Techtaka, the operating company of the fulfillment solution ARGO, recently announced its performance after joining Naver's logistics platform NFA (Naver Fulfillment Alliance). According to ARGO's announcement on January 16, their client base, order volume, and shipment volume grew by 6 times, 10 times, and 15 times respectively compared to the previous year. Notably, the ‘same-day shipment rate,’ a key indicator of service stability, maintained over 99.9% despite the high volume growth.
In an interview with YANG SOO YOUNG, CEO of ARGO, by CONNECTUS, we gained insights into the background of this growth. Initially, in July last year, ARGO joined as a partner for Naver's fast delivery 'Arrival Guarantee' solution and started offering midnight deadline logistics services in collaboration with Hanjin, leading to substantial external growth. Additionally, ARGO's competitive logistics rates, about 10% cheaper than the open fulfillment quotes available through the NFA platform, likely influenced the influx of new sellers and increased shipment volumes.
However, there could be concerns that this is just another case of increasing client and volume base through 'low-price operation'. In a situation where investment liquidity is deteriorating, low-price operation without guaranteed cost reduction can be harmful.
According to ARGO, they achieved a contribution profit surplus for two consecutive months, November and December last year. They are also confident about achieving operational profit surplus within this year. In essence, ARGO managed to achieve both 'low price' and 'profitability' simultaneously, which are typically seen as mutually exclusive values.
"Since the beginning of last year, we kept emphasizing within our organization that if we don't make a contribution profit, we will fail. Increasing the top line no longer psychologically impacts investors. This trend will continue this year. Investors won't put money in places where there's no visibility of turning a profit, so our focus is on how much we can raise the bottom line. In other words, we have to generate a higher proportion of profit," said YANG SOO YOUNG, CEO of Techtaka (ARGO).
Can 'Low Price' and 'Profitability' Coexist?
Let's start with a question to our readers: Can 'low price' and 'high profitability' coexist? Theoretically, it's not impossible. Even if revenue per logistics transaction decreases, you can increase the total revenue by attracting more volumes. If this increased volume is processed 'cost-effectively', logistics operations can turn 'profitable' if operational costs are lower than operational revenues.
However, readers would agree that this is not as easy in the 'fulfillment business' area where ARGO operates. Ironically, the reasons ecommerce logistics become more difficult and service quality deteriorates are often linked to increased client numbers. As the number of clients grows, the SKUs (Stock Keeping Units) and logistics volumes managed by logistics companies rapidly increase. Operational costs also rise due to the distribution of communication channels.
Of course, it is entirely possible to be profitable if you operate logistics for a limited number of clients with limited SKUs. However, ARGO does not intend to do so. ARGO Fulfillment currently operates without SKU limitations for both large brands and ultra-small sellers who do not even ship 10 items a month. They strategically aim to offer the same fulfillment services experienced by large brands to SMB (Small-Medium Business) sellers at competitive rates.
System-Driven 30% Increase in Logistics Productivity
ARGO credits their 'system' as their major competitive edge and the decisive factor in achieving a contribution profit surplus in November and December last year. Initially, ARGO sold ecommerce logistics systems to external clients in a SaaS (Software as a Service) model before operating fulfillment services. They have advanced their fulfillment services by internalizing and enhancing the system capabilities recognized by corporate clients. Now, they have succeeded in quantitatively proving the system’s ability to enhance logistics center productivity and reduce costs.
As evidence, ARGO presents UPH (Units per Hour). For ARGO, UPH represents the quantity of picking a worker can handle per hour. According to ARGO, their UPH increased by a whopping 30% from August to December. With the same level of labor costs, logistics productivity increased, naturally reducing costs.
Of course, this high productivity was not present from the beginning. In July, when large volumes from Naver's Arrival Guarantee started flowing in, ARGO's monthly operational loss hit a record high due to the influx of personnel to handle the large volumes. However, the deficit sharply decreased from August. By November, they achieved a two-month consecutive contribution profit surplus.
During this period, ARGO's system tracked the characteristics, order quantities, and patterns of products coming through Naver's Arrival Guarantee. The system also quantified workers' performance by considering UPH, PPH (Packing per Hour), picking time and distance, picking rate, etc. Based on this, ARGO identified and evaluated improvements in initial operations, increasing efficiency compared to before.
There are many other areas where ARGO's system has played a pivotal role. Notably, the 'demand forecasting' function predicts daily workloads. Based on the system's prediction, ARGO could support overtime work for existing site personnel or flexibly source the necessary workforce. The accuracy of the forecasted shipping volume deviates by no more than 5%.
This signifies that ARGO has proven that tasks traditionally performed based on logistics practitioners' 'instinct' can be replaced by a system. While currently applied mainly to medium to large sellers with significant data, the range and accuracy of predictions are expected to grow as more data is collected.
ARGO aims to complete a structure where sellers of all sizes can freely use and pay for fulfillment services as much as they want, tailored to their material characteristics and volumes. Moreover, they plan to offer various fulfillment solutions based on the cloud, similar to AWS (Amazon Web Services).
ARGO already provides additional services to sellers using ARGO Fulfillment. For instance, they currently offer a solution to record the packaging process in a video for customer service, free for sellers using ARGO Fulfillment. For sellers who want special packing materials or to include thank-you letters for customers, these services are automated and provided. When a specific volume of a seller using additional services arrives at the packaging station and is scanned, the system automatically displays a message to the worker indicating that a letter needs to be included.
Proving the 'Scalability' They Want to Demonstrate with Arrival Guarantee
ARGO sees significance in their recent achievements in proving the 'potential' of their long-confident system with the volume influx from Arrival Guarantee. Going forward, they aspire to establish themselves as a unique logistics service with scalability within NFA, based on their system capabilities.
As mentioned earlier, ARGO started as a company offering 'fulfillment solutions' before services. This achievement itself serves as a reference for system sales, applicable to clients operating logistics using ARGO's system. The 30% increase in UPH that ARGO demonstrated can also be achieved by external logistics companies using their system.
Currently, ARGO provides their system for free to all companies using their fulfillment service. They are expanding their 'partner center' business model, which flexibly utilizes the infrastructure of external logistics companies using the ARGO system. In
other words, any seller or logistics center can check the results produced by ARGO's system at any time if desired. With the confidence of ARGO, can they prove to be a fulfillment solution with both profitability and scalability, achieving annual operational profit surplus in 2024? We look forward to the future changes.
"Simply operating logistics for a large consignor and handling hundreds of thousands of volumes that come with it is far more complicated than processing many more SKUs for numerous small and medium consignors. This is why there have hardly been any fulfillment companies that have been profitable while dealing with a variety of small-volume SKUs. However, ARGO has proven that we can create over 30% efficiency based on our system, and operate without SKU limitations. Now that we have reached a structure that generates contribution profits, we believe we can prove a structure that looks at 'operational profits' this year. Based on our cost competitiveness proven by profitability, we aim to officially become the company that offers fulfillment services at the lowest price," said YANG SOO YOUNG, CEO of Techtaka (ARGO).
※ This content was created with sponsorship from Techtaka, the corporation operating the fulfillment solution 'ARGO'.