12/19/2013— Kelsey Breseman
One of the primary reasons that hardware is hard is that you have to deal with logistics. The product actually has to move from Point A to Point B. Knowing this, I set out early to tackle the piece of supply chain that involves taking finished product and delivering it to customers.
Shipping, it turns out, is a deep rabbit hole. With this blog post, I hope to introduce you to some of the pitfalls and key concepts within shipping and fulfillment– particularly for international delivery.
Initially, I assumed that shipping would be pretty simple: you print some labels, you put a thing in a box, and you’re good to go. As it turns out, there’s a lot more to worry about when you have (1) a lot of product (2) differences between orders and (3) anything international.
Back in August, when we were figuring out our crowdfunding campaign, I’m pretty sure our discussion on going international went like this:
Me: Hey Jon, somebody on Twitter wants to know if Tessel is going to be available internationally. Did we decide that yet?
Jon: Sure, why not? Checks a few Kickstarter projects. It looks like people usually add $10 for international shipping.
Image: postal cost for seven beta packages to be shipped internationally via USPS Global Express
I have no idea why people usually tack on $10 for international shipping. It costs just over $15 to ship a small 1 lb. box from the United States to most other countries (e.g. Germany, Australia, the Czech Republic). And that’s just postage– which, it turns out, is not the full logistical cost of shipping. Here are a few more pieces you’ll have to worry about, whether you’re shipping internationally or not:
Before you actually get to the postage stage of sending product to customers, there are a few other things to take care of in order to prepare your product to ship. These things fall under the heading of “fulfillment”. And, it turns out you can get a ‘fulfillment house’ to take care of these things for you. Fulfillment includes:
This is an interesting problem: how much does packaging matter? In some ways, your unboxing is a part of your first run experience, so custom packaging might be important to you. On the other hand, you might be working with tight margins, in either time or money, so you just want to get whatever causes your product to arrive intact. Fulfillment houses will typically source packaging for you or help you source it yourself if you want something special, and will then pass the cost of the packaging on to you. Uline is a common source for packaging.
Pick and Pack
This is the service of putting the right things into the right boxes. In the case of Technical Machine, since we now have ~15 different SKUs (Tessel and the different modules), there are ~87178291200 different possible combinations of product (actually, in theory, it’s infinite because there is no limit to
r, the number you select. I just wanted to write a big number). The point is, it’s a real pain to pack the right things into the right boxes, and as a start-up, you probably don’t have time to do that and deliver quality on time.
The price here is pretty much never a simple number, but an approximation can narrow it down to “cost of first item in package” and “cost for each additional item in package”.
The USPS and other carriers offer discounted rates for volume, and some carriers also offer discounts for connections with their preferred fulfillment houses. Your fulfillment house can likely help you negotiate rates with a postal carrier. In any case, it is best to find a shipping consolidator so that your couple of thousand units can be palleted with a million other units being shipped overseas that day. If you’re shipping internationally, it may be cheaper to have different shipping services domestically and internationally.
Legal Stuff and Filling out Forms
If you’re shipping internationally, you will run across complications almost immediately in the space of customs and taxes. The mere drudgery of filling out 1,000 customs forms is a good reason to get a fulfillment house. But even if you do, you should familiarize yourself with the legal implications of shipping goods across borders. Here are a few terms you’ll want to look up:
- VAT: Value added tax, similar to a sales tax.
- DDU/DAP/DDP (Incoterms): These acronyms refer to when duties are paid, to whom, and who pays them, as well as who is responsible for the goods during different phases of the journey.
- Importer of Record: The entity responsible for customs.
I won’t define the terms fully here because I don’t want to give misinformation and the legal definitions change. But they are a good start to wrapping your head around the complexities of international shipping.
Choosing a Fulfillment House
Choosing a fulfillment house is very complicated; each fulfillment house has a very different style and set of services. Here are a few good questions to cover when you’re selecting between options:
- What services are offered? Some fulfillment houses are combined fulfillment and post, some don’t cover postage but offer extensive other services such as customer service, returns, and custom packaging. Most fulfillment houses will have an overview-of-services document they can send you.
- What else can they take care of? Ask about the little things: will they source electostatic packaging for your electronic parts? Can they put a UPC sticker on it so you can send big packs to distributors? Will they integrate the data from two different order systems for you? The fulfillment house might be able to take care of a lot of little details for you that you hadn’t budgeted into your timeline.
- What do they require from you? What sort of data do they need? Do you need to supply barcode numbers? Is there a minimum shipping volume?
- Who do they normally work with? Interaction styles vary widely, and you can infer a lot about the fulfillment house’s usual customers based on the interaction style: are they fast on email? Do they put you on a conference call? Do they prefer you call their cell phone? You are going to need a good line of communication with your fulfillment house, so make sure you can get in touch with them easily and effectively. Then gauge their fit: a big piece of my fulfillment house selection was because I wanted to work with someone who was used to working with start-ups, and could tell me about pitfalls such as chargebacks on pre-ordered products. Other fulfillment houses were just as technically equipped, but were used to working with bigger corporations and more established businesspeople.
- Are they equipped to work with your customer set and product? If you have international clientele, make sure the fulfillment house is able to process foreign characters. If you have an oddly shaped or very large product, make sure their machines can handle it.
- What options do they have for expansion? Are you looking for a shipping solution just for your crowdfunding batch, or will you want to keep sending product– in batches or continuously– into the future? Some fulfillment houses are designed to grow with you, with options for international warehousing, customer service, and more.
- What will they do if… ? Read the service agreement carefully. Make sure you understand what’s going on, and ask questions if you don’t. Here are a few more questions to think about:
- What does the tracking interface look like?
- What if an address is invalid?
- What if the customer returns the product?
- What happens if there is more product at the fulfillment house than there are orders?
Of course, you’ll also want to know the cost– here are some good things to know about your product in order to ask for a quote:
- Distribution by country of international shipments
- Description of the product(s)
- Product size & weight
- Distribution of number of components per package
- Any special environmental considerations on your product (e.g. temperature, humidity, special electrostatic handling)
Also ask about any setup fees and how they handle receiving and warehousing.
Setting up shipping and fulfillment takes a lot of time; start early. I began researching shipping and fulfillment six months before we planned to use a fulfillment house, and I’m glad I did.
By far, the most confusing, complicated, and expensive part of this is the international component, and I wish we had entered into it with more research behind us. However, I’m really glad we decided to launch worldwide; around 40% of our site’s pageviews are international, and a similarly high percentage of our crowdfunding backers were international as well. More importantly, a great deal of enthusiasm has reached us over Twitter and email from various countries, and it’s hugely exciting to us as a team to see interest in open source hardware and web-connected programmable devices worldwide.
Please reach out if you have questions!