Q&A   //   July 18, 2022

‘Much more intentional’: How Shopify’s latest fulfillment moves aim to simplify logistics for sellers

Shopify recently completed its acquisition of Deliverr. Deliverr is a fulfillment startup that integrates with marketplaces like Amazon, Walmart and eBay.

This is all part of Shopify’s big plans to tackle fulfillment. Over the last few years, the e-commerce platform tiptoed into the fulfillment space — first by acquiring warehouse automation tech provider 6 River Systems in 2019, then by revising its fulfillment approach and terminating agreements with several of the warehouses it had previously partnered with and now with the Deliverr acquisition.

According to Shopify’s CEO of the logistics group Aaron Brown, while the internet has created a level playing field for so many parts of retail, logistics and supply chain continue to be a challenge. “We’re excited about Deliverr because we think we have a chance to help independent merchants with problems of freight, distribution, fulfillment at scale. Deliverr has built their software so they have network visibility across the entire supply chain. I think it’s going to be a game changer for merchants,” said Brown.

He added that with the recent software updates to Shopify’s fulfillment network, 70% of orders are being delivered within two days or less.

The Canadian technology company first used 6 River Systems to try to expand its beta-launched fulfillment network. It ran into some troubles in February, Business Insider reported, while integrating its software across the different warehouse partners while the product was still under development.

But Shopify’s fulfillment ambitions have grown aggressively in recent months. In February, Shopify made a strategic investment into freight services provider Flexport to support the company in modernizing the supply chain.

Now, Shopify is launching new fulfillment-focused programs. During its first quarter earnings call, the company introduced Shop Promise, to help merchants make faster delivery. Shop Promise shows two-day and one-day delivery promises to merchants’ online stores and across places like Facebook, Instagram and Google.

In an interview Brown spoke with Modern Retail about revamping its fulfillment business, achieving two-day delivery for merchants, reducing fulfillment costs for sellers and competing with Amazon. This interview has been edited for length and clarity.

In the past, Shopify encountered problems while integrating the 6 River Systems software. Can you provide an update on that?
In the early versions of SFN [Shopify Fulfillment Network], we had a lot of partnerships with 3PLs [third-party logistics] that were running different types of warehouse management softwares. For what it’s worth, all those groups were trying as hard as they could. It wasn’t that they were bad apples.

But, what we realized was, if we wanted to be able to consistently make a two-day delivery promise, it had to be with the right 3PLs, in the right locations, running the right software. So, what we’ve built over the last year and launched in our most recent software update is a very small network of partner warehouses in the perfect location for two-day deliveries. Merchants have to give us a much smaller amount of inventory since we’re not spreading it across too many warehouses. And now 100% orders at SFN are going through warehouse management softwares that 6 River has built for us.

What was the biggest learning from this whole experience?
The biggest learning was two-fold. First, Shopify has to be much more intentional of where we place our inventory and we have to place it in the right locations close to buyers across the U.S. And number two, we need to have Shopify’s back office, Shopify’s store front and the warehouse management software perfectly integrated.

Tell us about the product integration with Flexport.
As we’ve gotten to know Flexport better, what Flexport does is it takes processes that used to be very burdensome for merchants and simplifies them. Most merchants would say they’d have to work with eight to 10 to 12 different companies to do the inbounding process. Flexport allows merchants to have one relationship. It takes all of that product and delivers it into an SFN hub location. So, the merchant never has to touch that inventory.

Flexport and Shopify are also doing bulk aggregation and reservation. It used to be that merchants would have to do an entire container load of inventory to get a reasonable price and reasonable schedule. Shopify is pre booking containers on container ships going between popular supply locations and SFN hubs at a super regular basis as long as they can fill one cubic meter worth of space.

Typically, merchants would say transit times are 45-60 days, our early pilot results are about 20 days with Flexport going directly into SFN. And second, it’s 50% cheaper. So, typical pallet rates are $500 to $825, changes all the time. And we’ve been able to get it down to $425 by doing pre-booking and aggregate booking.

How is Shopify handling encroaching competition from Amazon with seller fulfilled prime?
The first is we are super excited by what Amazon is doing. Tobi [Shopify CEO and founder] referred to this as infrastructure. There are incredible internet companies and logistics companies around the world who’ve built awesome infrastructure and when they open that up to independent retailers and small merchants that’s just a net positive for the world.

We’re also working with Amazon, every week, right now to integrate the new platform and having super positive discussions. We’re really bullish on the partnership between Amazon and Shopify. The interesting thing with fulfillment is we’re solving for fundamentally different problems. Shopify is trying to provide an end-to-end platform helping a merchant manage their entire supply chain across all channels. One of those channels can be fulfillment by Amazon. If a merchant wants to take all of their inventory in a Shopify SFN cross dock and deploy a quarter of that in FBA, we help them do that.

We’re also trying to build a fulfillment solution that’s super integrated into Amazon’s online store, its channels, and very integrated with Shop Promise to help build a really compelling solution. And so we’re really excited about Amazon and the infrastructure they’re creating for independent retailers.

Take us through Shop Promise and its progress.
Delivery promise and Shop Promise are fairly new to Shopify but it’s something that Deliverr has been doing for years and so this is the chance we get to draft behind the learnings of Deliverr as we bring them into the company. Deliverr has found that at scale when you add a really ambitious delivery promise to online stores, buyer conversion increases by over 33%. 

Behind the scenes what we’ve been doing is piloting Shop Promise and building Shop Promise and trying to perfect the user experience in our online store and in other popular channels like Google, Youtube, Instagram and Facebook and TikTok etc. We want it to be super-fast with the lowest impact on store front performance.