Total Cost of Service: BJ Patterson on Why Storage Cost Is the Wrong Number, Chargebacks, and How to Select a 3PL | Supply Chain Saga Ep. 021

Mark Taylor : Mr. BJ Patterson, good morning. BJ Patterson : Good morning, Mr. Mark Taylor.

How you doing? Mark Taylor : I'm doing good. How are you doing? BJ Patterson : You know, not too bad.

Not too bad. It's Thursday. We're almost through the week. Mark Taylor : It's Thursday.

State of affairs, it's officially tax day has passed. BJ Patterson : That's passed. Mark Taylor : Yeah. Let's hop right in.

BJ Patterson : All right. Mark Taylor : Tell me, I mean, last time we spoke was January 2023. BJ Patterson : Wow. Mark Taylor : A long time ago.

Yeah. I know. And I feel like there's been a lot that's happened. BJ Patterson : A few things have happened since then.

That's for sure, I imagine. Mark Taylor : So tell me, give me the state of affairs logistics right now. BJ Patterson : Chaos. Mark Taylor : Everything.

It's - BJ Patterson : Chaos is probably the operative word. You look at ocean freight, air freight is in utter chaos right now. The war notwithstanding tariffs, we spent dealing with a client and we were trying to import something from China. It took us three hours to figure out the HTS codes and what the actual tariffs would be on it.

Yeah, it was daunting. Mark Taylor : Wow. BJ Patterson : And then on the trucking side, finally out of the freight recession, you're starting to see capacity issues on the truckload side, primarily attributed to the enforcement of the CDL enforcement that the administration has done has reduced for the most part. Now we call it a needed reduction in capacity.

So now capacity better matches volume. So you're seeing the finally get freight rates that are, for lack of a better term, a livable wage, so to speak, for some of these truckers. A lot of truckers have gone under, but the ones that have survived are now in a better financial position. So finally, I think it's the longest trucking freight recession in history, about four years.

Then you've seen just catastrophic rates on the freight side. Warehousing size is a completely different tale. I call it the effects of the COVID hangover, excess capacity in the warehousing side. : And that's attributed to a few things.

One, the way I see it is that overbuilt because of COVID, a lot of space that people overbuilt during COVID. And now you also see a reticence on people to hold too much inventory for a couple of reasons. One, tariffs. You're seeing a lot of, instead of big, large orders, you're seeing a lot of smaller orders, which require less space.

And so kind of back to that just-in-time kind of mentality. I think you're going to see some buildup in inventory because of the war. People are feeling the pinch and out of stocks and inventory issues. But you also still had a lot of excess inventory again going back to COVID that has finally seems like it's kind of worked its way out of the system, but now you have record vacancies and warehousing across the country.

And so from a warehousing perspective, it's pretty bleak right now. : And I don't see the off ramp for it yet. As long as tariffs are where they are, people are going to be very reticent to buy large quantities of inventory and spend that money now when they don't know where the tariffs are going to be in six months. So take a manufacturer that's selling into some large retailer.

They've got to agree six months in advance how much they're going to sell that inventory to them for. Mark's widget that he sells to a large retailer, he agrees to sell it to them for $10 a unit and in six months when the unit actually arrives stateside after it's been manufactured and through the supply chain and arrives, well, the tariffs have doubled. Well, the retailer says you agreed at $10. That's kind of on you.

So you're seeing a lot more of this, lots of smaller orders, things being held in, whether it's in Asia or wherever, inventory being held at the point of origin and not shipped to the US until it's needed. : So I don't see an off ramp for the warehousing side of the business anytime soon. Mark Taylor : This gets back to a point I've heard not only you say, but a couple of people say where it's like warehousing probably won't recover until the housing market recovers. BJ Patterson : Absolutely.

I mean, anybody that's been in the warehousing space, 3PL space for any time knows that housing starts really drive the economy. And people aren't buying houses, people aren't building houses, people aren't buying new furniture, new appliances, new curtains, new everything that you buy when you buy a house. So I was taught at a very young age, and that means that was a very long time ago, that housing starts really drive the warehousing market more so than just about any other indicator.

So until interest rates drop, something happens in the housing market. And again, I don't see that off ramp anytime soon. And you also have a generation that isn't as enamored with owning a home as the previous generations. Mark Taylor : It's a lot different consumption.

BJ Patterson : Very different. Very different. Everything you read, everyone you talk to thinks that the latest generations are pretty satisfied with just renting. They like the mobility.

They like the not being tied down to one location. All those things, all those things matter. And so you also have a generation that a lot of them coming into the age of buying a home lived through the Great Recession and so they're very reticent to make these large commitments. And so again, I don't see the off-ramp there anytime soon.

So the housing market being down, tariffs against inventory, that being a problem and you have overbuilt warehousing industry, so to speak, all those things, you really don't spell a really good ... Even with the expansion of e-commerce, everyone said, "Well, brick and mortar's dead and everything's going to be shipped out of a warehouse." Well, that hasn't really proven to be true. : Right.

Brick and mortar has been more resilient than people gave it credit. Mark Taylor : I don't think anyone believed that people would miss going to the store to shop, but it's an event. It's something that people do. It's a type of ritual.

BJ Patterson : Well, and you see the whole shopping, whether it's malls or whatever you want, these different shopping centers have gone really to more of an experience than just shopping. You're seeing more restaurants, you're seeing more experience-based entertainment and included in that. So like you said, it's a social activity and as much as people say, "Well, women would rather just sit on their iPad and drink a glass of wine and order." No, they'd like to go with their friends and go shopping and try stuff on and all those things that go along with it.

So brick and mortar has been much more resilient than people thought it would be even though e-commerce continues to grow. Again, you're not seeing e-commerce clients keeping large inventories. They're still doing it just-in-time because the consumer's fickle and so they don't want these large inventories that wow, it was really hot on TikTok last week and then it goes away and then something else is really hot. : So this idea of hard ...

You're seeing really big warehouses move, but the tightest space is at 50 to 100,000 square feet that's a pure e-com play. That warehouse space is tighter than the others, but that midterm, mid-size warehouse space plentiful. Mark Taylor : Which is the 250 to 750? BJ Patterson : Yeah, I think 150 to 250, I would say some of the reports I just saw.

So again, I don't see the off ramp to that. You look at, okay, so I had a client tell me that you didn't forecast the fuel surcharge. Well, I didn't forecast bombing Iran. So there's always potential for something to change, but given the normal course of events, I don't see that.

And now with price of fuel and inflation edging up, you don't see the consumer confidence that you thought. Though some people will tell you that the underlying indicators within the economy are still pretty strong, particularly in the industrial side of the space. There are indicators that the economy is still really strong on these underlying indicators, but from a warehousing perspective and from a 3PL perspective, I don't see an off-ramp that's going to make it suddenly just surge.

Mark Taylor : Right. And so you say that the 50 to 150, 50,000 to 150,000 square foot building range is still pretty kind of tight or at least tighter than everything else. BJ Patterson : Tighter than everything else, that small box, you've got a lot of your pure e-com play guys that are, they're building 50s instead of one, 250 to get closer to the consumer, to reduce their travel time to meet these, I call it the Amazon effect of everybody wants something they bought today, tomorrow, in some cases today.

Mark Taylor : Of course. BJ Patterson : Yeah. So there was once upon a time there was a ... The selling point Amazon used was for every million square feet they built in a community there would be six million square feet of a space required to support that.

I just read an article recently that said that's down to about 2.5 million square feet. Mark Taylor : Wow. So less than 50%.

BJ Patterson : Yeah. Amazon, there's more direct import into Amazon. There's less of what I would call the buffer space that you saw before. And again, those numbers are all theoretical, but so there is less space required.

And again, I go back to the earlier statement that people have gone to more smaller orders rather than fewer large order. And again, part of that is just a reticence to take the leap on the inventory costs. Also just one of the byproducts of the e-com boom is I read an article a while back that said that consumers more fickle than they've ever been, whether it's a social media effect of TikTok and Instagram and all those, what's hot today is absolutely dead tomorrow. And so while people have benefited from that, made large sales over that, it has produced, and again, this reticence to bring in large amounts of inventory.

Mark Taylor : A more macro thought on that is, I mean, when I came up through college and went through an MBA program and everything like that, you always thought about building these companies for the long term and really in the last, I think three years, as it seemed like, no, there are actually plenty of people that do really well to build businesses almost around opportunities without the plan to really keep them as a long term. They're not trying to turn it into the next Coke.

BJ Patterson : Nope. They're trying to turn it into the next private equity sell Mark Taylor : Move or the next three to four or five million dollars, whatever it may be for them and then go on to the next thing. BJ Patterson : Absolutely. And you're seeing this very opportunistic and that ripples the supply chain that again, changes the dynamic.

In fact, I was reading something this morning that the traditional peak buying periods have all muted or changed. Everyone knew that come July, everyone was going to start bringing in all their Christmas stuff and July and August were going to be crazy heavy. September would be pretty heavy. October die down and then shipping like crazy November to early December.

Well, that peak is not even a molehill anymore. Mark Taylor : Agreed. That's what we see in our warehouse as well. BJ Patterson : Yeah.

It's not even a molehill. It's barely even detectable. And then again, you go back to people now expect something the next day. So why buy Christmas in November when I can wait until the 20th and get it in time for Christmas?

Mark Taylor : Going back to, you're talking about consumer behavior and what people are buying, one of the interesting things I've noticed is a couple years ... Well, I mean, I don't know how many years it's been, but it's been several now where you started to see these Affirm and I think Klarna is the other one, where, "Hey, we're going to buy a mattress and you can pay for that mattress and it's 0% interest." Right. Well, that has expanded into things like movie or not movie tickets, not yet, but like festival tickets for like Austin City limits.

You can go on there and they have installment plans where you can pay. And I mean, the tickets, like the VIP ticket experiences that you can pay now, take a guess at the highest level packages that are for sale on the website. BJ Patterson : Oh, you got to believe over 10 grand probably. Mark Taylor : Over 30.

BJ Patterson : Oh my goodness. Mark Taylor : Yeah. I mean, it's wild. BJ Patterson : There are people out there that have money to waste that apparently I don't have.

Well, Mark Taylor : I think it's some of that, but I also think it's, if you can get a $5,000 package where you get to be backstage or in the artist lounge or whatever it may be, I don't know. I mean, maybe that's worth it for you to finance it. BJ Patterson : Maybe. I guess people all have their own priorities.

But again, you can't discount the impact of social media on the consumer and again, what's hot, what's not. And also we see that from a 3PL operator standpoint is that any misstep that you make can destroy a brand. Sure. Yes.

I mean, in a New York second, I mean, it doesn't take too many bad reviews or bad posts or someone complaining online to absolutely destroy a brand Mark Taylor : Overnight. Or an employee starting a massive fire. BJ Patterson : An employee starting a massive fire. So that did probably reduce the vacancy rate a little bit in Southern California.

Mark Taylor : Yeah, but I'm not- BJ Patterson : About 1.2 million square feet. Mark Taylor : Now that being said, I would never wish that on any company because that's just un-American. BJ Patterson : I mean, think about all the employees in that warehouse that are jobless and the potential for harm that it did.

Yeah, it's inexcusable. And again, you look for off-ramps and how things will change or if they will change. I mean, no one expected COVID, no one expected the Iran war. I mean, there's all these things that can disrupt the system one way or the other that are, lack of a better term, just unpredictable.

Mark Taylor : Right. BJ Patterson : But you look at the standard trends and you say, "Okay, what's going to change that trend?" I mean, the freight recession ended not how most people thought it would with a volume coming back, but it came with an unexpected enforcement by the administration, which Mark Taylor : Reduced BJ Patterson : Capacity. Okay So you look at the warehousing side and say, "Okay, what would change that?

" Short of burning down about four million square feet of buildings, which no one's advocating for, but I mean the supply is far out leading demand by and it's fixed structures. I mean, it's not like trucks that can go away or drivers that can go away in a minute. I mean, these structures are there. You have billions of dollars and they invested in these, they're not going anywhere.

So either A, you repurpose those buildings into AI centers or whatever or something else or you have some economic change that requires them. I don't see that. Mark Taylor : I mean, I'm curious, do you think, because during COVID, the lease rates in the Southern California just went nuts. I mean, you had some folks - BJ Patterson : Completely out of hand.

Mark Taylor : Signing leases that they were happy about signing at a $1.80 a square foot. BJ Patterson : I know. Mark Taylor : And sadly, a lot of those people have had to go back and renegotiate their leases and things like that.

But I mean, we had some big, I mean, just massive rent inflation and that really drove people to Reno and Vegas and Phoenix. BJ Patterson : Well, it absolutely had what we call the fleeing effect and people fled to areas with lower real estate costs, lower overall regulatory burden and you've heard that. I've heard that from clients that said, "Look, I'd love to be anywhere but there." And it's not just the rents, which just got ridiculous.

And I have plenty of friends in the real estate side who all agree that they just got too greedy and- Mark Taylor : They being the landowners. The BJ Patterson : Landowners. Yeah. The landlords in general got too greedy and they drove away business rather than having, again, like we talked about that long-term view versus a short-term view.

Of course. They just got greedy and it got untenable. But you're seeing even in some of these quote unquote low rent areas, you're still seeing high vacancy rates. BJ Patterson : But it's not just that, it's the regulatory environment in Southern California specifically that has driven people out of the area as well.

And again, a lot of times to their own detriment, we've seen this with people have moved to outlier areas, whether it's Phoenix or Las Vegas or Salt Lake or Reno or wherever and it doesn't take them long to figure out that their overall cost of service is higher, whether it's inbound rates, whether it's ... The other thing that people don't think about is quality of the workforce in those areas. Are the workforce in those areas, are they the type of workforce that not only willing but can work in a warehouse environment?

I've seen this decades ago when people moved into some warehousing in the south. They said, "We're going to convert all these farm workers into warehouse workers." Mark Taylor : Oh, you're not. BJ Patterson : No, you're not.

They don't want to do it. And so things that looked very promising on the surface weren't. Mark Taylor : Well, even back, I mean, I remember 2022 and 2023 is when I feel like we were seeing a lot of that kind of fleeing from Southern California. And I remember specifically getting quotes for drayage over to Phoenix.

And so to get it to my warehouse or your warehouse at the time was six to $800 from the port. Well, you go up to even going to Victorville, which is only 45 minutes up the road, up the mountain pass, that would bump it up to 12 to 1400. Going to Vegas went up to 22 to 24. Phoenix was somewhere in that 28 to 32.

28 BJ Patterson : To 32 now. Mark Taylor : And then Tucson was 34 to 38. You start looking at that and if you have a customer that is turning inventory quickly, then you can only move 26 pallets of oversized stuff on a trailer. Or if you're just doing a container, let's say that's 40 pallets, but that decrease in storage, let's say it went from $25 to 15 just as an example, you're really only saving $400 a month on just the storage piece, nevermind the handling pieces, but then you have this situation and that's assuming a 40 pallet, somebody pulls 40 pallets off of a truck or off of a container and they move it to there.

That $400 delta doesn't cover if you move that stuff in a month. BJ Patterson : No, it doesn't. And then the other thing, we go back to the workforce and conversation I actually had yesterday with someone operating in Phoenix. The workforce is about half as productive.

Mark Taylor : Wow. BJ Patterson : So your labor costs are double because what you're paying in Phoenix for labor isn't significantly different than what you're paying in the Inland Empire in California. It's not significantly different. And so those labor costs add up very quickly.

And again, people don't do the research into the areas they move into, particularly when they move into an area where warehousing isn't a primary economic driver. Mark Taylor : That's right. BJ Patterson : You go to areas that are primarily ... We use Salt Lake as a great example.

I mean, they have driven from an economic development to more tech-based industries there. So you go build a bunch of large warehouses there. Well, everybody there is trying to get their tech job and just like in Las Vegas where I've operated warehouses in Las Vegas and I've had my warehouse manager leave a well paid job, a six figure job because he wanted a job as a dealer at the casino. It's like, what?

I mean, okay. Oh Mark Taylor : Yeah. If you can get it. BJ Patterson : Right.

So I mean, whether it's a workforce or people, you and I had had a conversation earlier about people get so laser focused in on the storage cost that they forget all the other hidden costs. Mark Taylor : Right. And going back to it, like I think you said it earlier, it's the total cost of your service. BJ Patterson : Right.

Mark Taylor : Okay. I mean, BJ Patterson : It's the bigger picture of it. It's the, okay, so when I don't have a trained workforce, and people will always point out to me, I've had this conversation more times than I care is that, well, this retailer's there, this retailer's there, this retailer, they're all operating where I was in that market. Yeah, because they have to.

They have to because they have stores in that area that they have to service. It's all well and good. Mark Taylor : Which is easy to track when you have population. Where the people live is where the people have to put the products to sell.

BJ Patterson : Right. And so now, okay, if you're a player that's servicing just those regional distribution centers in that market, okay, I get it. That makes sense for you. But if you're distributing nationally out of that warehouse and you think that you're going to get a better deal, you're mistaken.

First off, if you're operating at 3PL, then those retailers are paying one and a quarter to one and a half times more than you are. Their benefits are probably better than yours and they've got a name recognition that's going to attract employees more so than you are. And so to make that your quote unquote single location to distribute nationally, you're going to struggle. Mark Taylor : You're BJ Patterson : Going to struggle because not only is the workforce not as productive, when they're not as productive, they make more mistakes.

It costs you more to manage those people. So all those hidden costs, whether it's mistakes, shipping mistakes, which particularly if you're shipping to retailers, you're incurring back charges and all the different minds that come along with that, those mistakes. And so you're less productive, you're making more mistakes, you're hurting your brand long term, but people don't think about that total picture. Mark Taylor : So let's start at the top because this is a very, very important concept.

I think the first thing, and just from the time that stuff comes off the ship to the time it gets into our warehouse, the very first thing a customer is going to pay is going to be the drayage, which is literally the truck moving the container or from the port to the warehouse. The point I think that's really important to take away here is Southern California, if you're in the Inland Empire especially, is going to come in at less than $1,000. Yes. Everywhere else that's worth it or maybe not worth it, more than 2,000 at least.

BJ Patterson : At least. And then you also get the fact that, okay, so that's your inbound, then it's going to get ... Okay, again, like we said, everybody gets fixated on the real estate cost. Okay.

I get it. Just storage. Storage costs. I mean, it's a fixed cost Cost that happens and I get it that all makes sense.

I get why that. But then let's talk about the other costs that go on top of that. Mark Taylor : Handling. BJ Patterson : The handling costs are going to be more because they're less productive and you're paying the same labor rate.

The mistakes and the back charges and the fines are going to increase when you have less productive workforce. You're going to have to pay more management fees to do that. And then let's get to the outbound. When you move to these locations that are quote unquote remote or away, there's less density.

So there's less density of warehousing. So what that means is there's less trucks. And then you get into an area where there's not a lot coming out of those areas. So the competition for trucks is very high and there's not a lot of them to begin with.

So now you're seeing your outbound costs. And again, we've seen clients that have moved to some of these remote areas and well, they moved away from the density of Southern California and they moved to these less dense areas and now the retailers who are picking up collect freight are charging them a delta for the transportation cost because they're shipping it and a lot of times back to Southern California. : So you've paid it to drive all the way through California and then to this, whether it's Vegas or Phoenix or Salt Lake, wherever.

: And now you got to pay to move it all the way back to Southern California because again, the density issue. So LTL costs are more, outbound costs are more, inbound costs are more. Mark Taylor : Yep. Not to mention ...

Oh, go ahead. BJ Patterson : No, no, go ahead. Mark Taylor : I was going to say, I mean, while we're on the shipping piece of it, there's not a single parcel provider that doesn't pick Southern California as one of their first markets. And it may not be the very first, but it's like if New York, New Jersey's number one, Southern California is probably going to be number two.

So you have more options on FedEx, FedEx freight next day. I mean, they've got planes everywhere right out here. You've got more options for UPSs in the same boat. Amazon delivery started, this was one of their primary markets they started.

Then you've got all these others, the OSM, GLS, UNIUNI, all of them start in some form or fashion out here. And if they don't start day one, it's phase one. And so your ability, I mean, this is obviously, this sounds like a commercial for California, but if you can't not talk about, I mean, there's a reason why this place is called the Inland Empire. : It's because 40% of the imports in the United States come through Long Beach and LA, the ports that are next door to each other.

BJ Patterson : Right. And you've got right, wrong or indifferent over time you have an economy, particularly in the Inland Empire that has been built around logistics. One of the main drivers of the economy in Inland Empire. So not to beat a dead horse, but you have a labor force that is predicated on logistics.

The other tractors of Southern California, again, not to do a Southern California advertisement, but you have two Class I railroads, not one, you have two - one running east-west, one running north-south. Mark Taylor : Wow. You BJ Patterson : Have an abundance of freeways. You have the largest port complex in the country.

You have major airports that are built around freight throughout Southern California. You have all your major players. I mean, think about this. I mean, where we're sitting today within an eight mile radius, Amazon has 12 million square feet.

I mean, so again, I go back to density, right? You have the density and all that. So you go to other markets in the country and like Lehigh Valley and Pennsylvania, which has, we call that the Inland Empire, the East Coast. So they've got great density there and they can service.

You have parts of Chicago, Indianapolis, again, have that density and the ability and the railroads and the air. They may not have the ocean port but they have density. You start going to all these outlier areas and they don't have that density. : That's Mark Taylor : Right.

They don't BJ Patterson : Have that. And so while it may look good when I'm looking at the real estate, I'm not looking at the big picture. I'm not looking at all the other costs that go into operating that facility. The Mark Taylor : Total cost of service.

BJ Patterson : Right. I think that's something that people miss. And again, I go back to what we talked about earlier is that you make mistakes in this business and it's beyond just the back charge or fine you get from a retailer. If you're doing e-commerce and you're making mistakes, that brand gets eviscerated online.

And those videos, those posts, they add up really quickly. Mark Taylor : They do. BJ Patterson : And so you've got to manage that. And again, people don't think about that.

They get so laser focused on one number that they don't look at all the other numbers that go into it. Mark Taylor : And that number being customers looking at how much you charge for storage. Right. And then you'll lose a deal off of storage, but they won't consider the fact that you've got labor that's going to be more efficient, parcel situation, a trucking situation that's going to eventually overall save them more money, less money on the dray.

And you also have the, as you said, I guess going back to the labor piece, but the retail compliance aspect of it, that is really kind of just more of an addition to the labor already being queued into how to do things and like being trained up for it. BJ Patterson : Well, we kind of go back to our earlier conversation that brick and mortar hasn't gone anywhere. It's morphed and it's changed, yes, for sure. But I'll go back to particularly during COVID when you had this really massive boom of e-commerce and people entering into the business.

Well, now even you're seeing a lot of e-com brands that were e-commerce only moving to brick and mortar Mark Taylor : Because BJ Patterson : Go back to the density. They can't get the volume they need to get the pricing they need by shipping simply one at a time. Shipping large quantities to retailers is more economical. Margins are ultimately better even though : There are people out there that argue the opposite of that.

They are better because you're shipping larger quantities. They can get the volume they need to get their manufacturing costs down. There's a lot that goes into that. Well, then you have these e-com players that have no idea what a routing guide is.

They have no idea the complexities that these retailers put on shippers to ensure that the product they get fits in their system. The advent of the back chart was really predicated on automation. The retailers that were receiving the goods needed product that was compliant with the automation they were installing in their DCs. Mark Taylor : And so this is all retail compliance.

BJ Patterson : It is. That's what retail compliance is really based around. They want to expend the least amount of labor to receive that product in and to ship that product out and they want it in a way that fashion that fits their system. The routing guide is really no more than an SOP, so to speak, of what it takes to get those goods through a particular retailer's systems.

The label has to be compliant so that it's scannable and readable and goes through the system on the right side of the box because that's where their scanners are set up and they want the box to be a certain size and be compliant so that it fits their conveying systems to be put away. And then ultimately they order it so that it fits on a shelf. I mean, one of the things in the retail world that often doesn't get enough discussion around is that you go to retailers now and they have very limited backroom space.

: I mean, the idea that they got this huge inventory in the back room is just not the case anymore. The drive decades ago to increase sales per square foot meant that they virtually eliminated the back room. So case pack size is reduced down to just enough that fits on a shelf. You went from retailers ordering a minimum of a case of 36 or a case of 24.

Now you're seeing retailers ordering units of four. Mark Taylor : Yeah, half cases and things like that. We see that a lot with baby list. BJ Patterson : Yeah.

You see that with a lot of your clients, the retailers have minimized that pack size so that therefore when it comes to the store, it goes right on the shelf and there's no back room needed, no additional stock again to try and simplify it for the system that they've built and the routing guides are no more than how do I be compliant with the retailer so it works in their system all the way through like they've set it up. Mark Taylor : I know we've seen chargebacks of $200 for a non-compliant pallet or a pallet that looks like it's a little wasn't new enough.

It had like maybe some wood chips. Which you think about it, it's like, well, what's the actual cost to the retailer? I'm like, well, if they get wood chips all over their floor and everybody does it, their forklift wheels get worn out faster. BJ Patterson : Well, the back charges are punitive in nature Mark Taylor : To BJ Patterson : Try and force you to be compliant.

I mean, I've seen 40 and $50 charges for one bad label and that label's on a box that has a total wholesale value of about $20 Mark Taylor : And BJ Patterson : They're charging you $40 for a non-compliant label. Mark Taylor : So going back to this total cost of service, I know you've had clients that came to you with close to $400,000 in chargebacks. Well, when you're evaluating a 3PL, you can't see chargebacks on the ... There's not a- There's not a line item for chargebacks.

BJ Patterson : No. And you need to ask the right questions, say, "Okay, what is your experience with chargebacks?" And all too often, a lot of these, particularly some of your larger brands, they've built the chargebacks into their system, it is what it is. And chargebacks, it's kind of taken on a life of its own.

Some retailers are more aggressive than others, but you see them that these brands that have just, it's just part of the doing business, quote unquote, but it's- Mark Taylor : It doesn't have to be. BJ Patterson : It shouldn't be. It shouldn't be. I mean, it hammers your margins and increases the price that you're selling your goods for and goes into the cost of goods and then next thing you know, you're not competitive Mark Taylor : As you need to.

Don't worry about that. BJ Patterson : Sorry. Mark Taylor : You're fine. I appreciate you not doing it right in the ears.

BJ Patterson : Right. Mark Taylor : That's what I was trying BJ Patterson : To Mark Taylor : Do. With that customer that came in to you the previous year with 400,000 in chargebacks after they got to you, what was the next year like? BJ Patterson : I think the first year as we tried to ...

There was some systems issues that was causing a lot of their chargebacks and we worked through them first year we reduced it by 100,000 and then the next year I think their total chargebacks were like $11,000. They were all their fault because people get chargebacks, everybody thinks chargebacks are 100% the warehouse's fault. Well, a lot of times chargebacks are the PO wasn't compliant. They didn't identify the start ship date correctly or the window correctly.

There's a lot that goes into that can ... Or their short inventory. They sold stuff to the client that didn't get here in time, didn't make it from the manufacturer in time. So now they're shorting a PO, they get a chargeback for that.

They're canceling items off a PO. They get a chargeback for that. Mark Taylor : Which goes back to inventory accuracy. BJ Patterson : Right.

Inventory accuracy or ... Mark Taylor : Or they didn't check your system. BJ Patterson : Well, not even just our system. A lot of times what goes into the getting ...

We always say that supply chain is no more complicated than getting the right stuff to the right place at the right time. Well, that's a very holistic thing. I've got to know my manufacturing time. I got to know my transit times and a lot of times we go back to earlier when we talked about people keeping very low inventories.

Well, keep a very low inventory- Mark Taylor : You're going to have stockouts. BJ Patterson : You're going to come risk of stockouts. I mean, it's just any little hiccup in that chain from the manufacturer. The manufacturer didn't get a raw material on time, or you got to the dock, you didn't hit the right ship at the right time, right vessel at the right time.

There's so much that can happen in that chain that when these manufacturers cut it really close, these brands cut it close, they run the risk of not making the start ship date. And so then they get back charged because they promised it to the retailer at a certain date and they didn't deliver it. Now on the retailer side of it, you look at them and say, "Okay, why such a big penalty?" Well, because stock outs at my store cost me money.

Years ago I worked for a large retailer, Target to be specifically and we knew the items that no matter what had to always be in stock on the shelves because it was one of those items that you would have gone to the store specifically to get, and if I didn't have it, you may not buy anything else, you're going to leave and go across the street to the competing retailer to buy Mark Taylor : It. And if they have it, that's where BJ Patterson : You're going next time.That's where I'm going next time.

And so the retailers, their setup is that they don't want empty shelves those empty shelves drive shoppers to go elsewhere. You may have a basket with 10 items in it, but if that one item that you absolutely needed isn't there, you may just park that basket and go somewhere else and not even bother with Mark Taylor : It. It's interesting because that perspective is so ingrained in the DNA of brick and mortar retail that you can go to almost any grocery, anything, Walmart, whatever.

And one of the top questions you always get ask is, "Did you find everything okay?" BJ Patterson : Right. Mark Taylor : Now the funny thing is if you say no, they have no more training. They don't BJ Patterson : Have to say then.

They go, "No, I didn't." But that's very true. Mark Taylor : Do not pass go. BJ Patterson : Right.

So again, I think back charges have gotten out of hand. That's my own personal opinion, but the reasoning behind it is somewhat understandable that, look, we entered into an agreement and we have contractual obligations to each other and we need to uphold those contractual obligations. However crazy they are. People used to tell me all the time, "I've worked with Walmart and done with Walmart for most of my career."

And people will say, "Well, oh my gosh, it's really hard." I said, "No, it's not. You just got to do what they ask you to do. " I used this example yesterday in a conversation with a client who was complaining about how difficult Walmart is.

And I said, "Well, not really. If you just do what they tell you to do, " I said, "It's like TSA." I can remember when they first started telling people to take their shoes off, these people that are sitting there arguing with them about taking their shoes off, just take your damn shoes off and walk through the line. : I mean, how hard is that?

Your arguing with them is not going to change anything. Mark Taylor : They didn't make that rule. BJ Patterson : No. Mark Taylor : Well, the person telling you to take the shoes off did BJ Patterson : Not- Did not make that rule.

It's just the rule. And you arguing with them isn't going to change the rule. Just take your shoes off and go through the line. Well, that's no different than dealing with a retailer.

Retailer prints out a routing guide. No matter how ridiculous you think it is, if you want to do business with them, just follow the routing guide. Just do what they tell you to do and your relationship will be fine. I mean, it's no more complicated than that.

I've talked to so many people that sit there and want to argue about it. Well, okay, you can argue about it. Mark Taylor : Then don't sell on BJ Patterson : Them. And then don't sell to them.

And also if you think that back charges are unfair or you didn't commit the violation, well, then you better have a system where you can show them that, "No, I did it correctly." And people say, "Well, God, that's expensive to do. " I said, "What's more expensive doing that or paying back charges?" Mark Taylor : Right.

I BJ Patterson : Would argue that having a good paper trail and a good trail systematically that you can prove that, no, I didn't do that. That's far less expensive than paying astronomical back charges. And also that helps with your, believe it or not, it helps with your reputation and relationship with that retailer. Look, no, no, no, I didn't, because those buyers are looking at what your back charges are.

Mark Taylor : They're BJ Patterson : Looking to see how compliant you are. I mean, that all goes into your scorecard with most of these retailers. And so if you want to move your scorecard up, be more reliable and follow the rules. Again, just take your damn shoes off and go through the line.

Mark Taylor : So one of the things I do want to point out here because I want us to sum up so somebody's got a soundbite of how to select a good 3PL because I think it's important because right now, as you said, I mean, there's no off-ramp for where warehousing's going, but there's still a lot of freight out there that's got to be moved, got to be stored. And I think what's happening is people like you and I are not, as I say, we're not screaming from the rooftops what we are good at because we've got a million other things on the plate, but the point I think that needs to be extracted from everything you just said was finding a 3PL that understands that playbook and just accepts and has built their systems around taking their shoes off or taking your shoes off at the TSA line is important because a lot of 3PLs haven't thought about it, they haven't had to deal with the paperwork trails, they hadn't had to deal with the EDI connections all of the above.

And that's a big differentiator. BJ Patterson : It is. And I mean, it always goes back to asking the right questions Mark Taylor : And BJ Patterson : I think there are questions that don't get asked. Tell me a little bit about how you handle routing guide.

Well, I think one of the negatives in that routing guide system is that all too often the retailers don't want to share their routing guide with the actual 3PL. They'll give it to the brand or they'll Mark Taylor : Give it to BJ Patterson : The manufacturer, but they won't share it with the 3PL. Some will, some won't, but it is a common thing. You better have a relationship with your client that says, "Okay, if you get an updated routing guide, you need to share that with us."

And you better be vigilant about that. I mean, they don't change a lot very often to be fair, but they do change and in some retailers there's specifics depending on the department you're shipping to. They'll have nuances that depending on the department you're shipping to. Mark Taylor : Or the warehouse for that.

Or BJ Patterson : The warehouse for that matter. And you see that more prevalently in some of the smaller retailers where the one in Pennsylvania wants it this way, but the one in California wants it this way. And so you see that as well. But you got to ask the question, let's talk about retail compliance, let's talk about your backcharge history, let's talk about silly things like how do you maintain your label printers and how do you ensure that the labels are good?

How do you ensure that the person processing the order on the floor knows how to do it and knows the requirements for that specific order because a 3PL is shipping to all sorts of retailers. At one point, I think we were managing close to a hundred routing guides. I mean, you better have a 3PL that has it systematically embedded so that every retailer, the specifics for that retailer are part of the process, not an add-on, not an afterthought. : They are genuinely part of the process.

Mark Taylor : Well, and it can't be tribal knowledge. BJ Patterson : No. Mark Taylor : No. It's like it can't be because ...

BJ Patterson : Well, Susie just knows that- Mark Taylor : She's been here for 20 years. BJ Patterson : Right. She knows. And it can't be that and it has to be systematically embedded so that every order that goes out includes the notes that says, "Okay, this has to be processed this way."

Compliant labels, I mean, you better have a 3PL that has a system that can print compliant labels Mark Taylor : And BJ Patterson : Not take a month to come up with a compliant label. Mark Taylor : Well, it's interesting because we have never been with AI and the ability to do basically search through massive databases and distill really pertinent information, it's never been easier to take a 60 page routing guide. BJ Patterson : And pick out all the pertinent parts. Mark Taylor : And pick out everything that matters to your system.

But I think the problem is slop in, slop out and it just means that if you don't have those systems in place, if you don't have that embedded in your 3PL's DNA and Pacific Mountain Logistics' DNA and Warehouse Republic's DNA, if it's not there to start, then what's going to happen is it doesn't matter that we've got these powerful tools that can pull all this stuff out because it's not going to make it to the flora. BJ Patterson : Well, and again, that has to be part of your system.

Mark Taylor : That's right. BJ Patterson : It has to be ... And I'm not talking about just an SOP that says you do it this way. When an order goes to the floor, there better be notes on that order that say that, okay, don't forget because the label has to be on the upper right hand corner, the longest side.

Mark Taylor : Correct. BJ Patterson : It has to be here. You have to make sure that this one requires a carton content label and a UCC 128. : Every retailer has their own picadillos, so to speak, and that better be part of what you do.

Just like reading the routing guides and reviewing the routing guides, we used to do a thing called the Routing Guide Rodeo where we'd all kind of pick them apart and see if there was something that we were missing. Again, there's all these retailers and some of them routing guides are really good and very clear and some of them are very convoluted, spread across all types of parts of the system. And it also goes with having the relationship with your client, that brand or that manufacturer that says, "Okay, what is your buyer telling you?

" Mark Taylor : Yes. BJ Patterson : "Well, you need to ask your buyer these questions because we want to make sure that we're doing it the way the buyer wants it because that buyer is the most important person there in that relationship of understanding what it needs to be. " And then you back that up with understanding from a logistics standpoint, what is it they're looking for? When do I route an order?

When do I not route an order? Do I have to combine orders? Do I have to route each individual order separately? All those different things and it has to be embedded in the DNA of your 3PL that they understand that that's what they need to do.

And if they don't, then you're not asking the right questions. Mark Taylor : Well, and that's a good segue here because there are things that the customer can do the research on their own. Am I in a population dense market that has great shipping rates or great shipping options, I think is probably a better way to look at it, that being rail, air, everything. I mean, you basically listed those markets, which are Lehigh Valley, Southern California, Inland Empire, Chicago, and then Indianapolis.

And then as kind of an honorary, you'd have to say Kansas City only because of its proximity BJ Patterson : Right Mark Taylor : In the middle. BJ Patterson : When I think of the quote unquote best markets, New York, New Jersey, Pennsylvania, up in there, there's a lot of pockets of good locations up there, a little bit prejudice towards the Lehigh Valley. I think that's a really good area. Around Chicago, Indianapolis benefits from its proximity to Chicago.

Kansas City's in a good spot. They have a lot of density in Kansas City. Mark Taylor : But that's also, I mean, if you want to do a single point of shipping- BJ Patterson : Yeah. If you want a single point of shipping, Southern California, Chicago, Kansas City, New York, New Jersey, Lehigh Valley, include that Pennsylvania area and then you kind of get down to the Savannah, Charleston area, you're servicing the South, those are all good points.

Mark Taylor : These are the things that the customer can kind of do. It's like, okay, check it off. Is it in this market? And that is going to help with their total cost of service.

And it's not only because of the parcel ... And the LTL routes and the train routes and stuff like that. It's also because of the labor. BJ Patterson : The density.

The density, the labor markets are good. You look at their proximity to population. I would consider all those we just talked about as primary. The secondary markets would be areas like Seattle, Reno, Dallas to some degree, the Dallas market.

To me, they're on the cusp of secondary versus tertiary. Mark Taylor : And that's not to say that they don't have population. They do BJ Patterson : Have population. The problem with somewhere like, not to pick on Dallas, but- Mark Taylor : We both love Dallas.

We BJ Patterson : Both love Dallas. Go Cowboys. But anyway, but you look at Dallas and say, okay, I can ship east, but there's a whole lot of nothing going west out of Dallas. Mark Taylor : Yeah.

BJ Patterson : A whole lot of nothing before you hit another population. Mark Taylor : That's right. I know El Paso's growing, but it's not growing that fast. No, BJ Patterson : No, no, no, no.

But it's more to me, Dallas, more of a regional player, regional distribution, national distribution on Dallas to me. And again, I'm sure I'll get a lot of hate over that, but Dallas, Phoenix, Vegas, I don't know that I'd pick any of those for my single point. Mark Taylor : Sure. BJ Patterson : Secondary possibly, but if I'm doing singular ...

If I'm going to operate one warehouse, and again, this goes back to the ebbs and flows of logistics. So I've been doing this for longer than I care to say on any podcast, but- Mark Taylor : You said on the first podcast. I BJ Patterson : Did, right? It's too long.

Mark Taylor : In the early 90s. BJ Patterson : Yeah. But you look at the ebbs and flows and you go into the, well, we're going to have one distribution center and really maximize our efficiency out of one and we're going to split it into bicoastal. Then we're going to, oh, we're going to put one in the middle, two, and all these things.

Well, the thing that gets lost in all that is when you start splitting inventories across multiple warehouses, it takes a level of sophistication that a lot of particularly smaller companies don't have. The ability to manage inventory over multiple locations and have the right stuff in the right place and the right quantities in the right place, it takes a level of sophistication a lot don't have or can't afford. And your inventory costs go up, your overall operating costs go up.

And again, it depends on what you're trying to do. I mean, if everybody's trying to reach somebody in a day or two days, all right. : But one thing that I've noticed is that post COVID people got kind of used to getting stuff in four or five days. Mark Taylor : They did.

They got used to a lot of things. BJ Patterson : They got used to a lot of things. And I think this need to have it the same day, next day took a backseat to what's the cost of it? And that's a impact of inflation.

People became much more cost conscious. And if I can save 20% by getting it in four days versus the same day, I'll take the 20%. And so you look at the overall cost of operating in one location versus multiple locations. Is that need to have it there in one day worth the additional cost?

Mark Taylor : Correct. BJ Patterson : And again, it goes into the cost of goods, it goes into your cost of sale. Well, Mark Taylor : Then also it's like you started this off by saying people are holding a lot less inventory. Well, in order to split inventory effectively- Got to have more.

You got to have more. You BJ Patterson : Have to have buffer inventory and you end up with the wrong stuff in the wrong place. And again, it takes the level of sophistication and volume to, and you have to have the right amount of volume to do that. And whether it's East Coast centric or West Coast centric, I mean, that's kind of brand dependent, but I always see that it really depends on where they're sourcing the product from.

Mark Taylor : Yeah. I love the explanation of basically the tertiary markets because everybody hears, well, you said population, but then you look at Dallas and it's like to the point, there's not a lot of shipping west out of Dallas. Now sure, north and east, but you're missing a whole direction. Whereas you could make the same argument for Southern California being like, "Well, nobody's shipping back to China or out into the Pacific," but it's different because the way that's the origin point of where that stuff is.

Well, BJ Patterson : And again, you go back to where is it coming from If it's coming from East Asia, LA is your logical spot. Now some people go to Seattle, some people go to Tacoma. Well, Seattle, the problem is you got ... I always operate a lot in the PNW and well, you got this mountain range right there so I got to go south to go east Mark Taylor : If BJ Patterson : I'm not air freight and stuff.

Mark Taylor : So BJ Patterson : Outbound cost out of there is more expensive. So if you're shipping nationally, the Oakland market is small and disjointed. There's some national players up there, but for the most part it's more regional. Reno attracted a lot of people for a variety of reasons.

The Reno Sparks area, I still don't consider it a primary market. LA, I mean, if you're coming out of East Asia, LA's your best, cheapest way to do it. If you're coming out of India, Pakistan, East Coast makes more sense. You can go through the Suez and cut down your travel time.

Mark Taylor : It makes more sense when we're not bombing and you're not having conflicts. BJ Patterson : Vietnam's kind of a split. Mark Taylor : I mean, BJ Patterson : You can reach both coasts in about equal time, equal cost. But obviously in South America, you get some of the Gulf Coast, Houston area gets a lot of stuff out in Miami out of South America, but our reliance on South America is relatively small compared to your Asian country.

Mark Taylor : That is one thing Texas does have going for it in terms of proximity to Mexico or anything that's coming up. : And if you're selling cowboy boots or leather goods or things like that that aren't coming from Italy or China, then it does make more sense. So I want to put a bow on this for the person seeking a 3PL and that being that there are things that they can kind of look at themselves. And we've explained why primary markets are where you want to be and you're going to have to make the best decision for your company, but if you've decided that Southern California is the primary market you want, then that covers not only lower drayage, better labor pool set up for you, the ability to handle it, trucking routes and all that kind of thing.

Those are the hard things. It's like somebody can go in and if you're looking at a 3PL and you're not asking for the parcel rate card or give me some example shipping rates or what drayage costs, then you are really not considering this from the standpoint of how am I going to make the best decision for my business? BJ Patterson : Right. And again, I think it's the overall cost.

Mark Taylor : The BJ Patterson : Overall cost, right? The overall cost and you got to include the ocean freight into that and do all time at the port. All the things. Inventory is money, right?

So think of it as you're shipping a container full of money and that money has a carrying cost to it. Mark Taylor : It does. BJ Patterson : And so you look at your, think of the supply chain as a pipe, right? Mark Taylor : The supply pipe.

BJ Patterson : The supply pipe. I think I've always thought the supply pipe made more sense than the supply chain, but that dwell time in that pipe is- Mark Taylor : You want to reduce it. Yep. BJ Patterson : Right.

And so I want to get that product to a sellable condition so I can move it and make money on it the quickest way possible. Mark Taylor : Yep. And there is a reason why Long Beach and LA take 40% of our imports. BJ Patterson : Right, because we're so heavily dependent on East Asia.

Mark Taylor : So those are the things that somebody can do most of the research by simply asking the very obvious questions of, okay, let me see your rate card and for the love of God, stop focusing on storage. And look, another tip is if you are a client that stops at looking at the storage cost, ask your potential provider, does that storage cost go down if I can guarantee turns? BJ Patterson : Right. And again, in most cases, that is the point.

The problem you get a lot of times, particularly with newer brands, is they don't understand that. Or that they'll come in and tell you, "Well, I'm turning my product five times a year." Mark Taylor : And they have no idea. BJ Patterson : They don't even know what five times, how to calculate five times.

Mark Taylor : Sure. BJ Patterson : Someone along the line told them that and they're turning two and a half times. Mark Taylor : But a great example here is let's say somebody comes in, they say, "Well, I want $7 a pallet position per month." They say, "Okay, great.

I will give you that rate, but you're going to have to contractually sign that. I'm going to get three, you're going to basically turn your inventory three times a month. And if you can do that, I'm happy to talk about that low pallet rate. BJ Patterson : If you're asking for a $7 pallet rate, then you're probably going to show up in parachute pants.

Mark Taylor : Fair BJ Patterson : Enough.That's a long time ago. But again, the issue is that that 3PL brand relationship really needs to be a partnership.You don't want a 3PL that's giving you prices that are 50% below market because they're desperate and they're probably not going to do a good job for you because they can't afford to do a good job for you.

I mean, I get it. Very few people want the Rolls-Royce version of it, but you want a 3PL that's making money, that's doing the right thing, investing in the system, investing in the process, investing in their people. The question I would ask you through, what's your turnover look like? Mark Taylor : Right.

BJ Patterson : What's your employee turnover look like? Are you investing in your people or are you just using whatever temp they send you that day? Mark Taylor : Yep. BJ Patterson : And that goes to, again, that total cost, efficiency.

Mark Taylor : So this gets into the questions that most customers interviewing 3PLs aren't asking. So what's your turnover rate's a good one? What was your relationship with retail compliance? That's a good one.

And so it's easy for somebody to say, "Well, we work with customers that work on Walmart and do this and Amazon sellers and we've got people that ship into Shields and Bass Pro." All right. I mean, I'm just using some of the ones we work with. Okay.

Well, how many chargebacks do you get? Right. How are you handling those routing guides? BJ Patterson : Right.

Mark Taylor : So I think there are a few other ... If you had to come up with the top three or four soft questions that very few people ask. BJ Patterson : Again, I think the biggest questions are, well, just explain to me how you handle routing guides. If I'm someone shipping into retail, that'd be top of my list.

What do your chargebacks look like? How do you handle those? How often are you able to refute them and get them overturned? Mark Taylor : And chargebacks, by the way, UPS and FedEx are hard on chargebacks.

They just call them accessorial fees. But I mean, it's like that's for bulging cartons that weren't dimmed correctly, cartons that weren't weighted properly, labels. Yeah. Anyway, my point is I didn't mean to derail.

BJ Patterson : No, no, no. And that's true. Those are all things that ... And walk the warehouse.

I mean, too often they didn't even walk the warehouse. Mark Taylor : Right. BJ Patterson : Go walk the warehouse and see how it's organized and how it's clean and how the people are working. Does it look like an absolute cluster or is it organized and people look like they're moving with purpose and they know what they're doing?

A lot can be said. I've walked on a lot of warehouses in my career and it takes you about five minutes to think whether or not it's a well run warehouse. And people will say, "Well, a clean warehouse isn't necessarily a great warehouse." I said, "Well, it's certainly a great place to start."

Mark Taylor : It's a good place to start. BJ Patterson : Because if it's not clean, that means they're not paying attention. Mark Taylor : It's really counterintuitive, but I worked for a guy who basically ran the General Dynamics F-16 Fighting Falcon line and the Triton submarine line. He was the head of manufacturing and his philosophy was if you walk a warehouse and everybody looks like they're running around like the heads cut off, that's a terribly run place.

It BJ Patterson : Is. Mark Taylor : And if you walk around and everything seems like real calm- BJ Patterson : And boring. Mark Taylor : And kind of slow and boring, you said that's the mark of a good warehouse or a good manufacturing plant. BJ Patterson : Right and it is.

I mean, if people should be moving with purpose, look like they've got a purpose, not running around, like you said, like chickens their head cut off. The warehouse should be clean, look organized, everything is ... I've forever told my team there's only two safe places for inventory in a location and on a truck and everything in between is suspect. Mark Taylor : That's right.

BJ Patterson : So your goal is to get it from inventory on a truck in the quickest, most efficient way possible. Mark Taylor : Another question I think customers could ask or potential customers should be asking their warehouses, how are you verifying that package gets onto the truck? Right. Because what may or may not be understood is when you're shipping large volumes, FedEx does not come in and scan every single package.

BJ Patterson : No, they won't do it. And that's a problem too. I mean, you get into that when you get into drop trailers with UPS and FedEx is that there was a time when some early days of COVID where it would take seven, eight days before they'd even scan it into their system. Mark Taylor : Right.

They'd lose a trailer. BJ Patterson : They'd lose a trailer, they'd lose product and it still happens today. We scan everything onto the truck ourselves. Everything is scanned onto a pallet and then that pallet is scanned onto the truck to make sure that it's loaded.

So we know it was loaded, but if they don't scan it on their end or they lose it on their end, then who's on the hook for that? Mark Taylor : Right. BJ Patterson : And UPS says, "Well, we never scanned it. They never sent it to us."

Mark Taylor : Exactly. BJ Patterson : Yeah, we did. And here's the proof we did. Well, no, we never got it.

Mark Taylor : And they've really started moving towards video verification now. You'll say, "Well, prove it. Show me the video." And so it's getting to the place where there's not a lot of people there yet, but it's getting to the place where it's like you're wanting to see the package scanned into the Gaylord and then scanned onto the truck.

And if you can provide those things and hand it to them, they'll say, "All right, fine." I mean, it's almost cartel-like in a way, very mafioso BJ Patterson : And it's just the world we live in and nobody wants to take responsibility. So who shoulders that burden? Who shoulders that cost?

I did everything in my power to make sure that it's on that truck and when that gets lost, who's responsible for it? Mark Taylor : And once again, you have to be able to run the labor that's going to be able to take the time to scan the thing onto the pallet into the truck and that's not something you're going to see on a warehouse sheet. BJ Patterson : No, no. The Mark Taylor : Pricing BJ Patterson : Sheet.

Again, the conversation we had just recently with a client was ... Look, I think that when you walk to a warehouse and we always encourage people to talk to some of our people if they want, you want to walk a warehouse where the culture is, everyone's bought in. Everyone's bought in, everyone cares, everyone knows the ... It's more than just knowing the process.

Mark Taylor : Sure. BJ Patterson : It's caring and understanding that the process is there to make sure that our jobs are easy and things go the right way. Our standard thing is the best way to improve productivity is to do things one time. A boss of mine in my early career told me, he said, "We only get paid to do it once."

Mark Taylor : That's true. BJ Patterson : Everything after that is on us. So you want to improve your cost, you want to improve your productivity, do things right the first time. It's not about people running around like chickens or head cut off running as fast as they can.

It's about following the process and doing it right. If you do it right the first time, your productivity comes. Mark Taylor : And then going back to that attitude of being bought in of being a partner and recognizing it's like we only succeed if our customers succeed and if our customers don't succeed, then we don't get to eat. I mean, it's a symbiotic relationship.

BJ Patterson : We did a field trip years ago, I took them to a retailer, took my managers and supervisors to a retailer. I said, "Let's go to the clearance area." I said, "See all this stuff in Clarence, it's all got some damage to the box because if you're buying something and we're all guilty of it, if I see a box that's partly smashed on one end, I grab the one behind it. I don't grab the one that's got the smashed in.

There's nothing wrong with it, but there's just something tells me that I'm going to grab the boxes in perfect condition." So when you're handling product out here, you need to be cognizant of that, that you damage that box, there's good chances this is going to end up on the clearance track. Mark Taylor : Remember the Adam Sandler movie Big Daddy where they're in the thing and they're BJ Patterson : Throwing- Smashing the cans. Because stock market was down, but that Microsoft was down five points or whatever it was, but you teach your people and you say, look, when you pack something to go out, would you want to receive that?

Mark Taylor : Right. BJ Patterson : If that showed up at your door, would you be happy with it? When you ship, would you buy that off the shelf? And again, you just kind of embed that theory that, look, don't ship anything out that you wouldn't buy yourself.

If you saw that product, if it was dirty or if it was box damage or whatever, would you buy that? Would you? If you received this from a retailer at your door, would you be happy with it or would you go, what the heck product was dirty, the product was damaged, would you want that or would you return it? Right.

And then you get into the whole rabbit hole of product returns. Mark Taylor : And probably a better proxy is, would your wife return it? BJ Patterson : Right. Mark Taylor : Because there's a lot of stuff.

Yeah, BJ Patterson : It's way more likely. Mark Taylor : There's a lot of stuff I'll take. I'm like, "Ah, it's fine." BJ Patterson : Yeah, right.

Exactly. Mark Taylor : It's a trailer hitch. I don't care what the box looks like. BJ Patterson : Yeah.

One story years and years ago, a friend of mine worked for a large logistics firm and he had ordered his grandmother a cookbook from, we'll just call him one of the largest online retailers in the world. He ordered a cookbook for her and she was in her late 80s where you can buy it as a gift and send it straight to her. Well, it's her birthday, comes and goes. She didn't hear from her.

He thinks, "Oh my gosh, you can get it. " And finally calls her and she goes, "What is wrong with you? What do you mean what is wrong with me? I thought you really liked that cookbook."

And goes, "That's not what I got." "What do you mean? I ordered you a cookbook. I got a book on the Kama Sutra.

Mark Taylor : His BJ Patterson : 88 year old Italian grandmother got a book on the Kama Sutra. Somebody mispicked it and shipped it to her. Mark Taylor : That's a big whoops. BJ Patterson : That's a big whoops.

"He says," I took that whole thing back to my team at my warehouse and said, Look at this. I mean, when you're packing orders, you better think about my 88 year old grandmother. That might be who's getting this. Mark Taylor : That's right.

BJ Patterson : Better be the right stuff going to her. "And I'll never forget that story. I mean, that was a long time ago in the very beginnings of e-commerce. So that misshipment has so many other things that go into it and what it can do.

And look, I'm looking for this item. I have to have it and it's the wrong thing. There is nothing that will kill that brand faster than your anger that someone shipped you to the wrong thing. Mark Taylor : That's right.

BJ Patterson : Again, I always tell people it's no more complicated than shipping the right stuff to the right person at the right time. Mark Taylor : That's right. And I think on that note, is there anything else you want to throw out there because these pearls of wisdom? I think if anybody running a warehouse listens to this podcast or this episode and just follows everything that you said, they'll probably have a pretty successful business.

BJ Patterson : The last thing I would say is, look, it's not complicated. You're not building a space shuttle here. Mark Taylor : Or doing a heart transplant. BJ Patterson : Or doing a heart transplant or brain surgery, as my stepdad used to always say.

He was a mechanic. He always said," I don't do brain surgery. I don't do automatic transmissions. "But don't overcomplicate things.

Don't overcomplicate your relationship with the 3PL. Don't overcomplicate the process. The old KISS principle- Mark Taylor : Keep it stupid, simple. BJ Patterson : Yeah.

Or Mark Taylor : Simple, BJ Patterson : Stupid. Keep it simple, stupid. And that really does play a part into your success. The more complicated you make that relationship, the more adversarial you make that relationship, that's going to lead to dissatisfaction on both ends.

So that 3PL really is your partner and has your best interest in mind because the best way for a 3PL to grow is for you to grow. Mark Taylor : That's BJ Patterson : Right. That's the attitude is, look, we can grow best when you grow and you grow best when we do our job right and you communicate with us the information. And so if you keep that relationship non-adversarial and as a true partnership, you'll both grow and it's good for everybody.

Mark Taylor : Words of wisdom right there. I think that's a great way to top it off. BJ Patterson : Awesome. Mark Taylor : All right.

Thanks for being here as always. Thanks, BJ Patterson : Mark. I appreciate it. Mark Taylor : Absolutely.