22. How Inventory Sharing Can Solve The Fear of Selling on The Amazon Marketplace

Shiva 00:01
Hi, you’re listening to driven e-commerce at work, a podcast that brings you conversations with the e-commerce experts on their processes and the lessons learned. And I’m your host, Shiva Kumaar, Head of Digital Strategy at DCKAP. Hey, what’s up, everybody? Thank you for listening to another episode of driven e-commerce at work. Our guest today is Mark Tomalonis, Principal at WarehouseTWO LLC. WarehouseTWO is an inventory sharing solution for manufacturers and then the wholesale distributors. Prior to that, Mark was with Valin Corporation as a VP of Operations for over 28 years. Welcome to the show, Mark. How you doing?

Mark 00:53
Doing? Well, thank you for having me.

Shiva 00:56
Thank you so much for coming in and then accepting our invitation to be a guest. So how do you? I’m just curious. So you’ve been in the distribution space. And then so you know how it works? It was like 30, 35 years, I guess. So, how do you how do you face this pandemic? I mean, how do you overcome this work from home challenge? How you start your mornings?

Mark 01:18
Well, I actually have been working home for the past 12 years. And because all of my client contact is via email and phone call. And because we’re a small company, it actually has worked out well. The biggest challenge that I have every day working from home is every hour; I stand up from my desk, I walk down to the kitchen and open up the kitchen door to see if anything’s changed. And it hasn’t. So other than that opened up the refrigerator door. Other than that, working from home has been fine for us.

Shiva 01:59
Cool. That’s That’s good to hear. So, I’ll start off with the first question. I mean, so you’ve been with Valin? Right. So, you know, how does the purchasing process happen in the wholesale, you know, distribution industry around then? And so when you were with Valin right, so what was that one problem statement that you hear from, you know, the distributors that actually made you to okay, hey, so let me go ahead and offer something like this let me start this company WarehouseTWO. So what what, what’s the statement? What made you to come here?

Mark 02:31
Actually, I was sitting at a manufacturer’s distributor meeting. And one of the manufacturers that Valin represented, had one of its annual distributor meetings. And other distributors in the room, were complaining to the manufacturer, that the manufacturer’s lead times were unacceptable, and that the manufacturer was unwilling to take that slow moving, or surplus inventory. And the distributors in the room demanded some sort of tool so that they could see each other’s inventory. They can help each other out. Well, the manufacturers aren’t software creators; manufacturer machines melt. And so I knew that they weren’t going to create a solution. So I raised my hand. I offered to create a software solution so that all the distributors could see each other’s inventory, simple concept. Living in Silicon Valley, and this was 2005, and there were plenty of boutique web developers available. So, I just had somebody created about six weeks and launched it two weeks later. And it’s been live since August of 2005.

Shiva 03:43
Okay, okay, that’s good to hear. So, when did this inventory sharing concept actually came in? I’m just trying to understand because, you know, up until now, because, you know, maybe it could be a same for me. But yeah, so I just want to understand when did this inventory sharing concept really came into the industry was that somewhere around like 2000, or earlier than that.

Mark 04:05
Decades ago, the automobile industry provided infrastructure to allow its dealers to see each other’s cars on their lots. You think about it, 40 years ago, you could have gone to a Ford dealer. And if you wanted a Ford Mustang, and that your local dealer didn’t have it, that dealer could look and see what Ford Mustangs were sitting in the lots of other dealers in the same metropolitan area. The concept of inventory sharing is not new. It’s decades old. In the instance of the automobile industry, the infrastructure was provided by billion-dollar automobile manufacturers provided the software or the computer system to be able to do that. That’s all pre-internet. What changed and what it allows WarehouseTWO exist to exist is the internet and PCs in simple software. WarehouseTWO is not the first service that I’m aware of that provides inventory sharing there was a Precursor in the late 1990s, again, with the creation of the internet. And that system was actually purchased by IBM, and IBM ran it for a couple of years. And then IBM shut it down, about 2010. So, warehouseTWO has most of the clients that were on that service. Creating the software is easy. Getting a group of distributors to collaborate is very difficult. So, the concept of inventory sharing is very easy. Let me give you a few other examples of the basics of inventory sharing. Think about Netflix. I assume you’re familiar with Netflix, it defeated Blockbuster, which was the big local video rental chain in the United States. At each of those Blockbuster stores, you had a limited selection of DVDs or video cassettes. No blockbuster store could hold everything. Netflix change that they built one big warehouse in Northern California, and put every DVD in it, and could ship it via mail for the cost of first class mail. So essentially, what Netflix did is Netflix really combined all of the inventory, that would have been sitting in multiple blockbusters into one warehouse. What inventory sharing does is it virtually creates one pile of inventory, but the inventory is owned by the participating distributors. What Netflix was able to do is able to help you get in one or two days, some obscure DVD that you want it that your local Blockbuster store would never have had in stock. What WarehouseTWO allows its members to have anything to be able to ship in two days, even though that that item is not sitting at that distributors warehouse, when he gets the order. I assume you’re familiar with the concept of the long tail, if you take a selection of products, and there are the popular products, the products that are sold over and over again. And then there’s all those products that you sell very little of. Inventory sharing helps address that long tail of lots of different parts, not much demand for any of them. So, all we do is we help there, we have our subscribers act as if they own all the inventory in the channel.

Shiva 07:46
So, one thing that I really like about you know, the solution is you don’t really have to manage anything, you know, within within the warehouse or whatever it is, right. So especially if you’re looking to sell across the country and at the same time sell across the world. And it’s 2020 You don’t have to sit and you know, constant focus more on just on your your territory, right. So you have to see how we can broaden your sales as well. Right? Are there any specific percent? Like how many distributors are currently run this model? Are there any specific percent?

Mark 08:19
I’m sorry, the question again? How many?

Shiva 08:23
Yeah, I mean, what percent of the distributors are currently I mean, using the inventory sharing solution, or maybe you know, they’re kind of like aware of this but ideally, you know, sometimes, you know, the larger distributors may not be interested in doing that.

Mark 08:38
Actually, our client base includes small one location, Mom and Pop distributors, and multibillion dollar national distributors. So we have distributors of all sizes, because distributors of all sizes have the same problem. Their customer wants something now, and they don’t have it in stock. The job disciplines predictably use our system are customer service, inside sales, purchasing, and outside sales. So, imagine an outside salesperson in front of his customer. And the customer says, I need this tomorrow, can you get it? And that outside sale field salesperson can look on his phone, check his own company’s inventory, and check the inventory owned by peer distributors throughout the country. And he can say yes to that customer right there in front of the customer. That’s the power of inventory sharing for field salesperson.

Shiva 09:33
So, how does this actually works? I mean, how does this inventory sharing model actually works? So, is this more like sharing the warehouse space? Or is this more like sharing the inventory of the products actually.

Mark 09:45
Essentially, we are a database in the cloud. We have nothing despite our name, we have nothing to do with warehouse space. We don’t own any inventory. We don’t have a building. The name derives from the concept that our service basically is everybody’s second warehouse. It’s their warehouse number two, but it’s a virtual warehouse. Hence the name warehouseTWO. It’s everybody’s second warehouse. But we are, what our business model is, is we are we host multiple databases in the cloud. And those databases are populated by our subscribers. So, how it works is, depending on the sophistication of the distributor, the distributor either pushes a flat data file to us every night automatically, or they manually upload an Excel spreadsheet. The beauty of inventory sharing is the data does not have to be real time. Inventory sharing is about slow moving products. And they don’t sell every day, by the nature of them being slow moving products. So, if you upload data to us every night, every 24 hours is good enough. So, distributors upload their data to our database, and then they can access the database either through a browser or within their ERP system. The secret to inventory sharing is not what software system you use, it’s what products you sell. And so our system allows customers who sell the same product, regardless of their ERP system, regardless of their e-commerce system. If they can create a flat data file or an Excel spreadsheet, they can populate our database.

Shiva 11:27
Okay, okay. So since you talked about the cloud, one thing that I mean, as a consumer, I want to understand. So, can you tell us a little bit about how does the search in WarehouseTWO actually works? I mean, how does it seamlessly connect everyone, like you said, the partner distributors and other things.

Mark 11:45
First, understand that we are a wholesaler solution only we are not available to the buying public. You have to be a distributor of a particular brand of product to participate in that brand’s community in our system. How it works on a day to day basis, it depends on how sophisticated the distributor is. Most of our clients open up a web browser, log into our website, search for the part, see who has the item that they need, and then they contact the seller. No transactions take place through our system. We are simply a matchmaker between a buyer and a seller who happened to be wholesaler distributors of the same brand of product. The more sophisticated clients of ours actually import the data from our system, import it into their ERP systems. And then in their order entry screens, they can type in a part number, see if they have it in stock. And then the screen also shows if another WarehouseTWO member has it in stock, and a couple of mouse clicks, they can create a purchase order to that other distributor.

Shiva 12:46
Okay, okay that’s good. And is this only for the durable goods or it works both for the durable and then the non durable goods? Because the reason why I’m asking is I’m just trying to understand if it works for the food distribution industry as well.

Mark 13:01
Very good question. This really practically only works for durable goods, because slow moving items are sitting on distributor shelves for weeks, if not months, they have to have a shelf life. Produce doesn’t have a shelf life. And so, nondurable goods have different supply chain challenges, durable goods have the challenge that they cannot possibly own everything in the catalog. But they might get an order for something tomorrow that they’ve never sold before. And that item might be have sitting on a distributor shelf that’s been sitting there for four months, but it’s still brand new, still under warranty. And he can sell it. So, our system works for durable goods.

Shiva 13:49
Okay. Okay. And what kind of industries can actually sign up? Like I mean, what kind of industries do you currently have in the community, especially in the B2B distributions,

Mark 13:59
We currently serve about 14 different industries. Our largest industry is fluid, fluid power and motion control, hose, fittings, gear pumps, cylinders, things that are used for industrial motion control. They’re engineered products, they’re durable goods, lots of different part numbers, and the manufacturer doesn’t stock much. So that’s our biggest market, but we also serve smaller markets. Other industrial controls, we actually have a community of kitchen components, faucets and sinks. We also have a community for vinyl fabric, where the manufacturer makes 40 yard rolls of fabric and sells at 40 yards. But sometimes a distributors customer only needs five yards. So he buys the five yards from another distributor who already owns the 40 yard roll. So we bring in Inventory sharing brings efficiency to a distributor channel.

Shiva 15:06
Okay, okay. So, while we’re talking about this, I actually wanted to understand more about the warehouse automation as well, since you’ve been into this. So, can you tell us about your thoughts on you know, what are some of the challenges a normal sized distributors currently facing over there.

Mark 15:24
uh, I’m going to go back to my, I’m going to go back to my experience with with my my previous life working for an industrial distributor in California. Warehouse management, running the warehouse, the best thing that we did was we put in a wireless computer directed warehousing system. And I would strongly recommend putting in a directed warehouse system. This goes back 15, 20 years, I don’t have any experience in robots, I questioned the validity of robots for a small distributor. But software and handheld barcode scanners, amazing improvement in managing a warehouse, both the efficiency and the accuracy. So, I would, we had great experience with that, I would strongly recommend that. I’ll give you two examples of how automating one’s warehouse. Again, with software controlled bin locations and barcode scanners, two examples of how that improved our business. We had multiple warehouses. One of them we had the computers controlled system, and one of them was totally manual. The accuracy of the computer controlled warehouse was 100 times the accuracy of the manual warehouse, 100 times. Another example is when we had a manual warehouse, we had a full time employee that managed cycle counts, he would come up with a list of parts to count every week, he wouldn’t count them the warehouse to the warehouse, people would count them. This whole job full time job was coming up with lists of parts to count. When we put in our computer controlled warehouse management system, we replaced that position with a poster on the wall that showed what range of bins to count. It was a $70 poster printed out in a print shop replaced a full time employee. That’s the power of warehouse control system.

Shiva 17:36
Okay, that’s good to hear. So, what are your thoughts on the Amazon? So based on the past three years, maybe their growth in the B2B space? So do you think they’re contributing to to the distribution community? Or how do you see that.

Mark 17:51
I laugh at how, industrial distribution industry seems to be so afraid of amazon.com? So, fear amazon.co. But I think they’re getting it wrong. I don’t think amazon.com is going to take every distributors business away. I don’t think that’s the problem. This is the problem. amazon.com, let me take a step back. I bet every distributors customer has purchased something from amazon.com. In the United States, every client has bought something even even if as far as personal reasons, everybody has experienced with amazon.com. And what Amazon has caught has taught every customer in United States, North America is that every product should be available to ship today. That’s the biggest impact of Amazon. Everything a distributor sells should be available to ship today. Because that’s what Amazon does. Inventory sharing helps a distributor do that. So I don’t think distributors should try to compete head to head against Amazon. I think distributors should act like Amazon. If you go to the amazon.com website and search for an item. Amazon doesn’t sell everything on their site. They don’t own everything on their site. They have third party providers that are fulfilling the order. That’s like inventory sharing. You go to Amazon because they have everything. Well, they don’t have everything today. Somebody else has it, but they know who has it. That’s what WarehouseTWO does for distributor networks. We allow our clients to act like Amazon. Everything’s available to ship tomorrow.

Shiva 19:48
Okay, okay. So, I think you already answered my next question or something related to that. I mean, so how do you how do you see you know, okay, so as a B2B distributor, do you want me to sell both on Amazon, I mean, on the B2B marketplaces, and at the same time concentrating on my own e-commerce store as well. So, what percentage they do you actually recommend that.

Mark 20:15
What I would recommend is a distributor who’s trying to have an e-commerce site. I would recommend the distributed that e-commerce site, show two quantities of inventory for a part number. For a part number, have the e-commerce site show how many that distributor has in stock. And then show how many are available in the channel by participating in inventory sharing. Change the e-commerce site, so it looks like the distributor has more inventory. What I can ship today, what I can ship in two days, and the quantity that I can ship in two days, I don’t own that, I won’t tell you I won’t own that I can tell you I can get it. And I know the three other distributors who have it because I’m participating in inventory sharing. Having said that, if I were distributor, depending on the product, I would not try to sell an Amazon website. I believe that Amazon is simply gathering data to figure out what the private label and put you out of business. Products that I used to be able to buy from Amazon that had brand names now, there’s only on Amazon brand name. And Amazon, I believe will continue to identify opportunities and come up with private label products and put distribute distribution out of business. So firstly, I wouldn’t cooperate with Amazon at all. I would try to emulate error Amazon.

Shiva 21:48
Okay. Okay. So you’ve been with the Valin for quite a while, almost like two decades I guess. So can you tell us about your role in Valin? The inspiration from there? I mean, what made you to start the launch of WarehouseTWO? Same time, so it was like, a couple of years ago, right? At least like 20 years ago. Was there any specific challenges? You learned from the Valin that you wanted to tell the distribution community right now? This was one of the mistakes that we made in the past, and then maybe you can learn from that. And, you know, implement those 20 in a better way.

Mark 22:26
If you look at a distributors assets, the two largest assets of a of a distributor are their accounts receivable, and inventory. Who does the distributor put in charge of the accounts receivable, a very highly paid CFO. Who distributors put in charge of inventory? Often, not someone nearly as well paid, or well trained, or well educated. My advice is put somebody as smart, as talented, and as well paid in charge of inventory as you do and charge your finances. And then take the ability to purchase something away from the field sales staff. And then put in a control operated warehouse that has all of your inventory, stored randomly, so that no field salesperson knows how to find anything in the warehouse. That’s my advice. That’s what I learned from working at Valin. But somebody smart in charge of inventory, mix up the inventory in the warehouse or feel salesperson can see it and take the power of purchasing away from sales.

Shiva 23:47
Okay, okay. Okay. So you’ve been in the distribution space for quite a while. And I believe that, you know, one of the good thing that’s happening right now is, during this tough time, at least, like a good amount of B2B distributors are actually moving to, you know, online, even if it wasn’t there, maybe a couple of years ago. So this, they are using the situation and they’re trying to experiment a couple of things as well. And I think it’s really working out through the past five, six months, and that’s what we’re seeing. So, when you think of digital transformation, what’s the three three things that you want the distribution distributors to go and implement it right now? And so that can actually help them to come up with a better, you know, Q1 or Q2 in 2021?

Mark 24:36
Three things as it relates to e-commerce.

Shiva 24:42
Yeah.

Mark 24:42
I think a distributor should recognize who its potential audience is for his e-commerce website. First and foremost, it should focus on its existing clients. Back at Valin, we launched our first e-commerce site in 1998. We were one of the first industrial distributors to have a fully functional, fully integrated e-commerce website. And, I think we made the mistake of not focusing on our existing clients. So, the first thing I would say is exist on your focus on your existing clients. Give them reason to use your website. I love the opinion and the concept of building an e-commerce site and expecting complete strangers around the world to come find you and buy from you with a valid credit card and a valid shipping address. I think that’s an unrealistic expectation. If you’re trying to find that crate, that unknown client, it all comes down to price. And distributors are taught don’t sell on price. Certainly the distributors who sell more sophisticated products, so my advice is focus on your existing customers make it easier to use your ecommerce site. That’s the first thing. focus focus on existing clients second, ask existing clients what they want, do the surveys, do the panels, do the research, find out what your local clients want, and then build it for them. Third advice. I would not use pricing to drive clients to change their behavior. That’s a slippery slope. That’s a slippery slope.

Shiva 26:41
Okay. Okay. So, this is not for distributors. I was at that point. So I mean, any any business can actually take it, it doesn’t matter. You’re in B2C or, you know, even in other B2B agencies as well. So I would accept that. And for the listeners, I’ll just provide the link to your website warehousetwo.com. Where else do you want the listeners to go? Mark? Do you want to give them some links? And can you give us a brief about let’s say, if we didn’t cover anything else, for the B2B distributors to go ahead and visit your website and then sign up for the community? Can you tell us more?

Mark 27:18
Again, the URL of our home page is www.warehousetwo.com, and the two is spelled out two.com. warehousetwo.com. on our homepage, there’s a link so you can see the list of communities. There are two links to videos, there’s a 90 second video and a 15 minute video. If you watch those two videos, you will learn pretty much everything you need to know about our service and the concept of inventory sharing. If you’d like to learn more about us or you’d like to subscribe to our system, there are there’s contact information on our website. You can send us an email, you can send us a message on our website, you can call us we’re based in California, West Coast time, and we’d be happy to hear from you.

Shiva 28:13
Okay, perfect. I think you’ve covered the industries like what industries you’re currently doing. And are there any limitations on the size of the distributors? So, are you’re open to both the small scale, medium scale, and then the enterprise distribution distributors as well, right.

Mark 28:30
Successful communities have distributors of all sizes of all sizes? big and little? It doesn’t matter how big you are. All it matters is do you own inventory? And are you getting orders for items you don’t have in stock? If you’re a distributor that has inventory, and you’re getting orders for things you don’t have in stock inventory sharing can help you.

Shiva 28:53
Okay, perfect. And I think like you said, so inventory sharing is not for the small scale players. It’s It’s It’s for the large scale players as if you’re in the B2B distribution.

Mark 29:03
But it’s also for small distributors, again, we have clients of all sizes, we can handle the small distributor, because the small distributor has inventory and gets orders for things he doesn’t have in stock.

Shiva 29:16
Yeah, I mean, as long as you aren’t you are in B2B business and then you want more sales. So, this is definitely helps you to increase the sale double down the sale, right? Inventory sharing.

Mark 29:26
We have clients don’t even have websites. Let alone e-commerce site. We have this there are distributors out there don’t have websites, they have field salespeople. So, and they are good, busy clients at our service so we can help distributors of any size.

Shiva 29:46
Okay.

Mark 29:47
It doesn’t matter how big you are. It matters what you sell.

Shiva 29:51
And how do they manage the sale right now? So one last quick question since you talked about it. Let’s say if they don’t have the e-commerce.

Mark 29:58
Oh, our system. oh, how did those distributors manage the sell, phone calls? Email? And are you sitting down? fax?

Shiva 30:07
Okay.

Mark 30:11
So, yeah, phone calls, mailing in the orders, email and sending a fax.

Shiva 30:17
Okay. And do they still have this typical ERP system and then this CRM system to manage the backend.

Mark 30:23
Typically. Yes. Some of them. Large systems, small systems, simple systems, custom systems. Paper systems. Yes.

Shiva 30:36
Okay. Okay. Cool. Perfect. Thank you so much for your time. And thanks for doing the show.

Mark 30:42
Nice meeting you. Thank you, Shiva. Stay safe out there.

Shiva 30:46
Yeah, for sure. And we should definitely do a demo sometime maybe in the next couple of weeks and weeks, and you should walk us through how WarehouseTWO works. So, maybe I think that will give a brief idea about your system for the distributors.

Mark 31:00
I’d be happy to do that. Let me know. Okay.

Shiva 31:03
Cool. Yeah, for sure. Mark. Take care.

Mark 31:06
Thank you. Bye now.

Shiva 31:09
Okay. Perfect, Mark.

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