Revealed: How Successful Businesses are Outsourcing Supply Chain Management

The Code is Cracked

For the customer, risk disappears when shipping is fast and free. What was once a wearisome task is now fool proof and in many cases cheaper and easier than going to a brick-and-mortar retailer for the same product. For the business, the risk is removed when they can ensure a better customer experience — through a competent and easy returns process — at minimal cost.

“Free shipping both ways is really our distribution,” said Bonobos co-founder and CEO Andy Dunn in a Bloomberg Enterprise segment. “That’s our distribution channel. It’s part of the business.”

Bonobos is a classic rags-to-riches story in which two grad students identify a problem (in this case, men’s pants that fit poorly) and build a business around providing a solution (a tailored, stylish alternative to khaki-grey trousers). Operations have moved from a few dozen sales of hand-altered pants out of the trunk of a car to thousands of sales out of a New York City show room.

The company completes the vast majority of its sales online and its success is predicated on the ability to make customers happy and move product quickly and cheaply. Bonobos is one of the online retailers that rapidly identified the need to remove any uncertainty in the shopping process by promoting free and easy returns. The result has been a tremendously high customer retention rate as well as a high number of customers who become brand advocates — something that Abercrombie & Fitch (NYSE:ANF) and American Eagle Outfitters (NYSE:AEO) would kill for.

However, Bonobos originally faced the same supply-chain problem many online retailers face. While remaining a vertically integrated retailer, the last leg of the supply-chain is always handled by a third party: that is, delivery to the doorstep. Unless a retailer has its own fleet of trucks, this will always be the case. Moreover, the last leg of the supply chain is the first leg in the returns process, and is therefore critical on both ends.

“I think people want to buy a story,” said Dunn. Brand is an aggregate of stories, and every single story a customer has about dealing with a return to Bonobos is a positive one. The company found a way to ensure that costumers always have a great story without getting their hands tied up in messy logistics process unrelated to their core product…