. So this model only got really relevant in the last two and a half, three years. You know, Shane, and Temboo, Quince cider they've been using for a very long time. We help American brands, European brands for Europe, leveraged as well, we're just the supply chain part of this business.

08:34

But what about what about like from a cost structure? Because obviously, I understand like, to your point, you know, going by air Yes, it's faster. You can order stuff by air, but it's extremely more expensive than taking it by boat. So if a if a DTC brand is leveraging is basically leveraging this model so they're leveraging portlets obviously, they are Is there a cost for shipping to the customer like significantly higher or is it is it how does that work?

09:04

So the big caveat is depends on the brand meaning What's the size of your product? Let's say your product is a pound right? Very good chance your shipping rates and our shipments were very similar. Why is that? First of all, if your stuff is small think the biggest cost structure of a pallet on a plane is the the volumetric are actually on the plane. Let's give the extreme example because it will make it simpler. A pair of earrings how much space have taken a pallet How many pairs of earrings have put on the palette? Yeah 1000 earrings, think about okay apparel, probably 4000 orders. That means the cost per order is quite low. Now. If I was doing pallet to go to my fulfillment center to then take it apart and then re ship the full continental US. Yes, it's expensive. But if the pallet is halfway to your customers front door because we're sorting it and we're not stopping off anywhere we're going right to your customers front door. That flight is half be the delivered to customers front door So as long as your products on the lighter end, shipping rate started five bucks under five bucks $4.80 We could do for for door to door from our floor to your customers front door. Now you think it's bulkier and heavier? Yes, it does get more expensive, then you could say one second, even with bulk and heavier. How much am I saving on import duties? Right? Some products are 43% import duties and goes away. That can be $5 per order. So sometimes very often apples apples will be very competitive. The heavier and bulkier stuff is the more expensive is and all of a sudden, yeah, apples then okay, what are you paying and warehousing? What are you paying? I'm picking back? What do you pay on import duties? And all that matters to your true landed cost of goods? Yeah.

10:42

Okay, so what would stop and honestly, like you came in with such a great sales pitch that I was like, Okay, I gotta find a way this. There's got to be a reason this doesn't work. Because I don't know anyone doing this. If, if you what's keeping sellers from getting a three PL like in China?

11:02

Great question. Okay. So first off, we say is who's going to do it right now. There are brands doing it for themselves. And people like us. And there's let's call it local Chinese repeals. They do not understand the US market. They don't understand to the way to keep it, localize the localized experience not having tried, etc. So there just isn't that many options. We say, Hey, you want to do it yourself? Go ahead. It took us two years to set up legals. You need Hong Kong corporation, you need Chinese Corporation, Goofy's local directors KYC. Yes, we've been doing this for 10 years, this model. So we know this model inside out. At the end of the day, like a AWS who wants to build a data center, you're actually more cost effective on AWS yourself, because you're sharing costs across the board. So we say like, Hey, if you want to go ahead, we're just doing this for a long time, you were really well priced, we'll probably save you more money you are today, you just have upside. So we will say no downside to free, free world out there. Do your research. We're just very confident we're the best in this part of the business for Western brands.

12:06

Hmm, cool. So I obviously one of the questions I'm thinking is like, okay, is this like, is this kind of like the beginning of what we would assume is like the future of DDC fulfillment, like, I know, we work with 200 and something different brands at this point. And I can't think of anyone off the top of my head that is doing this type of model. So what? And I know, to your point, obviously, it's a lower, you know, lower price point, maybe smaller products or something like that, obviously, I guess lower price point does matter. But smaller products helps out. So like what's, what do you think is where is overall fulfillment going? And one of the other questions I got asked to, what did we learn from this model during like the COVID times because I know that threw a lot of stuff in and that was mostly a port issue. So if you're bringing it in by flight, that's not really a problem.

12:58

Not a single delay. When ports were backed up for five to eight weeks, we had zero delays, planes were leaving every single day, there was a bit of a bump and cost of pricing, but not much like 5%. No delays on COVID. But to answer the original question, my i Okay. DDC has gotten smashed in the public markets, look at any DC rapid motors, they look terrible. But why are they terrible? Demand is there, right? There's a high $776 billion of DTC transaction in United States alone. The problem is to service that demand if there's demand, there's always gonna be someone service again, the question is a good business model. So in the in the current model, terrible cashflow, every time you sell something, you got to wait two or three months to sell it again, lead times are killing you the gross margins are tight, you are out of stock, Overstock production hits your bottom line. So it's hard right? Like you're having great production overseas, but you're trying to like be agile, you can't I believe this is the early days of again, not every brand could do this, but brands the fitness model lighter products, this changes that you have to demand, you're gonna have the same experience that they had yesterday. And you're gonna have an incredible casual business Fast, fast iteration. Think about like software businesses, fast iteration and EECOM. It's like six months right now go to production, you go put on your ecommerce site, give me 2000 pieces you're selling really well go back into production, you got a feedback, you want a bigger pocket. Your next production run is a bigger pocket. It's the future is in I believe, a different you can't play the same game as Walmart and Amazon business. So you must have a different game. And the future of this logistics is give you great cash flow. And I also mean the future manufacturing is small batch manufacturing. Now small batch manufacturing isn't for every industry. The more customers you can't do it, but apparel is machines. As long as you have the raw materials locked up, you can move into small batch manufacturing, which means you have agile inventory. You have agile fast feedback loops, I believe It changed the game, you now you have demand you have brand service and get with better gross margin better cash flow. And I think you know, let's call it the next five years, you're gonna see really profit with DTC brands, you know, money's no longer free, we need to be profitable yet for a cash flow business, but at the core now, this model, they're great businesses.

15:19

Yeah. Interesting, because I mean, look, obviously, I know like, that's the big area that that was actually kind of leading into my next question is like, when you're, I'm basically asking for your straight sales pitch, because I'm imagining this is the answer, because right, it always comes down to ROI at the end. And so the thing that the customer experience makes a ton of sense, great, I still have the USB side, but from a revenue, or sorry, from a profitability perspective, not really see a difference there. I just the customer experience is going to be improved. However, the main point being like, Okay, we went through pick and pack we went through what are your three PL costs? Like that kind of stuff? Like, okay, now, I'm understanding a little bit more, but how are you justify? How does it How does a brand justify the added the, like, the actual added benefit of now, I don't have to wait for cash for two to three months, like, how do you even factor that in to your costs? Because I kind of see that as like, Okay. At the same time, I could take a loan at X percent and deal with that. And then I got to do that every few months or whatever. But like, how do you factor that in when you're trying to justify if it's doable for a brand or not?

16:24

Honestly, the brands that we service get immediate cash flow, and immediate margin increases, you don't need to get that's pretty sophisticated. If you're looking at your loan cost, and you take that cost and you divide it by the amount of units you have, you could get a cost per unit loan money, we're gonna go that you're saving money way before that. So a your cash flow is game changing? You know, do you mostly see brands go out of business because of cashflow more than gross margin? Yeah, so let's just say that is very obvious from one's today's, then all of a sudden your warehousing picking backwards, we charge $1. Most of them charge $1 5250, or warehousing is a fraction of the cost. Our shipping rates are cheap import duties. Think about if your apparel brand, and you're spending 43% on import duties, let's say anywhere from 20 to 43%. That means per unit, you're spending two to $5. That goes away session three to one, it's been around for people using Mexico for a long time, right? Yeah, same things Mexico, we also advantages lead times. So you don't need to look hard to save money, you should be saving money day one very obvious places, and improving cash flow. Now you have we have a bucket of customers that their stuff on the heavier sides, okay, they might not be saving money, they may be breaking even, or maybe they were paying 50 cents more. But cash flow, there's money to bet all the time. So like the lead your product, lead your product is you will see potentially net less cost in your in your model, your cost structure. I

17:53

mean, I can definitely see how it completely varies on like a per brand basis. Or even on a per product. They do have brands that like hey, we're gonna do this, but only for certain products.

18:04

usually start off that way. So brands very often that that starts off like, hey, let's try threes, three skews and see how it goes. Almost always I can't think like some people's wholesale business. They don't do with us and we'll put on a boat for them. We'll do FBA injection for them. But once people try us and we say crawl, walk, run, like we are your support, you go to manufacturing, but like we understand, we're wondering what's more important to share? So we're like, hey, try three products. It goes well, do you like it send another 10 products and another 30 products. So the very often we do that it's about testing your model. But almost always, I came and think offhand of anyone that doesn't end up rattling. We have customers that middle of the process. But most customers end up going 100 100 business with us. Yep, enterprise, okay, enterprise, then we have partial because enterprise, they might have physical retail stores, and physical local storage in the local inventory to restock stores. So in that case, we end up getting their best selling products and getting collections drops. If you think about like someone drops, if you think about you know, those drops that people do like we work on something really big influencers will do a drop, the way they used to do it is to do you know, drop 10,000 units then put on a boat, and a customer with 60 days post production for them to get it that is like the longest delivery time. Yeah. So these guys, you know, it could be either enterprise businesses for like, certain drops of their seasonal wines or influencers. Yep, today's post production, you're shipping to your customer eight days, six days later, if they're in, you know, parts of Asia or wherever they are, maybe longer, but pretty quickly after them for delivery. So those are areas that we see where we get some of the product not all

19:40

the product. How do you decipher who's a good fit and who's not? It sounds like the pretty obvious like, hey, if you've got a smaller product, chances are this is going to line up for you but at what point do you go okay, now once your product gets over x size, if your price point isn't over x, it may not be justifiable for you Yeah,

20:00

exactly. I would say for five pounds fair often Okay, your your orders over five pounds probably not going to be successful here. Let's do the math. What's your unproduced? Like? What your cash flow needs? Yeah. What are you currently paying locally? Sometimes these products are like funky looking products and they're paying a lot locally. But I would say if I have to, like rule of thumb above five pounds will get complex under five pounds. Apparel cosmetics truly small tronics. Yeah, please. Usually, pretty much the conversation will have a pretty interesting conversation. Yeah. But

20:28

if it's over five pounds, and it's a higher, let's say POV or just the individual product has a higher price point it then could theoretically still be justifiable, right? Because

20:36

then you could be saving 40 bucks and import duties, right? Yeah. And we have scenarios like that. Or they want to try international markets. Let's just say their stuff is heavy. And they want to test to Europe. They've never tested Europe. Well, we can pre test Europe really easily from one hub next year factory. So there's always like those cases, but like core ICP because we mainly focus bills main markets like us, for us brands, Europe for European brands. If you're under five pounds was really interesting conversation. Yeah.

21:07

Is he This was awesome. Your excitement for this was it made me excited about operations which is very hard to do. So obviously I really appreciate you having me on the show. I'd love to give you an opportunity. Let everyone know where they can find out more about you and of course more about portlets

21:21

thank you so much. Again, thank you so much for having me. This has been super fun. I do get very upset by supply chain I consider myself a supply chain nerd. So if I got you excited, I guess you can find us on portless.com we have all information case studies videos, contact us there. I'm pretty active on LinkedIn and X always posting content, posting videos. Anything you want to learn just send me a DM there. We'd love the opportunity to connect with anyone that thinks that they can benefit from the smile. Love it.

21:51

Thank you so much for being on the show. Obviously everyone who tuned in thank you as well please make sure you do the usual rate review subscribe all that fun stuff on whichever podcast platform you prefer. or head over to theecommshow.com to check out all of our previous episodes but as usual, we will see you all next time. Have a good one.

22:07

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