After a year of supply chain woes, DTC brands are investing more in logistics
After nearly two years of frequently delayed shipments or factories being shut down on a whim, early-stage startups are increasingly looking to take greater control over logistics.
Over the past year, more early-stage startups have started to divert more in-house resources to logistics and distribution. These early investments — like hiring logistics experts and opening production facilities — can be costly. However, executives at brands ranging from Egglife to Framebridge argue that it’s become a necessity after a year of unexpected supply chain hurdles.
Hiring an operations lead to manage inventory delays
Since its founding in 2017, DTC baking brand Supernatural has had much of its supply chain outside of founder Carmel Hagen’s control. The company, which specializes in healthier baking ingredients like food coloring and sprinkles, manufactures one of its highest volume product lines in Hong Kong.
Like other baking brands, Supernatural saw record sales — through Amazon and via grocery partners like Whole Foods — during the coronavirus. The founder is still the only full-time employee at the company, and Hagen has outsourced operations like advertising and branding to agencies over the years.
But the large demand, which caused delays for Supernatural’s imported orders, became too big of a day-to-day hassle to manage alone. This led Hagen to bring on a head of operations on a contract basis in February 2021. The operations lead helps manage Supernatural’s DTC inventory and day-to-day communications with retailers, such as monitoring order placements.
“In the very early days of a startup, you can successfully divide your time to do the jobs of many roles,” she explained. However, as the brand has grown to encompass a number of wholesale vendors on top of DTC, that became more difficult. “Technically, the right time to make the operations hire was probably three to six months before I got there,” said Hagen. “But I knew for sure it was time.”
Hiring a chief supply chain officer
Eggwhite wraps brand Egglife Foods, which launched in October 2019, is another brand that’s ramping up in-house production and distribution. Ross Lipari, who joined Egglife in 2020 as chief sales officer, said “we decided early on to not use CPG brokers and liaise with retail buyers on our own.” This meant hiring an in-house sales and distribution team. The company currently has about 130 employees, including Lipari’s sales team of five.
The company began by launching in Midwest regional grocery chains, such as Coborn’s and Cub Foods. Egglife will go from 2,000 to 8,000 doors by the end of this year, with Sprouts and Whole Foods Market as its first round of national retailers coming on board this year.
Egglife owns its own manufacturing plant, which opened in Indiana in 2019. “In the past year, we’ve staffed it to run a commercial line, which helps us ship directly to retailers and our DTC customers,” Lipari said. The company also ships through Amazon Fresh.
Last year, the company also brought on a full-time chief supply chain officer, Cynthia Waggoner, formerly of Kraft Foods, to head up the production and distribution strategy. Egglife is doubling its production capacity at the manufacturing plant to meet projected 2022 demand. The company is currently in the process of hiring 10 additional sales roles over the next several months — tripling Lipari’s team by the first quarter of 2022.
Keeping manufacturing capacity within the company’s control has been “key to our rapid expansion,” Lipari said.
A focus on owning manufacturing
DTC framing service Framebridge founder Susan Tynan said the company has been on a mission to “own our manufacturing from day one.”
This is largely due to the company being an on-demand custom frame manufacturer with short lead times — Framebridge promises customer framing with an average turnaround time of two days. “I’ve been envious at times of our DTC peers who could primarily focus on brand, while we spent so much time and capital on operations,” said Tynan. The company has two production plants in Kentucky, and opened a new one this month in Moorestown, New Jersey.
The New Jersey facility is intended to serve Frambebridge’s stores in Chicago, Brooklyn and the Philadelphia suburbs; Framebridge is also planning to open two more New York City stores in the coming year.
While marketing and customer acquisition is important for early-stage startups, Tynan said having fulfillment capabilities in place is a major advantage, especially when outside supply chain issues arise. The company hired Mike Kane, Framebridge’s head of operations, back in 2018. Kane, whose previous operations tenures included Tiffany & Co., led the company’s manufacturing and logistics efforts during 2020 and 2021, said Tynan. “Over the last two years, having the control and visibility over our own production has allowed us to navigate all of the external challenges,” she said.
In preparation for this holiday season, Framebridge plans to hire another 150 full-time employees at its New Jersey plant. “The new manufacturing facility will provide our customers with faster delivery times and a higher standard of quality,” said Tynan.
Ashwinn Krishnaswamy, founder of branding agency Forge, said that the right time for a brand to bring manufacturing or logistics capabilities in-house depends on the company’s category and production volume.
For example, brands attempting to sell niche products may have to invest in their own logistics early on. Snack brand Muddy Bites, a Forge client that launched in 2018, spent a hefty portion of its early funding on custom manufacturing. The product is manufactured in Germany, and consist of replicating the chocolaty bottom piece of a sundae cone — which would be difficult to co-pack with a third party, Krishnaswamy noted. “In their case, it made sense to bring that process in-house.”
The same goes for other on-demand services or proprietary products — as opposed to more straightforward DTC categories, like athleisure and beauty, said Krishnaswamy. “Bringing a supply chain in-house is very expensive,” he concluded. “I don’t know that that’s necessarily going to be an option for all small or boot-strapped companies.”