In this video, Rachel Go chats with Kathleen Sullivan Garman, founder and CEO of SullyGarman & Associates and operations consultant to multiple brands and B2B companies. Rachel and Kathleen talk about the importance of operations in tandem with sales and marketing, the perils and opportunity of returns, and what to automate at different growth stages.

Transcript below.

Kathleen’s background

Rachel Andrea Go: Well, thank you so much, Kathleen, for joining today and for chatting with me. To kick off, can you please share a little bit about your background and how it led to where you are today?

Kathleen Sullivan: Yeah, so, I have always been kind of a start-up junkie. I do eCommerce operations. So, even in my own companies that I founded, I always stayed on the operation, supply chain, logistics side, and it just made sense to take what I have learned and apply it for other people. So, I work for a variety of different brands from the CPG space  all the way out through more commoditized goods, and then I also work for a couple of software companies, advising them on subject matter expertise from an operations standpoint.

Rachel Andrea Go: When did you first decide to focus on eCommerce operations? Was there any specific trigger?

Kathleen Sullivan: I was always operations even before eCommerce, and so it just made sense to sort of glide into that. Even, you know, when I was doing regular operations and then—you know, it’s looking for efficiencies, it’s trying to find that hidden money and, you know, that—I always talk about, like, in the winter when you put on your ski coat for the first time and you find 20 bucks in it, operations can be like that, you know? Sales and marketing drive revenue and operations drive profit, which I always think that’s important, but it’s often forgotten by many companies.

And so in my own companies that I was founding, doing operations and applying those efficiencies — when I launched my first eCommerce startup, it just made sense to do it from the operational side since that’s where my expertise was and I had someone else doing the other side, the front marketing, branding, you know, how things should look and all of that. So, it’s just always been a natural fit for me. I’m a problem-solver and troubleshooter and operations people, you know — we clean up messes all day long. It can be a very reactive job rather than proactive, and I really like to shift brands and clients over to being proactive because that’s, again, another way to save money.

Be proactive and plan ahead in your eCommerce operations

Rachel Andrea Go: That’s such a great way to frame it that operations drives profit. So, what are the key components of successful eCommerce operations?

Kathleen Sullivan: You know, that’s a super good question. I think it’s knowing where you hit your inflection points and having a plan beforehand so you can be less reactive, right? So, a start-up — they get going and they’re doing everything in Google Sheets; they might not even have QuickBooks, right? And maybe they launch on Shopify because it’s really easy. And then as they start to build, they start to add sales channels, they start to add inventory, they have to think things through, like, “How am I going to set up my barcodes and my SKUs so that things can have variance and be nested and master cases?” And, you know, it becomes more complex, the things they have to think about.

And a lot of times, they jump into that reactive mode and will just do something really quickly or, even worse, get real mired down in staying in those spreadsheets: “Well, I’m gonna do all of my SKUs on spreadsheets. I’m gonna keep my finances on spreadsheets. I’m gonna have everything be a manual process so I can have control.” You know, a brand that won’t let control go is probably a brand that’s gonna struggle with operations and finances.

So, I just think it’s understanding when you’re gonna hit those points, you know? “At what point do I need automation? At what point do I need integration of all of my sales channels?” Maybe I’m multi-channel, which actually means I have a bunch of channels, maybe a couple warehouses, but they’re disconnected. Maybe I need to go to omnichannel, where everything is tied together. And so that’s a big inflection point, because you have to tie everything to one system of record. Whether it be an order management or an ERP, you have to tie it all together in order for omnichannel to really work.

Rachel Andrea Go: Speaking of companies evolving as they grow and change, what are the most challenging areas of eCommerce ops as merchants grow to, say, their first 100K and then 1 million and then 20M and then beyond?

Kathleen Sullivan: I think that what I was talking about, that spreadsheet process that can keep you from going over to your next place — when a brand is maybe at seven and a half million, that automation piece becomes important, right? And so they have to start to incorporate those things. Then, the next inflection point might be at 15 or 20 million, and at each stage, they have to evaluate profitability. Revenue and profitability don’t often correlate at all. You could have a hundred-million-dollar company that has 98 million dollars in expenses. So, it’s really, really important all the way through to be tracking that and keeping track and figuring out all of the places where you’re possibly bleeding money.

And then, again, that omnichannel—going over to omnichannel is the piece that will flip everything to be able to drive everything much further, much more efficiently. You have a much better control on inventory, you’re not running out of stock — things like that revenue, right? Decrease customer satisfaction, you know — even warehousing, your decision of which warehouse to use, how many of them to use, how distributed do you want to be across the globe — each of those decisions can push you over the next threshold for revenue. But you have to evaluate where it’s going to push you for profitability too. And if you’re not keeping a real tight eye on ops, the operations can suck all that revenue out.

Automation in order management

Rachel Andrea Go: What are some processes that companies should automate first?

Kathleen Sullivan: That’s a very good question. I think making sure that you are automated from whatever sales channel you’re using to whatever warehouse, and you’re not doing manual transmission of orders. And this includes EDI. There are a lot of brands that—maybe they have Shopify connected to their warehouse and they feel real good about the direct to consumer, but now they’ve decided to sell to retailers and B2B and they have to have EDI, but they think, “Oh, I’m just going to go with the cheapest piece and I’m going to manually download and transmit purchase orders and labels and etc. to the warehouse.” Well, there’s a true cost to that. There’s a cost to the time, there’s the chance of making mistakes, chargebacks, not making deadlines, right? So that’s something that they really need to automate but they’re not thinking about it.

After that, as they start to grow and have multiple channels and possibly multiple warehouses, order management. Order management is critical. They have to be able to pull orders from lots of places and push them to where they want them to go. Maybe they decide they want a waterfall effect where, if this warehouse is out of stock, I want it to go to this warehouse. Well, that doesn’t happen by itself. So, something has to be programmed in order management to order route and make that happen. So, it’s a critical piece to having things move and having things flow and be seamless. Every goal is to get that product to the end customer, whether it’s a retailer or a consumer in an efficient way that isn’t costing you more than it should and is taking as much time as it needs to take or not too much, right? So, you don’t want to rush something out.

And maybe with B2B, for example, you might ship too early, and then they would send it back or do a chargeback, right? Because they’ll give you a ship window. With a consumer, they want it quickly. So, if you are shipping from a warehouse in Miami, Florida and you’re going to, you know, Vancouver, Washington, that’s a consideration, because that person in Vancouver’s going to wait.

So all of those come into play when it comes to automation and growth. People ask me about ERPs because that seems to be the answer for the big picture. Well, when you are up at a hundred million dollars, I’d say, yes, look at an ERP. When you’re at 15, look at an ERP. When you’re at five, don’t look at an RP. It’s gonna probably take a hundred thousand dollars to implement and close to a year, and you might not be ready for that when you’re at a five million dollar [stage]. So, there are a lot of stopgap things you can do: Again, order management, really good financials — those can hold that place in the middle until you get to the point where you’re ready for an ERP.

The influence of returns on profit margins

Rachel Andrea Go: Clearly, you have really deep insight into operations, you’ve seen how things play out both, you know, for bigger companies, mid-sized companies — what is your take on returns and reverse logistics?

Kathleen Sullivan: That is it. Excellent question. I actually did a couple webinars last year on that subject. That’s another operations piece that can take away your profit that people don’t think about, right? They’re sending out their order and they’re looking at cost of goods, they’re looking at landed costs for importing their goods, they’re looking at shipping out to the customer, they’re looking at what their warehouse is costing — and then returns just seems to be this side thing that is this cost of doing business. But it can not only suck out your revenue, it could suck out more than your revenue and push you into losses.

So, I think there are a whole bunch of pieces that come in to returns. One of them is prevention, up front. You know, there are companies that do clothing that are really, really specific about their sizing. They don’t just put up the little chart; they say, “If your regular size in this brand is blah blah blah, then you should order this exact size.” Those companies have less returns. There’s a company called Most that is a—it’s very interesting. They are connecting buyers for a website with other buyers in their area who have bought the same thing who are willing to give a recommendation on it.

So, for example, an electric bike, which is a big expense [and] difficult to ship. It is not something you want to move around a whole lot. If you talk to somebody else in your area that has the same electric bike and they love it, you’re gonna buy it and it’s not going back. So, a lot of times, finding out in advance what other people like, what other people are doing can prevent returns.

Now, there are a lot of options for returns itself. All the way down to the warehouse level, there are companies that are managing returns more efficiently at the warehouse, where they receive a return, they scan it, it tells them everything they need to know. They inspect it, they decide if it should go back out for, you know, reassignment of inventory or whether it needs to be pulled aside and put on a pallet and can’t be resold. If it can’t be resold, now what? There’s liquidation companies that, you know, will actually either on consignment or buy your product, especially Amazon products that Amazon is shipping back. There are a lot of liquidation companies in the U.S. and Canada that will take that on.

There are very interesting person-to-person returns. Maybe somebody wants to return an air purifier that they bought because they decided the area isn’t smokey enough in the summer. They don’t need it. But somebody else wants it, right? So, customer A receives maybe a 10% coupon for their next purchase on that website in exchange for packaging and shipping that product customer B, who has just bought a “fairly new” used machine, right? So, that never came back to the client, never came back to the brand, never came back to the warehouse. [It] went from customer A to customer B. Customer A’s happy because they got a discount for something they didn’t want anymore, and customer B gets the product for—maybe they got it at a slight discount. So, there are some really incredible ways people are managing returns that they’re not actually returning them now.

So, I’m a big fan of that, right? It’s, again, it’s finding that hidden money, it’s that reducing expenses. And by bringing that product back, you’re probably going to pay for the shipping to go back to your warehouse. You’re going to pay your warehouse to process the return, then you got to decide whether you’re going to resell it or not; if you can’t resell it, then what do you do with it? There are a lot of expenses that come with that that can—they can’t all be avoided, but a lot of them can be avoided.

Rachel Andrea Go: What are your thoughts on programs that ask customers to return at a specific location?

Kathleen Sullivan: You know, it makes sense for the brand because you’re not paying for shipping. However, the inconvenience to the consumer is going to impact their next purchase with you. You know, anytime you have a negative returns experience, it is going to impact how you see that company and what your future relationship is. And it’s not just that one consumer buying again; it’s all the people that they’re going to tell, right?

Consumers are very savvy and they do talk to each other and they do do reviews. So, although it makes sense financially from a shipping standpoint, it’s inconvenient. If somebody has ordered an eCommerce product, they didn’t want to go to a store. If they wanted to go to a store, they would have, right? So, they don’t want to go to the store to return it. You know, Amazon does that with the send it—take it to Kohl’s or take it to a UPS drop-off point. I know for—where I live, there’s only one Kohl’s in the area, and I can tell you, in all of my years of shopping on Amazon — and I’m terrible. My husband thinks I make cardboard when he’s at work — I have never taken one back to Kohl’s. I take them to the UPS store because it’s convenient, right? They’re all over the place, but I’ve never taken one to Kohl’s. So, it’s that convenience factor.

Online and in-store retail join forces

Rachel Andrea Go: And how do you see the balance between eCommerce and retail sales changing or shifting over the next few years?

Kathleen Sullivan: You know, that’s a really good question. So, you know, of course during Covid, it had to make an “all the way” shift, right? And then re—the on-premise stores really had trouble kind of battling back and they had to kind of figure out, “How am I going to draw people in? How am I going to draw customers in? How am I going to pull that together?” A lot of that goes to that omnichannel experience, right? So, for example, a brand has your information from—because they’re using omnichannel, right? And you’ve been in their website and you added something in the cart that you didn’t check it out, right? They see you are near a Best Buy and they have geofencing and they know you’re there. They send you a text message saying “Hey, are you still interested in this? It’s at Best Buy.”

And then they’re like, “Oh, well, goodness, I’m right here. I could just pop in and look at it and grab it,” right? So, there’s a way that the eCommerce can drive the in-person shopping and vice versa of course, right? You’re in a store and they don’t have what you want; you can get [it] online and get it from their website and then either have it delivered to the store or delivered to your home. So, there’s a lot of inner connectivity, and I believe that the brands that take advantage of that will do better than the ones that close their minds to one or the other. Even eCommerce brands that are selling to Best Buy, that are selling those big EDI retailer orders — they are driving their people that know their product over to Best Buy to buy it.

There’s a product that I love, it’s a workout gear by Omorpho and it has little weights built into it and it’s—so it’s, like, vests and pants and shirts. And so you get a little bit more of kind of an isometric workout, you know, with maybe a six-pound vest on. They just launched at Dick’s Sporting Goods. Well, now I know—I’ve ordered Omorpho from their own website, [so] now I know if I want to go try one on, see how it feels, that—how heavy it is, I can go to Dick’s and pick it up, right? So, that’s where Omorpho is driving some in-person sales, and, you know, Dick’s isn’t driving it; although they may be advertising, I already know about it because I am an Omorpho client, right? And—or, customer. So, that way, they’re kind of driving traffic to each other in that way. Dick’s bought from Omorpho, and Omorpho, you can pick it up at Dick’s.

So, it’s kind of everybody wins, including the consumer. Brands that are not doing that, brands that are really closing their minds to one side or the other I think are going to suffer in the coming years.

Rachel Andrea Go: I imagine for your case as well, it must be cheaper on shipping to pick up, like, a six-pound vest versus have it sent.

Kathleen Sullivan: Yeah, yeah. Well, and depending on where they’re sending it from, depending on where their warehouse is, it also could be cheaper for them, right? Because maybe they make a higher profit selling me the vest directly online because they don’t have to discount it for the retailer, right? However, maybe they’re doing free shipping and they send it to me for free, right? That adds to your cost of that project of that order. And then, additionally, what did they pay to acquire me? How much money in advertising did they pay to acquire me to their website, right? So that’s another cost that’s all layering up. So, if I’m willing to go to Dick’s and pick it up, maybe they’re not making the revenue that they made because I bought it on their website. However, they’re also not paying for the expenses that they would have paid for—to get that item to me. And what if I return it, right?

Your logistics provider is your ally

Rachel Andrea Go: So how can merchants ensure smoother working relationships with warehouses and logistics providers?

Kathleen Sullivan: I love this question. I really believe that a warehouse is not your vendor. It’s not your provider. It’s not someone that works for you where you’re the client and they’re the vendor — you are partners. They are the last people to touch your product before your customer opens it up. They are the first people to open up your returns and decide if they’re worth—worthy of being reshelved or not, right? They are seeing your stuff go in and out all day, every day. They see the returns come in and they see if you have a bunch of bad addresses, right? They’re gonna notify you if they’re a good partner. They’re gonna notify you that, “Hey, something’s going on with your address verification because you’re getting a lot of returns to centers,” right? So, that partnership, when a warehouse can provide that, I really like — and this is all new — I really like when a warehouse has insights into what a brand is doing.

For example, there’s a software company called Okta, and they are providing insights for warehouses where they look at all of the sales channels, they look at velocity, they look at demand planning, and they will notify a warehouse [saying], “Hey, in the past, your company has had a spike in February, so you should talk to them about and you should add more people to the floor in February,” right? So then they go to the brand well in advance and say, “Hey, are you anticipating a spike in February?” And the marketing team goes, “Well, yes, we’re doing a big promotion. We do it every year on Valentine’s Day,” right? And so the warehouse is proactive in adding to the floor, talking to the brand, giving the brand detailed information.

I met yesterday with a warehouse that—I mean, with a software company called Capable that’s doing analytics for warehouses on their shipping billing. So, not, like, saving them on FedEx fees, that’s other companies, but going through and tying every shipment to a client so they can properly bill the brand for the shipping and they know exactly what it was. In turn, those same insights go to the brand to make sure they’re charging enough to cover shipping, right? So, using technology and using all of those things can make a warehouse a partner to the brand rather than just a vendor.

And a warehouse or a logistics company that is a partner is less likely to get thrown over for the next shiny thing that came down the line that they see on Google, right? They’re more likely to stay with that warehouse. I always tell a brand, “When you’re looking for a new warehouse, consider pricing last.” It’s all the other intangibles on how they’re going to handle your products and relationship and customer service, and how are they going to do with you as a partner, not a vendor. That’s what makes your decision on whether to go with them because, price-wise, kind of they all are around the same.

Make a plan and cultivate partnerships

Rachel Andrea Go: Amazing and great advice. I love that advice. What are some of the most interesting eCommerce developments of 2023?

Kathleen Sullivan: Goodness. I would say—I mean, everybody’s of course talking about AI, right? Even, you know, you and I have talked about AI for writing content versus AI writing it and, again, someone has to train it. So, AI, I think, is the big story, and everyone is trying to figure out how to use it, from software companies all the way down to brands maybe using it for their chat bots for their customer service. It’s not there yet; it’s a little inconsistent, it can be real buggy, but it’s advancing fast. So, I’d say that was the biggest story from 2023 in addition to—you know, Covid was over. People were going out again, people going to stores again, so retail increased, so the need for EDI increased.

And that’s a super important thing for a brand to have a good EDI partner and a good situation. A lot of them will Google it and go with the very biggest thing, and it’s real expensive and really hard to implement and non-transparent and doesn’t have great customer service. And so I would advise brands that, when they’re going into retail, to look for some of the smaller players in the market and, you know, talk to your current providers to see who they recommend. There’s a company called CRSTL, C-R-S-T-L.so that’s doing an incredible job with EDI right now.

So, you know, I would say retail was big in 2023 because people wanted to go out again, and so retailers were buying more, which meant brands had to have more inventory and be ready for EDI. I think AI was big in 2023, and then I think some of the companies that really scaled up big during Covid, when people couldn’t leave their houses, had kind of a downshift. You know, people that sold things to entertain your kids when they’re at home, they kind of you know, had a little bit of a downshift. People that made things that made being at home more comfortable, you know, the buyers bought those during 2020 and 2021 and they didn’t need to buy them again, especially because they could go out and get them.

So, brands and—especially going into 2024, brands and retailers are going to have to look at how they’re acquiring those customers because they’re no longer forced into, “You have to stay at home,” or “Now you’re released for being at home.” So, we don’t have those big reasons for doing something now and so in 2024, I think that retailers and brands are going to have to kind of change how they are meeting the customers where the customers are.

Rachel Andrea Go: And speaking of 2024, what is your advice to brands and merchants coming into this new year?

Kathleen Sullivan: I always say, “Make a plan,” right? Don’t be reactive, be proactive. Make a plan, make a risk management plan. We all found out during Covid that supply chain needed a risk management plan. Right now, all the stuff happening in the Red Sea is causing that, right? Causing those disruptions. And so anybody shipping around the world needs to have a risk management plan in place at all times, even a risk management plan on a smaller level. What if your warehouse has, you know—it’s in these huge storms and maybe the roof collapses, and you only have all your stuff in one warehouse — what are you going to do? Right? It’s better to diversify, it’s better to have a backup, better to have some stuff somewhere else. So, I just think making a plan for 2024 is a really, really big thing.

Also, jumping on, you know, social shopping, right? Instagram, Facebook, TikTok, you know — the video shopping is becoming really big, and I think that companies that have a product that can be somewhat visual are really missing out. And even those that don’t—I saw a thing on X the other day of an influencer that spends I think it was three seconds on each thing. She just pushes it to the side, lifts it up, pushes it to the side, lifts it up — [she] made 18 million dollars in, I can’t remember what it was, maybe a month of doing this. Okay, what are you going to see in three seconds? And I watched the video [and] she was like—it was like hangers and then this and then—I mean it was so fast. I mean, I wouldn’t be able to buy it, it would take me too long to even figure it out. But, you know, 18 million dollars is real money. So, you know, social shopping is something that we can’t ignore.