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Small business sales tax – Colorado a cautionary tale

According to the Denver Post, Colorado’s particularly strict law on sales across tax jurisdictions is having a negative effect on eCommerce.

Colorado’s law can be described thus:

Signed by Gov. Jared Polis last week, House Bill 1240 takes effect Saturday. The bill, an updated, baked-into-the-Colorado Revised Statutes version of rules originally rolled out by the Department of Revenue last year, makes destination-based sales tax the law in the state.

That means regardless of where a business is located, if it ships products to another city, county or town in Colorado, it is required to calculate, collect and pay the sales taxes for that jurisdiction. That includes accounting for overlapping boundaries and special taxing districts such as RTD.

Here is one example of what such a thing looks like to a small business:

In April, Hessemer sold a sample-sized product into the self-collecting home-rule town of Winter Park. The sale earned her $1.60 in profit. She owed $1.38 in taxes, but was told she needed to purchase a $60 business license to pay that. Instead, she plans to stop selling in Winter Park, something she considers a loss for her and for eco-conscious customers there.

Ouch!

As I mentioned in our last updates on this topic (here and here), while the solution seems to be set for businesses that sell through third party marketplaces, like eBay and Amazon.com, which now collect sales tax on behalf of their sellers. But the outlook is still ominous for sellers that sell through their own websites, like us.  Like us, many businesses may sell through Amazon.com but are unwilling to put all their eggs in one basket, as Amazon.com has been known to ban sellers or compete with them on a whim.

Colorado isn’t the only state that is making it hard for small businesses.  Kansas seems to stand alone at the moment in having no economic nexus for online sales into the state, meaning, the first dollar you sell into the state requires that you collect sales tax and submit a tax return.  Most other states that have passed legislation requiring online sellers to collect sales tax at least exempt the first $100,000 or more (or a given number of transactions), meaning, you have to sell at least that much before you are required to collect sales tax.

We are still hoping for some kind of a national solution to this problem.  But alas, no further progress on that to date.

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Sales tax, the national solution

We recently learned about a bill by Senators Wyden, Shaheen, Hassan, and Merkley, that would mitigate the online sales tax issue, for a while.  Senate bill S2350 proposes:

Online Sales Simplicity and Small Business Relief Act of 2019 This bill prohibits states from imposing a sales tax collection duty on a remote seller for any sale that occurred prior to June 21, 2018. A “remote seller” is a person without a physical presence in a state who makes a sale in the state. A state may impose a sales tax collection duty on a remote seller only for a sale that occurs after January 1, 2021. In the case of a small business remote seller (no more than $10 million in gross annual receipts in the United States), a state may not impose a sales tax collection duty on any person other than the purchaser if the sale is made (1) on or after June 21, 2018; and (2) before the date that is 30 days after the states develop and Congress approves an interstate compact, applicable to the state and sale, governing the imposition of tax collection duties on remote sellers.

I’m guessing the expiration is just to make it easier to swallow now, so some longer-term debate about the proper way to solve the online sales tax issue for small businesses can happen while small businesses have some protection from abuse by the states.

Introduced in early August, so far this bill has only been “read twice and referred to the Committee on Finance. (on 7/31/2019).”

We can only hope this bill is given some serious consideration.  A moratorium, even a short one, is welcomed at this point.

In the long term, I think some reasonably revenue cap is a good solution to protecting small businesses from significant compliance costs.  Even with a much higher state sales revenue threshold, requiring sellers to monitor sales into every state, and then, on a dime, start collecting sales tax to customers in that state, has serious issues.  From where we sit, the $10 million revenue threshold looks pretty safe, but other businesses may still cry foul.

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Sales tax fiasco update

If you read our blog, you know that the sales tax landscape changed dramatically in 2018 due to the Wayfair v South Dakota ruling.  Earlier this year, with no legislative mitigation on the horizon, we started thinking of this as a potential show stopper for businesses like ours; the complexity of filing hundreds or thousands of sales tax returns could easily make a business like ours not feasible.

Last month, we saw some progress as Colorado passed a law that transferred tax responsibility to third party marketplaces like Amazon.com, for independent sellers that use them.

We’ve seen some additional movement on this issue, some good, some bad.

From a recent article in the Wall Street Journal:

But states have since enacted disparate rules, which as we warned are straining small business. As a case in point, the Kansas Department of Revenue will now require all out-of-state retailers to collect sales tax no matter how much business they do in the state. This includes college students selling used textbooks on eBay and retirees hawking a few hand-made greeting cards on Etsy .

While the lack of a small-business exception can be attributed to partisan politics, this still leaves small businesses like ours exposed to harassment.

While most states have adopted South Dakota’s $100,000 small-business exception, they haven’t adjusted the sales threshold to their population size. This isn’t surprising since the Court didn’t demand it, and most construed South Dakota’s thresholds as a safe harbor.

But a $100,000 sales exemption in South Dakota with a population of 880,000 would be equivalent to more than $1 million in larger states like Illinois, Michigan and Pennsylvania. In California it would be roughly $4.5 million, nearly 10 times higher than the $500,000 exemption the state has set. A small vintner or craftsman could easily exceed these thresholds.

This makes a very good point that I haven’t seen discussed yet.  The $100,000 / 200 transaction threshold seems to have been adopted across the board.  For a business like ours whose average sale price is low, 200 transactions amounts to about $2,500 in sales.

Some states like Arkansas, Colorado and Illinois exclude “marketplace” sales on sites like Amazon and eBay from their thresholds for individual sellers, but many do not. And some states require marketplaces to collect sales tax for third-party retailers. The upshot is that a retailer who sells on eBay, Shopify and Amazon will exceed different state thresholds at different times.

Which raises the issue of when sellers must register with states. In many states, retailers must register immediately after they exceed the sales threshold. But Tennessee says sellers must register the first day of the third month following the month in which the dealer met the threshold, but no earlier than July 1, 2017.

What a mess!  A small business like ours is responsible for being aware of all the rules; we don’t get an exception for ignorance.  For example, California’s approach:

Consider California, which in June required Amazon third-party merchants to pay up to three years of back taxes. Democrats claimed they were being gracious by not requiring more.

On the more positive side, we got an email from Amazon.com recently, the first that actually provides some useful information about their sales tax system and practices.

23 states have passed legislation that transfers the tax responsibility from you to Amazon for the products that you sell in Amazon’s store. In these 23 states, Amazon calculates, collects, and remits tax. Amazon’s tax collection in these states is based strictly on state legislation and there is currently no option for selling partners to opt-out. On July 1, 2019, based on changes to Arkansas, Indiana, Kentucky, New Mexico, Rhode Island, Virginia, West Virginia, and Wyoming State tax laws, Amazon began calculating, collecting, and remitting sales and use tax for all orders shipped to customers in these eight states. Beginning September 1, Ohio will also join the mix.
Marketplace Tax Collection States
State Effective Date
Arkansas July 1, 2019
Indiana July 1, 2019
Kentucky July 1, 2019
New Mexico July 1, 2019
Rhode Island July 1, 2019
Virginia July 1, 2019
West Virginia July 1, 2019
Wyoming July 1, 2019
Vermont June 6, 2019
Idaho July 1, 2019
New York July 1, 2019
South Carolina April 29, 2019
Nebraska April 1, 2019
District of Columbia April 1, 2019
South Dakota March 1, 2019
Alabama January 1, 2019
Iowa January 1, 2019
Connecticut December 1, 2018
New Jersey November 1, 2018
Minnesota October 1, 2018
Oklahoma July 1, 2018
Pennsylvania April 1, 2018
Washington January 1, 2018

It’s a good start, but, it is only 23 out of 50 states, which means we are still responsible for the other 27 states.

Furthermore, we are still responsible for being aware of individual state policies, tracking sales to individual states, implementing potentially hundreds or thousands specific tax jurisdiction sales tax collection rates, and potentially submitting multiple returns to individual states with complex calculations for sales taxes that are due in individual jurisdictions.

While about 2/3 of our sales go through Amazon now, retaining a sales channel independent of any 3rd party merchant is important for independence, and the off-chance that they arbitrarily decide to suspend our account.   The danger is that if marketplaces like Amazon.com take responsibility for collecting sales tax and filing returns, while the states don’t figure out a streamlined system for independent merchants, it could further tip the scales away from independent sellers and give more power to sellers like Amazon.com, some that few would argue is a desirable outcome.

I hope the states and federal government get off their collective duff and create a solution to this problem soon.

 

 

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Sales tax complexity relief is slow in coming, but there is progress

We’ve blogged a number of times on the coming sales tax armageddon that is coming due to the South Dakota vs Wayfair Supreme Court decision, unless something is done.

A new law in Colorado is the first I’ve seen that attempts to address this issue.  This quote from a member of the Colorado Senate does a good job of describing the issue:

Colorado has 344 taxing jurisdictions that include cities, counties and special districts, and 638 unique tax rates, Meneghel said. It would be a huge operational burden on small businesses to file up to about 600 new tax returns each month without the grace period that the law provides, he said.

Colorado’s solution is:

The new law also provides that businesses that sell through a marketplace facilitator such as Amazon or similar online entities are exempt from collecting and remitting sales tax; that responsibility will fall to the marketplace entity beginning Oct. 1.

That’s exactly one of the solutions we were hoping for.  Amazon.com for one, doesn’t have a great system for helping their 3rd party Marketplace sellers handle sales tax.  It is incredibly difficult to just find out what sales occurred where.   They, on the other hand, would have no problem collecting sales tax, and submitting returns, for every jurisdiction in the US, which they probably already do.

In addition to requiring marketplace facilitators to collect sales tax on their sellers behalf, there are a couple of other solutions I can think of.

  • Instead of just a threshold of sales into a state to trigger collection of sales tax in that state, have a federally mandated threshold, below which any seller is only required to collect sales tax in the jurisdiction where they are located.

Many, if not most business licensing schemes work with a gross receipts threshold; say, below $250,000 in gross receipts, you pay a flat business license fee; above it you pay a percentage of gross receipts as a business license fee.  Why not have such a threshold for engaging sales tax complexity?

But this is really just a partial solution.  There will be a huge burden placed on a business the minute they surpass the threshold.  But at least that would allow some small businesses to avoid the sales tax trap.

  • Create a federal technical system for collecting sales tax and distributing it to the right jurisdictions

Imagine a Federally mandated tax calculation system / service you could plug into any e-commerce software that would calculate the exact sales tax due for where an order is shipped.  A merchant would then simply pay the federal tax collection agency the total sales tax collected and they would distribute it to the proper jurisdictions.

Okay, so governments don’t have a great track record when it comes to implementing technology systems.  If a Federal law existed that removed the requirement for businesses filing returns in every jurisdiction for which sales tax was collected, in lieu of using a private service that offered the above solution, that would enable private services to start offering such a collection and distribution service.  I would gladly pay a reasonable fee for a service like this.

The point is, something needs to be done to allow small businesses to simply exist in this new sales tax reality.  And imagine how much wasted time and money on sales tax compliance businesses of all sizes could recoup with a setup like this.

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Shipping hardware notes

This post might be most interesting to those readers who run a small business.

As a (small) business owner for 18 years now, I’ve learned that it is important to keep an eye on costs.  Employees, even good ones, don’t always pay attention to costs as much as I might as a business owner.  I’ve worked in environments where paying attention to keeping costs down is frowned upon, like a tech startup.  The motto among many tech startups is move fast and break things, and I’m pretty sure this doesn’t include penny pinching.  I’ve also seen people come out of the big corporate environment to a small business and still act like they have all the money in the world to spend.

The bottom line for small businesses is, a dollar not spent is one more dollar earned, and, in a small business you typically work hard for every dollar earned.

Along those lines, when setting up my shipping early on for RevereWareParts.com, I bought used gear at a substantial discount.

  • shipping scale used for $75 vs $400 new
  • label printer used for $70 vs $300 new

Mind you, this was 10 years ago; with the explosion of online selling today, many cheaper options are available.  But also, when dealing with shipping software packages like UPS Worldship, they typically only support a few types of hardware, that tend to be on the more expensive side.

Used items often come with quirks.  The shipping software would occasionally lose connectivity with the scale and it would need to be added again.   And, most annoyingly, the label printer produced marginal quality labels.

I thought this was just a sign of age, and was an unfortunate trade-off for having gotten a well used label printer for much cheaper than a new one.

But a few weeks ago I decided to see if I could get a replacement head or something to fix the problem; 10 years was long enough to put up with it.

Much to my surprise, the website for the printer maker said that one of the causes for poor print quality was low power supply voltage.  Huh?  The Zebra LP2844 (the gold standard for shipping label printers) takes a 20 volt power brick.  Sure enough, mine said 16 volts.  Whomever sold it to me used just used one that fit the plug and seemed to work; it did print after all.  I found a replacement power brick at the proper 20 volts, and like magic, the print quality was perfect.

Perhaps someone will stumble upon this and fix their own Zebra LP 2844 print quality issues like I finally did; would be nice to help someone avoid the issue I had for so long.

I find that when I meet someone who also owns a small business, whatever it is, we often have a lot to talk about.  There are so many challenges to being a small business owner that most of us share, from bureaucratic  and regulatory issues, how to make the best of the tax code, economic cycles, employee issues, sales tax changes, dealing with Amazon.com, how to market your business … the list goes on and on.

Having to deal with technical issues when you don’t have an IT person to back you up, is just another one of the challenges many small businesses face.

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How to get our mailing address

In addition to the reasons we don’t have a customer service phone number, (in short, we don’t have an office staff to answer the phone) people often wonder why we don’t post our mailing address.

When we first started 10 years ago, we did.  However, we often got unwanted mail.

For one, people often sent us their old broken and worn parts to see if we had a replacement.  In many cases, we didn’t, and, because a worn part is better than no part, we felt obliged to send the part back, for which we had to pay the postage.  In almost all cases, pictures will suffice to identify a part; sending one by mail is completely unnecessary.

Another problem was people sending their parts to us as a return without first contacting us.  Sometimes, customers think a part won’t work because of a simple problem, like this issue with old lid knobs losing their nut insert.  By not posting our mailing address on our website, customers must first contact us, and much of the time we are able to solve a problem, avoiding an unnecessary return.

However, if you really need our mailing address for some reason, just contact us.  Our reply with have our address in the signature.

 

 

Why we don’t have a customer service number

 

Every once in a while we get someone who is a little upset that we don’t have a customer service phone number.  I thought I would take this opportunity to explain why we don’t.

We tend to answer customer service emails within a few hours; often at night and on weekends; we often answer in minutes.  We provide copious amounts of help for things unrelated to our sales, just to be helpful to the Revere Ware community.

Our business is small by every measure.  We serve a very niche market, and provide our parts (and information) as much as a service to the dedicated Revere Ware enthusiasts, as we do because it is a viable business.

As small as we are, hiring someone to sit by the phone to wait for the occasional call (I would guess a few a week if we did have a number listed) is out of the question.  We simply can’t afford it.

That leaves a couple of options:

–> Have an office phone that us answered when someone happens to be in the office.  I can imagine that nothing can be more frustrating than having a customer service number when you need help, but not being able to reach someone.

–> Use a personal mobile phone for such support calls.  Who among us wants to give out their personal number, and risk getting calls at 3am from someone that happens to be in a different time zone?

Neither of these solutions are very satisfying.  So we choose not to list a customer service number, and just do the best job we can promptly and thoroughly answering support emails.

But perhaps the best reason not to offer customer service by phone is that it isn’t nearly as useful and efficient as email.  With email, you can send photos and screen shots. With email you can cut and paste exact error message.  Email is simply a much better medium for the kind of support our customers need.

We hope you understand.  You can contact us using our contact form.

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Sales tax armageddon (say goodbye to small online sellers)

TL;DR: Unless the tax madness unleashed by the Supreme Court decision last year is tamed, you will see many small online businesses like ours shut their doors. 

By now, most people have probably heard of South Dakota vs Wayfair, the Supreme Court ruling the upended the decades long precedence of requiring a physical presence in a state or district to require the collection of sales tax.  At this time, something like 2/3 of the states have enacted legislation that requires out of state or out of district sellers to collect sales tax if they exceed a gross revenue or number of transaction limit in a state or district within the state.  Most states are going with greater than $100,000 in sales and greater than 200 transactions to trigger the collection of sales tax.

What exactly does this mean for a business like ours?

First, a little background.  Admittedly, ours is a niche business and one done out of care and concern for the people who love and still use their decades old Revere Ware, like us.  In other words, we aren’t primarily in it for the money.  Having said that, making money off of this venture is a way to justify continuing to put significant effort into it.  We’ve also spent considerable time to streamline the business so that it doesn’t dominate our lives for the small amount of profit it makes each year.

From our perspective, the difference between the two thresholds, $100,000 and 200 transactions, is also a little strange.  Our average transaction total is $12.13; our parts are pretty cheap, and people tend to buy one or two.  That means, 200 transaction is only $2,476, a long, long way from $100,000.  It means that if we are unlucky, we just might pass that threshold in a few states or tax districts.  (BTW, a tax district is any area that has it’s own special tax, like a state, city, or county.)

So when we look at the cost of compliance of the new tax regime, our main concern is simply whether attempting to be sales tax compliant will become incredibly burdensome, and there seems to be every indication that it likely will, unless things change.

Consider that there are more than 10,000 ta districts in the US.  Assuming that every state adopts some kind of post-Wayfair decision sales tax regime, that means that we have to be aware of each and every sales tax jurisdiction and whether or not we have breached the threshold.  In California, the moment you breach the threshold, you are supposed to register to collect sales tax THE VERY NEXT DAY, and collect tax from that point on.  Can you imagine what it would take to pay attention to this and be prepared to register and collect taxes for 10,000 tax districts every single day.

Furthermore, there really aren’t any good methods to do this.  Our sales data comes from two places, our sales as a third party through large retailers, and sales from our own website, which comes from our e-commerce platform.  Neither has any good tools for dealing with this issue. That means we have to develop those tools ourselves.  The data for our third party sales are very limited, so it isn’t clear if this is even possible.

Then comes the compliance burden of filing sales tax returns in every district in which we determine we have had to collect sales tax.  Given that we may have only had to collect sales tax for a particular district for part of the year, starting at some arbitrary date, this makes it particularly onerous.

It currently takes us between 3-6 hours each year to prepare our single sales tax return.  If it turns out we have to file 10 such return a year, that is 30-60 hours, or 3/4 to 1 1/2 weeks of work.

One justification for throwing open the doors to states collecting sales tax now, vs 1992 when the Supreme Court decision was made that limited this, is that online sales are all digital now and the cost of compliance is minimal.  I can tell you, from the perspective of a small seller, this is not the case.  The tools on the various e-commerce platforms that we’ve used, to just support making it easy to file a single state and district sales tax return, just aren’t there.

There is one more thing to consider, which could be much, much worse, than anything else related to what we’ve considered so far; some states will no-doubt be overly aggressive at pursuing online retailers for sales taxes.  I’ve seen this happen in particular with California; they often will make assumptions and send out demand letters that then have to be meticulously defended to prove you don’t actually have a tax liability.  This is potential more time consuming and costly than the compliance.

In short, I am very worried for the viability of small, online businesses if this sales tax trap is not fixed. 

One possible solution is a streamlined sales tax system, where the same tax rules and rates apply within every jurisdiction across a state.  This typically goes under the name SSUTA, or Streamlined Sales and Use Tax Agreement.  While this would be an improvement over the current landscape, I still can’t imaging having to file 10 state sales tax returns every year.

Unless this is solved, I suspect that many small sellers, especially of niche products like ours, will simply close up shop.  Some products will no longer be available, and sales will be consolidated among larger retailers that can handle the cost of compliance.  Consumer choices will decline.

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Inferences from a wooden handle

A customer pointed out this listing for a vintage Revere Ware skillet with a wooden handle

It’s a beautiful handle, which gives the skillet a very pleasing and unique appearance.

You can see from the handle detail that this is a very old skillet, made within the first few years of Revere Ware production.

The spline, rather than being a straight piece on those handles, was the same shape as the actual handle.  This was the style that had two screws close to the pot, and a third screw in the center of the end, where the hook went through.  It appears as if this customization used the two screws for near the pot end, to hold the handle, forgoing the hook.  Here is a blurb on adapting our newer style handles to that older style spline.

Everything about this handle, including the workmanship, tells me this is something that would not have been offered by Revere Ware, but was custom made by someone who probably could not get a replacement handle.

Before we started selling our parts, we saw a lot of funky attempts to continue using Revere Ware pots despite handle issues.

  • At least one other home made wooden handle
  • People attempting to epoxy broken handles together using high temperature epoxy
  • Holding the metal spline on a pot that has lost its handle with pliers or oven mitts
  • A complex polishing and restoration process that involved 5 different grits of sandpaper

Because of this, when we first opened our shop for replacement Revere Ware parts, we got a lot of appreciation emails from customers.  While we still get one now and again, dealing with customers on Amazon.com has turned into a very different experience.  People are quick to pull the trigger on negative feedback over any issue, no matter how small, without even contacting us first for assistance, and then rarely respond when we follow with an offer to help after seeing their feedback.

We sell somewhere in the neighborhood of 10,000 parts a year these days across about 6,500 customers.  In our mind, that is 6,500 people we’ve had the opportunity to help continue to use their cherished piece of cookware.  We also answer somewhere between 500 and 1000 questions each year for people, whether they are customers or not.  The nature of a business like ours is service more than product.  Service to help people find the right part, service to answer questions and sometimes solve a historical mystery, and service to solve problems when they arise.

Retailing used to be about service.  Consider this bit from an article today in the Wall Street Journal:

Long before internet shopping, when a personal touch and pride of proprietorship were essential to successful local merchandising, Robert Lazarus Sr. was the president of the largest department store in Columbus, Ohio, my hometown. His name was on the building: the F&R Lazarus Co., among the most prestigious stores in the Midwest.

A dignified, respected man, he lived in a grand and tastefully decorated house. He kept his home number listed in the phone book.

Here is something his son told me, years after Robert Lazarus had died, and the store had disappeared.

One evening when the son was growing up, the telephone in their home rang. The caller, with nervousness in his voice, asked for Robert Lazarus, who came to the phone.

The man, almost apologetically, said he and his wife had purchased a tea set at Lazarus. They had never owned one before, but saw it on display and decided it was something they would like to have in their home.

Robert Lazarus waited to hear what was coming next. Was there a flaw? Was a cup or saucer broken?

That wasn’t it. The man said he and his wife did not know the proper way to serve tea—how to make use of the tea set when company came over. They sensed there was an etiquette to it, but no one had ever told them what it was.

Some of Lazarus’s customers had very modest incomes; to them, that downtown store was almost a palace, a place of aspiration, even if they were only looking. The tea set had represented a step up, a significant expenditure for this man and his wife. And they weren’t quite sure how it was intended to be used.

So the husband called the man whose name was on the store—at home, at night—for advice.

Robert Lazarus, his son said, stayed on the phone with his customer and, with great care, walked him through the steps of having a tea party, of using an elegant tea set. He told the man stories about tea receptions he and his own wife had given; he answered every question.

Then, before hanging up, he thanked the man profusely for having shopped at Lazarus.

I asked the son—by then an elderly man himself—if his dad had seemed at all bothered to have received the call in the middle of an evening with his family.

“Bothered?” the son said. “He couldn’t have been more pleased. He talked about it with great fondness for the rest of the night.”

I imagine the man who had placed the call did, too: The man who, in a time before customer service meant algorithm-generated email responses and endless waits for offshore call centers to answer, had taken a deep breath and dialed the phone, not knowing if he was making a mistake by imposing.

And who had been greeted, by the president of the F&R Lazarus Co., like an old friend.

Sometimes, dealing with customers on Amazon.com almost makes me want to quite the business.  I got in this business because I wanted to help people in a way that I wanted help myself years ago when I was looking for replacement parts for my Revere Ware.  With less business going to our website, where we have very few returns, almost no complaints, and the occasional praise, and more business going to Amazon.com, where we constantly struggle against abrupt and inconsiderate negative feedback and rarely a kind word, it is more of a burden and less of a joy these days.

While I love the convenience of ordering online and the benefit of being able to find things that used to be impossible to find, I had the impersonality of it all.  Perhaps this is what can save the malls and local businesses against the onslaught of  online shopping, good customer service and a very personal experience.

I’m trying to do my little part to keep business more personal.  While you can’t call me at home, I do answer every question, no matter how stupid you might think it is, frequently even during evenings and on weekends, and I try to make every customer happy if I can.

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The economics of big boxes and small items

Years ago, the little rubber feet on my Dell computer fell off, and I got the company to send me a set of replacements.

When they arrived, I was struck by the inefficiency of what I was looking at, a small item in a box that was about 1,000 times too big for it.  How inefficient, I thought, and what a great example of our wasteful society.  It looked similar to this, but worse.

Perhaps 5 years later I took a crack at optimizing the supply chain for boxes for my day job.  We had about 1,500 part numbers and did a poor job at keeping some 120 different box part numbers in stock to ship them.

Part of our problem was that we had no stocking program for boxes, they basically rush ordered them when they went to get one and we were out.

The other part of the problem was that we had far too many boxes, some of which we rarely used.  This took up quite a bit of warehouse space, captured unnecessary working capital tied up in inventory, and made it harder for the shipping & receiving personnel to find the correct box.

I started by going through the drawings for all 1,500 parts and capturing the outside dimensions.  Then I captured the number of  each part number we sold per year in the last few years. With that as my input data set, combined with a current list of boxes we had had ordered any of in the last several years, I wrote a software program that progressively tried out different combinations of boxes to both minimize how many we needed and the space wasted, giving priority to the most frequently shipped parts (meaning, we should have boxes that fit them the best.

The result was that I was able to go from 120 box part numbers down to 45, a much more manageable number.

However, this necessitated the case that occasionally, we would ship a one-off item that we did not have a good fit box for.  Occasionally, we would ship an item in a box that was way too big for it.

While this might seem a waste, overall, we probably wasted much less cardboard because the majority of items we shipped were in boxes that were the correct size.

So, the answer to why sometimes you get an item in a box that is WAY too big is that. overall, it leads to better resource and cost efficiency if in some cases you are willing to be inefficient.

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