How Zulily Optimizes its Supply Chain on Cost, Not Speed

THE CUSTOMER & PROVIDER

Zulily, a wholly owned subsidiary of Qurate Retail (Qurate Retail Group), works with more than 15,000 vendors to launch 100 curated, time-limited sales events daily featuring thousands of products.

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The Seattle company, with $1.8 billion in annual revenue in 2018, operates a low-inventory supply chain and employs a point-of-ship model instead of the more traditional point-of-order for both inbound and outbound packages.

Zulily has created and iterated on its own homegrown warehouse management software solution, and has developed its Triple Z Logistics 3PL and vendor-owned inventory program to help smaller or boutique vendors with product storage, shipping, and order fulfillment services.

Instead of the transactional activities that many e-tailers engage in—you need a coffee pot and buy the one you like at your favorite website—the company initially targeted moms with curated fashion, home decor, and kids’ products at the best competitive price. Over the years, Zulily, a wholly owned subsidiary of Qurate Retail, which also owns QVC, QxH, and Cornerstone, expanded its offering and now serves 5.9 million customers.

That’s not, however, what makes it unique in the e-commerce space. What makes Zulily stand out is its time-limited sales events approach, point-of-ship operations model, in-house third-party logistics (3PL) service, and homegrown IT and warehouse management solutions to run its three U.S. fulfillment centers.

creating the Wow

“For us, it’s about creating that excitement, that wow,” says Richard Tilley, Qurate’s vice president of operations and change management who sits at Zulily’s headquarters in Seattle. “We’re all about discovery-based shopping. We help customers discover new things, maybe things they didn’t know they wanted until they saw it.

“We delight in surprising customers with products they don’t see elsewhere at unbelievable prices. That’s what makes us unique from a business perspective,” he adds. “As a result, our supply chain is a little different, too.”

Here Today, Gone in Hours

During its January 2010 launch, Zulily worked with three brands to offer three events for a limited time. It made $1,800. Flash forward to 2020, and those numbers have improved.

Today, at any given time, the company runs approximately 100 sales events featuring women’s and men’s apparel, home goods, beauty and wellness products, and other consumable items from more than 15,000 vendors. Each event runs an average of 72 hours, and then the sale is over and new products are listed. Some events may sell a single item from an international brand, boutique, or specialty provider, while other events may bundle different items together.

Zulily currently has 5.9 million customers, and revenue for the quarter ended on Sept. 30, 2019, was $359 million, according to Qurate’s third-quarter financial earnings released in November 2019. Zulily’s annual 2018 revenue, the most recent figure available, totaled $1.8 billion.

This dynamic way of selling products at lower prices than other retailers and online shops, though, means finding ways to reduce costs through efficient supply chain operations.

To that end, Zulily developed a set of supply chain and order fulfillment processes not commonly seen in e-commerce circles. Surprisingly, these practices go very much against the grain of the next-day and two-day delivery trends consuming the online retail world.

“In terms of these products, and as we expanded, we’re able to deliver because we have a unique supply chain that’s different than Amazon or the other Internet giants, one that’s optimized on costs rather than speed,” Zulily President Jeff Yurcisin told Bloomberg TV in November 2019. “From our point of view, it’s not about next-day shipping. It’s about passing the savings to customers.”

Core Principles

In order to offer prices that represent up to a 70% discount on merchandise and pass those savings along to customers, Zulily’s supply chain, logistics, and operations strategies run on a few core principles: The company holds a minimum amount of inventory, orders to vendors are placed in bulk after the sale event ends, and inbound and outbound shipping is based on a point-of-ship practice instead of the more traditional point-of-order one.

This translates to something that looks like this on the front end: A customer clicks through Zulily’s website and finds an item she likes. She buys it, and pays for shipping. This order triggers a window of time to order additional items without extra shipping charges. Zulily consolidates subsequent purchases into a single shipment, and then provides the lowest-priced shipping option for all items ordered by 11:59 p.m. West Coast time that same day (Sunday to Thursday; weekends have an extended order-by time).

The order consolidation is key. “Part of our magic is our consolidation process,” Tilley says. “Customers are charged shipping for the first order they place, but if they place any subsequent order in that consolidation period, they get free shipping. In the background we consolidate those orders in a way that becomes what we will fulfill against.

“Every company has shipping costs, but we minimize the impact to customers by allowing them to place multiple orders in the same consolidation period,” Tilley adds.

The trade off is that customers are willing to wait for their orders, sometimes as long as a week or two, depending on where the vendors’ products are located and how quickly they can fulfill Zulily’s bulk orders. The theory is that customers are shopping for the experience and the savings, and not all products require next-day delivery, nor do all customers want or need fast delivery service or the extra cost associated with it.

Keeping Things Moving

On the back end, once the customer places an order, Zulily’s order fulfillment activity begins. The process revolves around making shipping decisions at the point of ship, after the order is placed.

When the online sales events finish, Zulily sends its vendors a bulk purchase order for the products sold during the event. Zulily sends a truck to the vendor’s warehouse to pick up the products, and routes them to one of Zulily’s three fulfillment centers in Columbus, Ohio; Reno, Nevada; and Bethlehem, Pennsylvania—a process that could take eight to 10 days, according to Zulily’s website.

Once the product reaches the warehouse, the order items are consolidated into a single package and staged for customer shipping. Zulily has the capacity to ship the same items it receives on the same day, eliminating the need to hold and store inventory—a key part of the company’s business and supply chain strategy.

This process increases Zulily’s flexibility in choosing inbound and outbound delivery methods since it uses both consolidated and drop-ship methods.

“We don’t actually purchase the inventory from the vendor until the customer places an order with us,” Tilley explains. “That is very different from a traditional inventory model. But, we also work closely with our vendors to manage the flow of inventory from the point of the purchase order until the time it hits our fulfillment centers.”

Vendor Portal Keeps Things Moving

One thing helping to keep this inbound and outbound flow moving is the Zulily-built vendor portal. Through this portal, Zulily works with its 15,000 vendors to choose SKUs for the branded sales events, and provides them with visibility into event and order data, as well as related analytics to optimize product mix.

“Vendors aren’t going into the sales event blind,” Tilley says. “They have had discussions with the merchandising team to set expectations of how many units they may be able to sell.”

Newer brands or boutique vendors still developing their logistics footprints can contract with Zulily’s in-house Triple Z Logistics 3PL services. Under this umbrella, Zulily acts as the 3PL provider, storing, shipping, and fulfilling vendor-owned product.

While this infrastructure allows vendors to grow, it also gives Zulily an opportunity to feature unique items that its customers may not have known about otherwise. Another advantage is Zulilly has immediate access to the vendor’s inventory, which means the company can ship products more quickly to customers.

But the secret ingredient to Zulily’s supply chain efficiency rests in the homegrown software platforms used in all its fulfillment centers, including a warehouse management software solution that controls receiving, stowing, picking, and packing. Instead of opting for out-of-the-box IT or a Software-as-a-Service solution, Zulily adopted the philosophy of innovating rather than integrating.

And innovate it did: In 2017 alone Zulily recorded more than 2,000 deployments of the software, thanks to the side-by-side conversations between warehouse associates, engineers, and data scientists to improve the software.

“Because our supply chain is unique, the software has to function well in a high-velocity environment,” Tilley says. “Having our own software allows us to innovate and iterate rapidly. As we see opportunities to improve the customer experience or operating efficiency, we can build and deploy quickly.

“This process gives us great flexibility,” he adds. “We don’t have to design the building around the software. We designed the software around the building.”

A fundamental element of the software is the strength of its prioritization logic and decision-making capabilities around which orders get fulfilled first and the order they move out of the fulfillment center.

Another reason the company built its own software brings us back to the beginning of this story: To delight the customer with a fun shopping experience and pass along the savings in the way of lower product prices.

“My team develops and executes the fulfillment strategies that allow us to optimize the customer experience and also to increase our operational efficiency,” Tilley says. “My team is looking at the entire network, and asking, ‘How can we serve our customers better? How can we become more efficient inside the four walls and upstream of the fulfillment centers?'”

Maintaining Momentum

Looking across the entire network will keep Tilley’s team busy in 2020 as well, namely in the area of streamlining where inventory is held and improving the speed of fulfillment.

Zulily will continue to evaluate how to increase efficiencies involved in getting the right inventory to the right place in the right quantities by leveraging the company’s technology and software.

“Moving forward, we want to place inventory closer to the customer and get even more focused on determining where to place our inventory so that we can improve the speed of fulfillment,” Tilley adds.

Casebook Study: The Ins and Outs

Challenge

Managing inbound shipments from more than 15,000 vendors and outbound shipments to about 5.9 million customers

Solution

A low-inventory supply chain operation running on Zulily’s homegrown WMS, point-of-ship processes, and customer order consolidation processes

Results

• Passes along operational and supply chain cost savings to customers, resulting in merchandising prices of up to 70% off
• Manages 2.2 million square feet of warehouse space, spread across three fulfillment centers in Columbus, Ohio; Reno, Nevada; and Bethlehem, Pennsylvania.
• Has capacity to ship items received in the same day, allowing Zulily to maintain a minimal amount of vendor-owned inventory

Next steps

Continuing to evaluate how the company can increase efficiencies associated with getting the right inventory to the right place, in the right quantities