Wayfair: CastleGate & Online Furniture Logistics

Former Head of Global Fulfilment Engineering at Wayfair

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Executive Bio

Christian Hammer

Former Head of Global Fulfilment Engineering at Wayfair

Christian is the Former Head of Global Fulfilment Engineering at Wayfair, where he was responsible for running the technology platforms that power CastleGate and all dropshipping orders. During his time at Wayfair, he led 450 engineers to solve complex problems shipping heavy and bulky products through the Wayfair network. Prior to Wayfair, Christian has worked at Nike, AppNexus, and is now the CTO of GTD Solution, a JV between IBM and a division of Maersk.Read more

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Interview Transcript

Disclaimer: This interview is for informational purposes only and should not be relied upon as a basis for investment decisions. In Practise is an independent publisher and all opinions expressed by guests are solely their own opinions and do not reflect the opinion of In Practise.

Christian, can you just share a short introduction to your role and responsibilities at Wayfair?

I actually started with a different role from the one that I left with. It is a place where, if you show strength in leadership, technology and so on, they give you rapid advancement opportunities. I started with a group that was called international supply chain, which was really their import and inbound side. Over time, I added on some intelligence portions, such as forecasting, analytics and technology organizations. Eventually, I ran the global fulfilment technology organization, which had about 450 technologists that built up, not just CastleGate, which is going to be our main topic, but if it had dealt with a customer receiving an order in any form, we were the technology platforms that the order went through.

How does Wayfair organize the 3,500 to 4,000 engineers they claim to have?

There are actually quite a few that report up to the CTO but there are two principal ones that I would talk about. The first you would know as the storefront. If you are going to Wayfair or any of the other properties and buying, there is that funnel from the marketing and advertising piece, all the way through to checkout. The other is operations engineering. My world was operations engineering which is everything that happens post-order. But a huge amount of work happens long before an order is ever placed.

If you think of the supply chain as being everything that has to do with getting a physical item from a forest – if you have to cut down a tree to make it out of wood – all the way through to delivery to the customer’s door and then the reverse logistics on return, all of that falls within operations engineering, as well as customer support and everything that happen post-order. If somebody has a problem and they need help, that was all within operations engineering.

Are CastleGate and drop-shipping different platforms?

There are different platforms for them but, organizationally, they are not really separated out in the tech org. That is not necessarily true in operations. In a big company, you are going to end up with a lot of stratification and a lot of vertical organizations. The technology organization was really focused more on the R&D functions in terms of trying to figure out what we need to be, as we continue to scale and grow this organism. The operations were focused much more on the here and now. They were running the systems that we were building.

Because we built the systems that they were also operating, that was a big part of what we were doing, as well; working directly with them, just to make them more effective in their jobs. In that world, CastleGate is indistinguishable for us, in terms of platforms.

Can we walk through the original drop-shipping process before we discuss CastleGate? Let’s assume that I am an Asian-based supplier, could we talk through the process of a typical drop-shipping order?

There is a system called Buyfair which is the secret sauce of Wayfair. It is one of the first things that really occurs. We do a demand forecast which is trying to decide where the people are who want to buy our big items? What are the big categories? Then it tries to come up with an allocation guide. I’ve decided that this black chair that I’m sitting on is going to sell 10,000 units in the next quarter and there’s going to be the highest demand in these different geographies, so it also tries to assign a demand plan. It then sends out a bunch of proposals to the suppliers.

This black chair that I’m sitting in, probably has 50 suppliers that can provide it to us. There are a lot of items that only have one supplier, but there are also many that aren’t. They get a proposal and they look at it and say, I can fulfill that. They have the choice of whether or not they want it go CastleGate. They are strongly incentivized to do so because, from Wayfair’s perspective, CastleGate is a lot more efficient, a lot more effective and a lot more timely. Drop-shipping is just less reliable and there are a number of reasons for that. Ultimately, the supplier is the one making the call because they own the item until it is sold.

How exactly do you incentivize suppliers to go through CastleGate?

The search algorithm on the storefront and a lot of the other aspects are really indexed towards speed. If I am a user and I come to the site and I see this black chair and I see 50 different instances of it, the one that I am going to see first is probably the one in CastleGate because it is the one that will have a one-day or three-day promise on it. We simply can’t give that promise with drop-shipping.

It is also, generally, more cost-effective for them. In that industry, one of the things that is very apparent is that all the suppliers are really optimized for shipping containers. They are not optimized for shipping cartons. When you are doing a direct-to-consumer business, you’re not sending a container full of this desk to my house, for example; you’re sending one desk. What you need, to accomplish that, is radically different in terms of the infrastructure and even the build out in your warehouse, which is going to have a different footprint for setting up things to go out for delivery. Most of the suppliers just aren’t set up for it.

It is actually easier for them to send it to CastleGate. It is going to get better performance on the listing; more customers are going to see it and it’s probably going to convert better.

The one big problem that they deal with is the cashflow question. If I am the supplier of this chair and I’ve got 1,000 right now, that just came out of my factory and Target came along and offered to buy 800 of them, I’m going to ship a container to Target, maybe get a smaller margin than I would from Wayfair, but I get the cash now. With Wayfair, I have to wait until it sells before I recoup my investment. There are a bunch of programs, within CastleGate, to incentivize them to do that. I know they were looking into some finance things; I don’t know if that ever landed.

Generally speaking, CastleGate was well accepted by the suppliers. That has more to do with them just not being good at the large parcel fulfilment piece and the fact that there is no UPS or FedEx for a desk.

So the suppliers produce and ship products that are optimized to fill containers, to save on that freight cost?

Direct-to-consumer is a little bit nuts when you think about loading a truck. If I’m going to inject a bunch of product into FedEx’s distribution center, if everything is exactly the same size, that’s a very easy problem to solve; when I’m shipping a container of product, I’m shipping all the same box. If you think about the game of Tetris, you are just getting those four-sided boxes and are just stuffing them in there; it’s really easy. But when you are doing a whole bunch of different things, of different sizes, because the product mix getting sent out is not just that one thing, now it looks more like the different shapes coming down in Tetris and they don’t fit together as nicely. You end up with a higher amount of damage in transit, if you don’t know what you’re doing.

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Wayfair: CastleGate & Online Furniture Logistics(November 23, 2021)

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