Wayfair: Scaling Asia Partner Solutions & Operational Challenges

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When you say the benefit comes from margin improvement, like negotiating with these suppliers, I'm trying to understand if the margin improvement is because you're reducing the incident rates or because the margins or cost structures are different between North American suppliers and APS suppliers?

On the supply chain side, there was a reduction in incidence rates. For example, when visiting factories, we looked at how they pack and whether we could reduce packaging and sizing, which made more sense for our supply chain. If they went into CastleGate, for example, it helped. One of the biggest challenges during that time was better positioning their goods. Logistics costs within North America are very high. We started taking GEO into account in our algorithm. The closer you are to our customer, the better traffic you get. Suppliers found that if their goods weren't positioned closer, using CastleGate was advantageous due to our extensive warehouses. Some of the largest suppliers didn't use CastleGate because they already had big businesses with Amazon or Walmart. However, Amazon's fulfillment services weren't designed to handle large pieces well. Some suppliers didn't need us for positioning because they had warehouses across the US, like in LA and Savannah. One had a warehouse in Missouri as a test investment. Some had warehouses in the northeast as well. Some suppliers had better freight rates because they could be more opportunistic than CastleGate. These are two primary reasons why some of the largest suppliers might not join CastleGate. Stepping back, what are some other operational areas we offered to help suppliers with? Forward positioning is one, incident reduction is another, and packaging is another. When visiting factories, we observed how they package, how many touches there are, how many trucks come to pick up, and the factory layout. We looked into these factors to help them optimize their business to benefit their growth with Wayfair.

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We've talked about CGF and, to your point, it seems like it's been struggling for quite a while. Framing CGF as a selling proposition to Asia Partner Solutions suppliers, I wonder if many APS suppliers, already selling on Walmart, Overstock, and Amazon, would be reluctant to use CGF because it means their merchandise is kind of captive at Wayfair. From your experience, how receptive were APS suppliers to CGF? Was cross-selling happening often or infrequently? What were the major pain points?

Towards the end of my tenure, they were able to open up CGF to ship third-party orders again. I forgot the internal terminology for that. They started shipping orders for sellers, like those on Amazon, for example. That was a huge relief because, honestly, our forecasting at the SKU level and by GEO was not great. Many CGF conversations, especially for those enrolled, revolved around two main issues. First, our forecasting was wrong, leading to an excess of goods in one part of the country versus others. Second, there were unnecessary touches with inter-warehouse transfers within North America that didn't make sense. These were all systems-related and forecasting-related issues. A third issue involved many kinks within CGF on the first-mile side. Whether it was a milk run trial to deliver to Asia at the time, which I think is closed now, or incidents happening not just once it arrived in the CGF system but also prior to shipping within Asia Logistics. There was an abnormally high incidence rate compared to what the suppliers were telling us. Then their goods were handled by third parties on their own. Those were the top three CGF complaints we had.

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