Shopify Fulfillment Network aims to help U.S.

merchants handle logistics pain points

Ottawa-based Shopify, a multi-channel commerce platform, said this week it has
introduced a fulfillment network—the Shopify Fulfillment Network. Company officials
said this network “will provide United States-based merchants with a network of
distributed fulfillment centers, coupled with machine learning to ensure timely deliveries
and lower shipping costs, putting their brand and customer experience front and center.”
By Jeff Berman, Group News Editor · June 21, 2019

Ottawa-based Shopify, a multi-channel1 commerce platform, said this week it

has introduced a fulfillment network2, entitled the Shopify Fulfillment
Network.
Company officials said that this network “will provide United States-base
merchants with a network of distributed fulfillment centers, coupled with
machine learning to ensure timely deliveries and lower shipping costs, putting
their brand and customer experience front and center.”
Shopify Director of Product Thomas Epting said in an interview that this
offering is geared towards merchants handle their logistics pain points.
“For a long time, Shopify has been working to bend down the curve of
entrepreneurship to make it more simple to succeed at scaling3 their
business,” he said. “Most merchants in our network are great creative,
marketers, and brand storytellers…and create new and exciting products, with
some disrupting4 entire product categories and breaking the rules of retail to
create new brand experiences. We want them focused on scaling their
business and winning on what they know to do best. But any one of them lack
a few specific things to be able to be great at logistics.”
Among those things is scale, which Epting said they lack, in order to get great
pricing either from 3PL and transportation providers. And he added that these
merchants also lack enough data to build something truly meaningful from a
machine-learning perspective, which is an area where Shopify can help to
make a difference.
“Depending on how you measure this, 5%-10% of all e-commerce sales in
North America is flowing through Shopify today,” said Epting. “We have this
massive data set that almost nobody else has access to…to dig deep5 into a
merchant’s business, with detailed information on things like SKUs, how fast
inventory is turning, where their customers are located and what they are
buying. The current set of providers serving Shopify merchants today also
lack this data in this capacity.”
Another driver for the Shopify Fulfillment Network, cited by Epting, was
specific frustrations from Shopify merchants related to things like complex and
convoluted6 pricing and contracts.
From a competitive perspective, while buyers want to order something and
receive it within two days, Epting said that what Amazon realized a path to
growth was that customers really did not want to pay for shipping.
“Amazon is obviously doing this differently than we are,” he said. “We want
our merchants to own a direct relationship with their customers, and we
believe the customer data is theirs. Some marketplaces try to obscure7 that
and retain that relationship…we believe the branding should be theirs and
should arrive in their boxes and not cloaked8 in some other marketplace’s
box. We also believe Shopify should only empower merchants and should not
compete with them. They want to thrive and grow and need a simpler solution
from a pricing perspective.”
What’s more, Epting said Shopify is solving a different problem for merchants
than Amazon, in that Amazon is really a large supply chain company, working
with commodity products, with a keen focus on time to delivery.
But Shopify is not competing with Amazon on same-hour delivery, as that is
not a Shopify merchant need, he said. Instead, he said a way to be market
competitive, as an example, is if something ordered on a Wednesday arrives
on a Friday ahead of the weekend, can increase conversion for Shopify
merchants at checkout and also scale their businesses more effectively.
“If we take the burden of fulfillment away from them, they can just focus on
scaling their business, coming up with the next product ideas and categories,
and retail experiences,” he said. “And we can enable that to happen for them.”
In terms of how a merchant uses the Shopify Fulfillment Network, Epting
presented an example with a merchant looking to scale up and needs help
with logistics.
“The merchant would reach out to the Shopify Fulfillment Network, and we
would run the merchant’s store through our machine-learning model,” he
said. “And we come back and look at the merchant’s SKU9 portfolio…and say
the merchant is selling 100 SKUs, we look at the fast-turning SKUs and say
these five or ten things you are selling need to go into multiple network
nodes10 to be close to end customers. Then maybe the middle 20 or 30 SKUs
will be put on the East Coast and West Coast…and then everything else
would be in a single fulfillment center network node closest to your node
customer, as it would be irresponsible to bloat costs on hand and ask to put
[them] everywhere. Our machine learning does all of that, and we then [marry]
that merchant up with a fulfillment success manager who helps the merchant
on-board into the Shopify Fulfillment Network and helps send products to the
right place, consults on the right next moves for scaling the business from a
logistics perspective and remain in contact with the merchant. If things change
with the business over time, we will help to adjust their strategy and ultimately
provide a lower cost and faster delivery for the merchant’s buyers.”
John Haber, founder and CEO of Atlanta-based Spend Management Experts,
said that it makes sense for Shopify to go down this path.
“[T]here is so much competition entering into this space, that Shopify needs to
offer this solution to position themselves for the future,” he explained. “Not
only are niche technology solution providers moving into this fulfillment space,
but the big logistics firms like XPO, UPS and FedEx are rolling out new
solutions to offer a ‘one-stop solution’ for the customer. It offers a solution for
retailers to try and keep up with Amazon, but the ultimate success will be
determined by how well they, Shopify and the logistics partners Shopify brings
in can execute on the operations and inventory side as well as the technology
integration.”
With the fulfillment space getting fairly saturated, Jerry Hempstead, president
of parcel consultancy Hempstead Consulting, noted that some vendors in the
Amazon network are struggling with the cost of Amazon’s fulfillment and are
open and receptive to less expensive solutions.
But Amazon has such critical mass and such a head start that they are difficult
to compete with,” he said. Fulfillment is part of the chain and just as UPS and
FedEx are into the game, Amazon is into transportation. Shopify is a software
solution provider that is cobbling11 together some of the missing pieces to the
puzzle. They have to.”
Part I

VOCABULARY: Match the terms from the text to the correct definition.
TERMS MEANINGS

1. Multi-channel ____ A. To prevent something from being seen by making it

difficult to know.
2. Fulfillment network ____ B. A connection point from which the merchandise will
be distributed to facilitate their access to customers.
3. Scaling ____ C. A system of warehouses controlled by a corporation
that stores products from sellers with the aim of
picking, packing and shipping any orders on their
behalf and create a much more structured project.
4. Disrupting ____ D. Something that is complicated and difficult to
understand.
5. To dig deep ____ E. Stock-Keeping Unit. It is a number or set of
numbers given to a product to show which particular
one it is and differentiate it from others.
6. Convoluted ____ F. To investigate further in a very detailed, extensive
and specific way.
7. To obscure ____ G. Making something grow and improve in size and
extent.
8. Cloaked ____ H. To quickly make or produce something that is useful
but not perfect.
9. SKU ____ I. To cause turmoil and interrupt the usual operation
of a process with something innovative.
10. Network nodes ____ J. That possesses a wide variety of ways to make
business transactions among the parties involved.
11. Cobbling ____ K. Covered, disguised or hidden.

Part I: ANSWERS
1. J
2. C
3. G
4. I
5. F
6. D
7. A
8. K
9. E
10. B
11. H
Part II DISCUSSION

A) Reading comprehension:
1. According to Shopify what is the point of these “Fulfillment Network”?
2. Who is the Director of Product at Shopify?
3. What is the percentage of North America’s e-commerce sales that goes through
Shopify?
4. What does he say about Shopify doing things differently from Amazon? How?
5. What action can increase conversion for Shopify merchants?
6. What is the point of taking the burden of fulfillment away from merchants?
7. What happens if the business changes overtime?
8. Who is John Haber?
9. According to Haber, what will determine the ultimate success for Shopify?
10. Why is Amazon so difficult to compete with?

B) Use new vocabulary:

1. Why is it a good idea for big enterprises like Shopify to be a multi-channel
platform?
2. In the text, they talk about the advantages that Fulfillment Networks will offer to
merchants, but are there any advantages for Shopify by applying this fulfillment
network?
3. What are the biggest obstacles that merchants may have when scaling their
businesses? Why?
4. What makes a new product disrupting in comparison to others? Give at least 2
examples.
5. Is it ok for a corporation to dig deep into the business data of merchants? How
so?
6. Do you feel like a business model like Amazon promotes convoluted pricing in
products?
7. Why would some marketplaces try to obscure the merchant-client relationship?
What is their benefit here?
8. If a product is created by a merchant and sold through a marketplace, is it fair
that when it is shipped it goes cloaked under the corporation’s branded box and
not the merchant’s? Why?
9. Do SKUs make organizing inventories and shipping more efficient or more
complicated? State your reasons.
10. Do you think merchant and creators can’t create their own network nodes? How
so?
11. Do you think what Shopify is doing by cobbling this new business model and
strategy is a good choice? Why?

C) Your experiences, knowledge and opinions:

1. Do you think Shopify is really doing this to attract more merchants by giving them
more advantages or is it just them trying to compete with Amazon and take away
some of their market presence? Reason your Answer.
2. Should creators trust corporations like Amazon, Ebay or Shopify to make their
businesses grow? What are the advantages and disadvantages of this?
3. Do you think every creator will have access to this Fulfillment Network or only a
privileged group will? Is this good or bad?
4. Do you believe Amazon tries to compete with merchants? How does that work
and why does Shopify want to avoid that?
5. In the article, Epting says: “If we take the burden of fulfillment away from them,
they can just focus on scaling their business, coming up with the next product
ideas and categories, and retail experiences” Do you think this is enough for
creators to improve or do they need something else? Like what?
6. Later in the text, Epting presented an example and finished with this comment:
“If things change with the business over time, we will help to adjust their strategy
and ultimately provide a lower cost and faster delivery for the merchant’s buyers.”
How fast and effectively do you think they can adapt to an ever-changing market
with merchants and creators that have different characteristics? Isn’t he being a
little too optimistic?
7. Haber stated “There is so much competition entering into this space, that Shopify
needs to offer this solution to position themselves for the future”. What other
alternative do you believe Shopify could have taken instead of Fulfillment
Networks in order to compete with other marketplaces?
8. If Fulfillment Networks give vendors problems with costs, is it really a good
solution for the community of creators? Elaborate your answer.
9. How do you think Shopify can compete with the enormous head start that
Amazon has regarding transportation? Give at least 2 reasonable alternatives.
10. As a whole, do you think Fulfillment Networks are the best way for Shopify to
develop a much more solid business model and entice more creators to
participate with them? Offer at least one strong option for them and detail it.