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Retail Trends

Newegg Goes on a Diet

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E lectronics e-retailer Newegg offers more than three million products from its distribution centers in Memphis, Tenn., Edison, N.J., and near headquarters in City of Industry, Calif. Vice president of operations Kunal Thakkar says maintaining a lean supply chain is critical for e-retailers – and because Newegg offers the latest electronics, a lean supply chain also provides the flexibility to stock new products as soon as they are available.

“Excess inventory results in increased holding costs, which can adversely affect the bottom line,” Thakkar says. “It can also limit the flexibility of turning around inventory at an expedited rate.”

In a perfect world, a super lean supply chain would have inventory coming in the back door and being sold or shipped mere minutes later. For an e-retailer with tight profit margins and quick-moving inventory, it’s even more important to have a small physical footprint.

Newegg generally aims to have only 30 days worth of inventory at its three DCs, relying on more frequent deliveries to maintain just-in-time inventory while meeting customer demand.

Three days or less
U PS played a critical role in building and maintaining that lean supply chain. Much of this is accomplished through ConnectShip, a solution that gives retailers total order visibility, control over shipping costs and a streamlined supply system.

“It can marry the details and do the rate shopping to select the right mode at the pack line,” says Randy Strang, UPS vice president of retail customer solutions.

UPS enterprise account manager Ken Kalupa has worked with Newegg since the companies first partnered in 2004. At the time, Newegg’s shipping relied mainly on air. UPS moved shipping to the ground, reducing costs and allowing smaller, more frequent inbound and outbound shipments. With Newegg’s strategically located DCs, it can now reach 99 percent of the country in three days or less using ground shipping.

Organizing and building distribution centers around that just-in-time philosophy helps Newegg receive products from the manufacturer and get them out to the customer as quickly as possible. There’s less of an emphasis on storage than movement of merchandise.

“You might go to a warehouse that ships 10,000 packages per day and it’s almost empty,” Kalupa says. “They get in and ship out as quickly as possible and it’s usually not pallets, it’s all small packages.”

Labeling, tracking and returns
A robust labeling and tracking system is critical to the operation’s success. Newegg uses the UPS EDI system for all invoicing and end-of-the-month functions: Thakkar says it creates a formal shipping workflow that keeps Newegg operating efficiently.

“It ties in seamlessly with our warehouse operations,” he says. “The flexibility allows it to grow with us.” The UPS electronic data interchange [EDI] system also allows retailers to confirm, track and process direct-to-consumer shipments from manufacturers or distributors.

“We can facilitate that through labels and the exchange of information,” Strang says. “Once it ships [from the manufacturer or distributor], the retailer can track it from the facility to the customer.”

Newegg has cut a good deal of waste and inefficiency from its supply chain since it started using UPS for its inbound and outbound inventory, Thakkar says. That efficient inventory has helped lower holding costs and created better relationships with suppliers.

“We’ve noticed improvements in many areas including delivery times, online claims management, sales partnership opportunities and engineering expertise,” says Thakkar.