Automated Fulfillment: Changing the Ecommerce Game With Kevin Gibbon From Cytronic - Unboxing Logistics Ep. 89

There's no such thing as fully autonomous anything. Because it's such a human-led process, it really matters- Isn't that interesting? -About the human. Welcome back to Unboxing Logistics.

I'm your host, Lori Boyer, and this is the coolest, most fun, most chill, most interesting podcast in the supply chain universe, and I'm not even a little bit biased. And today we're gonna talk about one of the places in this industry that I just love, and that is warehouses. The first time I went into a warehouse, I think my mind was blown at the sheer magnitude of what goes on there. And today, we have, I've brought on as a guest Kevin Gibbon, and he has an incredible company, an incredible story, and he's gonna teach us a lot about the modern warehouse, what it means when warehouses are running almost autonomously.

And, and maybe we'll, we'll let Kevin tell us more about that. But Kevin, welcome, welcome to the show. Can you tell us a little bit about yourself, your background, and your company? Yeah, absolutely.

Thanks so much for having me, Lori. A big EasyPost fan. I, I actually almost and maybe he'll, he'll refute this, I almost co-founded EasyPost with Jarrett. All right … Yeah, yeah.

I, it- Well, we'll get Jarrett on the show to see what he says about that Yeah, I, I, I don't know. Maybe he wasn't… He, it was his company, and he was looking to bring me on. But yeah, I, I… So my background I studied school computer science. I moved out to the Bay Area about, I'm from Canada, from Vancouver.

I moved out there about 15 years ago. I picked that up immediately when you said "about." About, yes. Uh-huh.

And yeah, I started my first real venture-backed company. It was a company called Shyp. It was also in logistics. I, I've been now, it's going on 15 years that I've been in logistics startups.

And what it was is, was I'm solving my own pain point. I used to be an eBay power seller. It was terrible to try to take all the, the boxes to the post office and package all that stuff. So we built a call it Uber for a shipping app that basically take a picture of whatever you want, we'll come to you, and box it up, ship it out, and then we we actually used EasyPost on the back end as well to print labels.

And so through that, I, I, I learned a lot about, like, so we actually had to have warehouses. We were in five major markets. We raised a lot of venture capital. And it was, it was an amazing product.

And the company ultimately did not survive, like most startups don't. But we had a great fan base and people loved the product, but it just wasn't a business. The, the frequency of use for consumer shipping just not there when you have so much overhead to, that we had to make the, the operations work. And then after that I, I took all my learnings and some people started my next company.

It was called Airhouse. And what that was was to go and solve a different, part of the, the shipping puzzle for a different audience, and that was direct-to-consumer brands. It was to, how do you make the, the warehousing, the 3PL space a little bit better? And I did have some wounds from Shyp, so I didn't wanna go and, and start my own fully vertically integrated warehouse again.

So I decided that there was enough partners out there that we could just basically put a wrapper on a, a technology wrapper on top of kind of a very messy ecosystem. And that's what we did. And, and we had a pretty good business. We, we were doing tens of millions of dollars in revenue.

But we took venture and that unfortunately is just not, is not what I aim to do. And that's not what investors are really looking for you to do. So we had a, a soft landing and then I just… I, I love the space so much, and I think that, I don't know if I have, like uh just like the punishment or whatever about logistics. It's, it's not as easy as technology, just pure tech is.

But- Kevin, I feel like once you get in logistics, you, like, can't leave it. It, it, it's like- There's so many problems It's part of you. Yes. There's so many problems to solve, and- Exactly … so I took all of my, my lessons from the previous two companies, and it was like, okay, well, this, the 3PL problem was massive.

We just couldn't solve it any better. Partnering with other warehouses basically made their problems our problems. So you have a GM. It's all human based and you're dealing with warehouses that have hundreds of employees.

It's a lot of temp labor. And you have a warehouse manager that's not doing their job good enough within a, a larger 3PL organization. And just that one warehouse can take out, like, 20% of your customers potentially. We, we, we had a network and so it all had to work together.

And so took that learning that this is still a massive problem and then took the learning of Shyp to, to be like, okay, maybe it wasn't that bad to, to actually stand up buildings and do a lot of the hard stuff. But what has changed is that there's just so much more robotics out there in the world. And there's really nobody that's positioned well to actually take a look at all of the different components and kind of make what is going to be the next version of, of the Amazon warehouse, for example.

And that's essentially what we did. We saw the, the prices fall and the number of different competing products for different parts in the warehouse just soar. But a, a lot of the legacy operators, it's just too hard for them to, to figure out how they continued their operations with a, a fully staffed, a human-powered warehouse, and then automation comes in. It's completely different skill set and all those different things.

You have competing interests. And so what we did, we did at Cytronic so now it's, it's two years and we're, we're we're just getting our, our first customers now that we've been, we've building it's a fully autonomous warehouse for direct-to-consumer shippers. So it's a very small use case. So typically 3PLs, they'll do everything.

They'll do B2B. They'll do a ton of returns. They'll do all these things. We're just really good at getting a bunch of different SKUs into, like, a, a poly bag or a box out very quickly.

And so I'll, I'll kind of let you know some of the numbers that we have. But we, we do a micro fulfillment center. So with about 30,000 square feet our ceiling per day is about 20,000 orders that we get out. And that's with a handful of people working a 24-hour shift, and also seven days a week.

And the majority of the operation is actually automated. The, the only pieces that really aren't are some of the, the more complicated packaging pieces but also just the, the kind of making sure everything's running and, and all, all, all the different odds and ends. We, we try to make it very narrow what we, we'd be really good at and we say no to a lot of other stuff. But there still is, as you know, in logistics, there's so many edge cases.

There's so many different things so that, that is a, a continuous problem. But ultimately what we do is we use robotics to bring down the cost. So typically, fulfillment can cost up to five, six bucks a a package. We bring it down to $2.

And so it's a, a huge savings and is only gonna get better for us. But the, the most important piece is that we started with this. We didn't have any customers, anything else. We started with this.

We started with an idea, a very small R&D facility, making sure that we would hit our throughput metrics with the CapEx that we actually needed to, and we, we did it, and we're continuing better today. And now, right now, we're live in Chicago. We're live in the East Bay of California. And then we'll be in the East Coast this year, LA this year, Dallas in a couple months.

We've really found something that's working and we're, we're, we're gonna be expanding it. I'm gonna throw a few questions at you that I know my audience will have right off. First, so is it like a 3PL model, where your customers are D2C people who come to you, and your warehouses are autonomous, or are you talking that you come to somebody who has a warehouse, and you're building them an autonomous warehouse? Like, where- Talk about it like if our- if we have a shipper out there listening, for instance.

How would they understand it for them? We're another 3PL that's gonna get your stuff there a lot cheaper. And how we do it is with robotics. Okay.

So the price is lower, so it's still 3PL, so- Yeah … You know, you're not dealing with what- whatever's going on in the warehouse. But Kevin has created a system where people get the advantage. 'Cause one of the big challenges, obviously, of automating a warehouse is that upfront cost people often have for themselves. But you've taken that cost and now been able to pass along all the savings to your 3PL customers, correct?

Yeah, exactly. It's, it's, it's very similar model than like AWS works on, right? Like They get the buildings. They have the, the racking.

They, they do a lot of on the technology side. Well, it's the same thing with us. And we do all, all … make sure everything's running. You don't need to come and see the the warehouse.

A lot of people actually did when they had a 3PL because things just went wrong. And so- I would, Kevin. And whenever I have guests on for the podcast, I, I always recommend getting some boots on the ground. It's a good insight for you as, as a business owner.

Totally. Well because the, the … just the nature of the labor and also the peaks and, and in demand, it just make it extremely hard business to run, especially when you are trying to get the lowest price point and pay people less, and also operate in, like, lower paying areas. And so it's, it's really hard, and that's also what I saw at Airhouse. Like, we work with, I thought, the best 3PLs.

Every 3PL has the same issues. Every 3PL is gonna go, and they're gonna screw up your stuff, and might be two weeks before you, you get that, those … some of these orders out, and it's just the nature of the actual model. And so with us, we're trying to automate everything, but that doesn't just mean the robotics, so we're looking to just do 100%. It's like every single process.

So we've rethought about the, the very first touchpoint, the the first call you get on with a 3PL 3PL. It's typically, like maybe the owner or one of the managers that is actually running the day-to-day operations. We … We'll get you a quote literally on the first sales call. We actually close our big clients in two to three calls, which is unheard of for this industry.

So we speed up everything possible within the technology, within the warehouse, within everything. And so it's not just it's robotics, but it's like a streamlined process throughout the entire thing. So we do want it to, to feel like the difference between having to run your own data center and going to AWS for example as a, as it relates to us and logistics. I love it.

I wanna back up a little bit and, and I've got some of the questions kind of that I often get from people. So when we're talking you know, when we hear warehouse without people- Yeah. Right? Some people are like, "Does that even really work?

Is that risky? How are you gonna catch if something goes wrong?" As you mentioned, things always go wrong in warehousesright? Even with robots and automation, things may go wrong.

How would you respond? Is this risky? How do you offset challenges when it comes sort of the lack of people around? So I, I think that a, a mistake would've been to try to fully automate everything before having customers, and that's why we, we specifically didn't do it.

There have been a couple companies that have done this, and they spent hundreds of millions of dollars and we probably have more revenue than, than they do right now. Because it's just very difficult to, impossible to kind of make everything just run right. So we look to, to just kind of chop off the, the biggest either time sucks for, for people or the, the cost, the price point. And so, like, some of the big things that we do, and also people that are listening to, to this, if you, if you do run your own warehouses, you could do the same thing.

The, the, all the, a lot of the, the stuff that we actually use, we, we do have a robotics team. We do build some of our own stuff, but most of it actually is purchased from, from a number of different suppliers. But, like, the ASRS system, that's a, a great example. The automatic storage and retrieval system.

if you've ever seen these, these, these big cube, cubes looking things in a warehouse that will have … Ours has different totes that operate on an aluminum basically 3D matrix, and there's robots up top that will basically move the different items to the actual packing bins base. And so you could get an actual, like, a SKU every seven seconds, for example. Just unheard of if you're gonna be going and go and doing the picking. Even with Kiva.

Kiva is just, it's, you're bringing all of the, the actual warehouse to the packer versus just the items that they actually need. And so that, that was the biggest kind of difference in, in everything. In the, the cost, yeah, there is, it's expensive. It, it'll run you more than a million dollars.

But, like, if you're running a high volume operation, you could get that paid off pretty quickly. And so we, we look at just, like, areas that we could just reduce the, the price point and, and also the, the human complexity or whatever and, and not try to opt to, to be fully autonomous. There's no such thing as fully autonomous anything. Okay.

So first thing that I'm hearing, and advice for you if you're looking to create your own kind of automated warehouse, take your warehouse into the next, you know, generation, into our, our new days. Don't try to go fully automated. I, I said warehouse without people. That's absolutely not true.

They are a warehouse with people, because we're still in the tech phase where people need to oversee some things. So you've got some people in it, but just far fewer people, and you're automating specific bottleneck processes rather than trying to go fully automated. Does that sound right? Like, that's your first piece of advice is don't go that way.

Totally. Yeah. No. Okay.

I, I, I know, I know some legacy 3PLs that, that use the same robotics that, that we do. Now, if, if you're not an expert in it, you probably are gonna pay a lot more, and you're, Mm-hmm you most likely are gonna use like, an systems integrator, and so it, the price point is higher. But yeah, you could absolutely do it yourself and save yourself a, a ton of time. And also, the, the quality is just a lot higher.

A, a lot of those repetitive tasks that humans really are not designed to can be sol- Not fun for anyone. No. They can be solved a lot easier with automation robotics. So Kevin, where are the kind of bottlenecks?

Where are the limitations you've found in kind of the human-driven warehouses? What are the areas that you feel like- lend themselves best to automation right now? It really is the, the pieces of time that take up the most the, the, the pieces of the operation that take up the most amount of time. So actually picking from the bins, getting it to a pick cart to the actual packing station, that takes by far the most amount of time.

And then it would be the actual packaging to get it into some sort of assembly line or into different carrier bins or something like that, sortation. Those will be your, your two biggest time savers. And then everything else I think a lot of it actually has to do with what types of customers you, you take on. Traditionally, 3PLs have, have kind of just been like, "We'll do anything to win your business," because it's so competitive.

And so now you're putting the sticky notes like, and you're handwriting this thing for this one customer, and then this other customer has fragile stuff, and it's not properly packaged from the manufacturer, and all those different types of things. So if you're running your own brand, you could control it more. But if you're running a 3PL, like with us, we, we just say no. We, we, we just … We, we, we don't do big B2B stuff.

We'll do small B2B. But, like, that is not an area that we know that we can, like, really compete on price and, and, or, or anything else with the way that we're, we're, we're positioned. So it's really small ecommerce goods. So the vast majority, it's like, it's like 75% of what people will sell on Shopify, for example.

That's kind of our target audience. But that, that, that really, I, I think from anything, if, if 3PLs can just, like, focus on that and not do everything, they would, they would be in a much better position. And so yeah, other than that, those are the, the two big pieces. I could say that returns is still a, a pain.

Returns is an opportunity. Opportunity, yes. Which basically all pains are opportunities at some point. Right.

You and I, Kevin, we'll figure it out together and become like billionaires. I love it. I love it. Okay.

So I wanted to back up then. I said step one, you know, figure out what you're automating. You have people in the warehouse, blah, blah, blah. No.

Step one, define your audience. So if you are a 3PL out there, and you are looking at who you want, be willing to say no. I love Kevin's mantra there. Be willing to say no.

Understand, don't get sucked into like, "Oh, but that looks like such a good deal." No. That may, like, mess up your whole warehouse system, and things that seem like you're gonna be bringing in tons of revenue with all the extra costs here and there end up not being worth it. So define who your audience is, and then set up your warehouse in a way that you're automating the most time-consuming tasks.

Now, Kevin, I would think from warehouse to warehouse, that could potentially be different. I know that I've talked sometimes with warehouse owners, and this is outside of the automation field, but they'll say, "We'll have the same processes." Yeah. But then we realize, one, the picking is taking 20% longer than the other simply 'cause the layout's slightly different, or the… Do you know what I'm saying?

Like do you have to kind of automate by building versus just one process that flat goes out to everyone? So yeah. We, we've spent a lot of time thinking about that. So we, we purposely do smaller warehouses- Mm-hmm … so we don't run into that problem.

So we really are, we're best suited towards people with lighter weight stuff that are doing a lot of throughput. And we'll- So lighter weight, what do you think weight-wise? Like less than five pounds an item. Less than five pounds.

Okay. Yeah. Which is you, you know more than I do. You have more, more of the data, but that's the, the vast majority of, of shipments.

You really can't do everything and you just kind of need to, to pick your different area for whatever you're gonna do. And, and, and that, that goes to every single type of business. Like, why are you uniquely positioned to actually do this better than somebody else? And, and we've just taken the approach that we're, we're gonna be the, the, the lowest cost, highest throughput.

We're gonna have the most amount of nodes in the US and then globally. We're not gonna be for everybody, but the, the companies that we're gonna be best for, we're gonna completely change their business. And so that's what we picked, and there's enough to go around for everybody else. And hopefully- The way ecommerce is growing, you betcha.

Exactly. Yeah, yeah. Totally. Okay.

I love that. So let's say as you've moved to this kind of more automated format, are there things that have surprised you? Are there maybe things that were harder even? Was it hard for people to adjust to doing it?

I guess give me kind of the real-life scenario of what's it like to go from kind of the more traditional warehouse to kind of more, more of those things being automated. So that, that was kind of one of the benefits of starting a new company. Didn't have any of that baggage. You didn't have to do a whole change management thing, right?

Exactly. So, so everybody that was hired knew exactly what they were getting into. So for, for people that are we obviously still have people on the floor and, and sometimes they're doing the similar tasks that an a regular 3PL would, would, would typically do. But our, our, our goal is to just make it a lot easier for them.

So it's gonna be a more lightweight kind of warehousing job, or, and also the, the opportunities to, to grow within the company and run these things. The, because we're a startup, but also because we're, we're, we're trying to push the, the, the envelope on a lot of these different things. That's what we really sell people on. And people like that.

People like… It's, it's kind of amazing how You, you take an old industry and you, you put a lot of cool tech, and this happened for me also at, at my first company, Shyp. People just go crazy for, like, when you're just change something that, like, thinking about going to the post office and, like, that's, like, comparable to, like, the DMV. Same thing with us. Like, it, it's just, it's, it's one of those pieces for, like, fulfillment is, like, kind of just, like, a, a, a very expensive, like, tax on the ecommerce industry.

And nobody really wants to pay for it. Shipping's the next piece, and obviously that's a, a little bit bigger. But you need to actually get your stuff there, so that makes sense. And yeah, we're, we're, we're just focused on bringing that down and so people can make more money.

And, and also, I, I think a, a, a big thing about us is that we wanna, we wanna allow people to sell where they want. I think that Amazon did an amazing job kind of sculpting the ecommerce industry and getting everybody used to consumers, the, the two-day shipping. But there really is no alternative to Amazon FBA if you wanna get those really quick delivery times. And as you know, you have the, the data as well, that the, the, the actual, like, conversion that you see, the repeat rate from, like, a two-day, one-day, two-day shipment versus, like, a six to like, eight, nine days for some of these direct-to-consumer brands.

You… People are just gonna go to maybe a competitor on Amazon or something like that. So it completely changes people's businesses when you bring down the price point, and then what we do is we will put it into our network of, of different nodes to get it there faster for, through the end customer, just like FBA does. But there really hasn't been anybody that's really, like, really challenged Amazon with their two-day delivery, and then allowed people to sell wherever they want.

Like, Amazon, you still kind of, you need to still, like, sell on Amazon Marketplace. I know they have a different product now that you could put, do DTC shipments on, but that's what their still is. Absolutely. So one of my questions that I'll often get, so one of the issues especially Somewhat smaller ecommerce companies get is what what we're calling in the industry micro surges, and that's where they will have a sudden burst of demand that was a little bit unexpected.

Maybe it's an influencer posted something about their stuff, or maybe it's just peak season stuff, or maybe there was a marketing campaign that went great and they didn't know. How does a facility like yours handle, I guess, like, kind of demand, supply, like, big fluctuations? Does that still work fine with the automation? Is there anything people should be aware of?

The good thing is, is because even though the we're pretty, we're early, our, well, the throughput is pretty high for a warehouse. So typically, like, if you're gonna be doing 20,000 orders, you're gonna be in probably a 500,000 square foot warehouse with at least 200 people. And so we're able to because you'll, you'll see mostly outside of the holiday season, you'll see mostly the, the demand curves be customer related. So as you get more, more variability in your customers, that demand kind of smooths out.

And so the only thing you really need to, to forecast is, is peak, which is like 2X everything else. So we just can't, in non-peak time, we just can't fill up our throughput to be more than 50%. That's just our, a rule that we, we have to go with. That's perfect.

So that brings me to the question, if you were an ecommerce business, if you were, or a retailer, whatever, if you're looking at D2C and they, you were investigating 3PLs, including Cytonic, what questions would you recommend that they ask? What kind of things should they be finding out to make sure that it's gonna be a, a good solid experience for them and for their customers? I could talk on this because we did that. Like, our customers, our, our partners were the 3PLs.

So, like, I've- Yeah … Partnered with, I don't know, 50 different ones and seen the operations. Honestly, it's nothing that they say. It's, it's really just, like, do you know somebody there? Can you get a good reference?

How long have they been working with them? How responsible is the actual team that is going… Because it's such a human-led process, it really matters- Isn't that interesting? Even here where you've got this, like, autonomous robots. We're not- Well, not for us … We're perfect.

We're perfect. And yet we're still people. Right. It's still that whole human.

Okay. I, I love that. I wanna make sure we point that out. It's not anything they say.

No. It's more the legwork that you do. Yes. So continue, I interrupted.

You were, that was so great, I loved it. Yeah, yeah, no worries. Yeah and it, it, it makes total sense, too. Like, you could have a good salesperson and they're, they have no, they're not involved in the operations at all.

A completely different skill set. Some 3PLs have really good sales teams. Some other ones are more laid back and have a great operations team. And then it's, it's honestly, it's like, it's even, like, shift dependent.

That's how, like, granular it gets. Because you as you can imagine, like, you have a bad manager that's managing, what, 12, 15 different packers. Like, if if they're not on top of things, if things start getting mis-shipped or something like that, the whole operation just goes to, to the crap. And so it, it really, the, the human-led ones you need to rely on the people there, and the only way you could do that with a new relationship is try to get references from people that have worked with them before, hopefully for a long time.

And I, I, I definitely would say that do not skimp on your 3PL. Do not go to the cheapest one because those are the ones that are cutting corners and doing all those things. Like, to run a good 3PL is very, very difficult, and I, and I, I, I really respect the, like, the owner/operator ones that don't try to do too much. They're not trying to, to be everything to everybody because it's very, very hard to scale that type of business.

And so I've actually found that the, call it the 250 to $500,000 single-run facilities have the highest quality of any other… Like, we work with, like, the sequels of the of the world that are doing five or $10 billion in revenue worldwide, and a most of it is just, like, a mismatch of, like, they purchased a bunch of different 3PLs, and they're trying to put them all together. And so even from a technology standpoint, they, they have, like, six different OMS systems and all this stuff that they're trying to figure out in the background because this person they bought here and this person and then the cultures don't work right, and then you have a GM that has to approve of different… It's kind of just a, kind of a cluster even within the ones that seem like they have it all together by the, the bigger brands names.

I, I, I like the, the smaller owner/operator ones I, I, I'm just gonna totally agree with you there. I … A lot of people get scared of some of the smaller of everything. Yeah. But you get so much more personalization.

You get so much more say in what's happening. Like they actually care if you're like, "Hey, I want this." Where in a bigger organization, you mean nothing to them. But also, you know, there's really, really interesting data that's been coming out that, like, the percentage of ecommerce sales is through the roof.

Like, we're going up 10%, 15% a year. Right. Profits are not following, and that's because of the complexity that is coming in with shipping everything, and the importance of that customer relation, and the loyalty and repeat customers. That experience, you can't risk losing good customers because you went cheap and they have a poor shipping experience.

It's simply financially not viable into this world. You'll, you'll go out of business. So completely agree. We're totally out of time, Kevin.

I feel like we could talk forever, but two things. If somebody is either, I know how great you are, if somebody's just curious on automating their own warehouse and wants tips and, and like, "Kevin, if I do this, do you have any suggestions or tip for me?" Or if somebody wants to actually find out about Cytronic … if they want to, you know, maybe sign up and be part of it what are, what are the best ways to kinda get in contact with you? Yeah, so our, our website, Cytronic well, you'll probably see us in the title of something the .

ai. You could- Yeah, we'll throw it down in the description … But you could reach me. I'm kevin@cytronic as far as email, if you have any questions or anything like that. And yeah, I'm, I'm happy.

I, I think that, like, we're not gonna be the, the, the only person that's gonna do this. I'm happy, on, on a from a selfish perspective, like, I want more people developing solutions. I want this return solution. So like, I, I, I … This is the way that, that the warehouses are going to go.

The, the older ones are gonna take longer, but this is definitely the way that it's gonna go. So I, I For, for anybody that's looking out there, I, I definitely would. I … If you have a 3PL I would ask them what their, what their plan is. If not, you, you might wanna start looking at something else, because I could tell you, like, the cost savings is massive.

So that's where whether you do it yourself instead of your own warehouse or go to somebody else or, or come to us. It, it, it, it will potentially change your business. So. Yeah.

Do your due diligence. You've got to be looking at all the small little price differences when it comes to the fulfillment process, because they're just eating up our profits. So absolutely, Kevin. This was great.

I cannot wait to see all the great things that Sytronix does. I'm here in the Dallas area. You mentioned you have a Dallas facility. I'm gonna have to go check it out.

All right. Anytime. Okay. Sounds good.

Thanks, Lori. And thanks so much for being here. We'll see you all next time.