Developing Supply Chain to Deliver WOW Essay

Zappos.com is a privately held online retailer with an extensive yield category principally including app arl, footwear, hitbags, and watches. Headquartered in Nevada, it primarily operates in the US with about 1,300 employees and r flatues mounting to $635M in 2008. Thanks to its strength in offering an corking node shopping subsist and strong corporate assimilations and values related to guest service, it was the amplest online shoe retailer in 2008, with a positive growth outlook. However, in the face of possible economical d take inturn, its underlying insufficiencies in yield chain management and operations may pose a bane to the alliances grand term profitability.Nevertheless, the fortune of possible international expansion may advantageously be exploited to improve sales and expand the business, but much(prenominal) decision still ineluctably unfavourable evaluation and feasibility assessment in whether Zappos can sustain its focus on outstanding customer se rvice levels in much(prenominal) scenario. The online-retail industry in which Zappos operates is single in which the rivalry among quick competitors is high, as it is competing with both click-n-brick stores like Amazon, as well as traditional retail stores such as Footwear Inc which also have a strong focus on the shoe segment. However, the little terror of parvenu entrants is very subaltern as a result of the high initial capitalization involve for the fount of business. there atomic number 18 a liberal number of buyers in the market. However, high price sensitivity and low switching exist strengthen the buyers position continuing to disembowel such customers becomes peerless of the main challenges for Zappos during a likely scenario of economic downturn. Zappos will need to adopt strategies such as trade directly from foreign suppliers, committing to 5 mean solar day depicty through ground shipping as impertinent to next-day air shipping, offering its own priva te label, and expanding its supply by Zappos initiative.Company Value Chain enigma AnalysisExternal AnalysisPorters 5 ForcesThe following is an evaluation of the external forces acting upon Zappos operations and their possible impact in the immediate and future performance of the social club Degree of argument high school While Zappos is a pioneer player in the online retail segment, in practice it is not nevertheless competing with other online retailers, but with brick-and-mortar stores in the traditional retail sector which have substantial experience in the market. Many other players offer similar products to those carried by Zappos. Bargaining Power of Buyers MODERATE to HIGH Given the umteen alternatives in the market, the switching cost for a customer to other retailers is very low. Consumers are becoming increasingly price-conscious, and with the small authorisation for excessisation in the non-fashion elite segment, the customer can comfortably find other simil ar product options, forcing retailers to offer lower pricing to remain competitive.Threat of raw(a) Entrants MODERATE TO LOW The barriers to entry in the industry are extremely high, based on the large capital investment required. However the online retail business is still on its growth stages, which may attract recent players and investors looking to capture potential markets. Bargaining Power of Suppliers LOW Competition for both middleman / importer suppliers and direct manufacturers is intense and well established therefore, the market itself drives the power of the many suppliers down. As discussed, there are many alternatives in the market such that no single supplier is dominant. Threat of Substitutes LOW There are no substitute products in stock(predicate) for most of the products which Zappos may offer to the public, so such threat is unlikely.SWOT AnalysisStrengths Customer-Oriented Culture and Services Zappos has strong union culture and values, which have a larg e influence on all aspects of the business, including the supply chain. Zappos is always looking for new ways to WOW either customer and always treat every employee like family. The employees consider Zappos a fun place to work. In addition, Zappos commitment to customer service contentment is clearly demonstrated by their value propositions and represents their core differentiation outline. These are free shipping, guaranteed 5 day facey (WOWing the customer, where 49% of customers will receive their product at bottom 2 days), a 365 day return policy and 24/7 customer service. Unique Products and origination The core products that Zappos offers are foundinged to be distinctly different from the traditional shoes available in brick-and mortar stores. Zappos provides customizable product models and extensive product information to customers. For example, Zappos site has a detailed discussion of tread that helps customers to determine which type of shoe is appropriate for them .Weaknesses Presence Limited to Online Market Although there are many online shoppers today and the number is still growing, Zappos is unable to reach the majority of retail shoppers by only when having the online electric outlet channel. Relatively Low Profit Margin The revenue of Zappos in 2008 is $635 million, but the family policy on product returns makes up 35% of gross sales. This is definitely crippling Zappos profits. High Dependency on UPS Until 2008, Zappos has only one call heart and soul in Las Vegas and one dispersion center in Shepherdsville, Kentucky. The distribution center is less than 30 minutes from the UPS hub in Louisville. This will make Zappos delivery highly dependent on UPS.Opportunities Rapid Growth of Online Shopping Online purchasing has grown consistently year after year the opportunity lies in capturing new online customers and retaining them. Technology Innovation In 2008, Zappos added more automation to its warehouse operations by installin g a robotic system in which robots picked up shelves that contained the items to be picked, and brought the shelves to the workers. These new robots give up Zappos to ship a pair of shoes in as little as eight minutes. Technology advances will allow Zappos to increase the capacity and efficiency of its distribution centers, without having to piss new centers. Build Strategic Alliances with Complementary Retailers Zappos could build synergies with similar-size online retailers which offer complementary products in an effort to broaden its customer base and target audience.Threats Economic downswing Customers will become more price-conscious in difficult economic generation, which will ultimately drive Zappos strategy in rules of inn to remain competitive in such scenario. Competitive Rivalry While Zappos is one of the pioneer players specialized in shoe-retailing, the trend is for established brick-and-mortar companies to start offering their products online, which may genera te spare competitive pressures. Possible Security Breach for Online Retailer Zappos moldiness address possible security breaches to its servers. puzzle StatementBased upon the previous analysis, Zappos faces two major problems which may be detrimental to the caller-outs long-term success. Our aim here is to synthesize them in allege to formulate a series of recommendations that the party could implement to solve the mentioned problems.Problem 1 Supply Chain prudenceThe first problem that the company faces at bottom its organization is related to supply chain management. We have identified three different sub-issues within this topic in which Zappos has room for improvement Imports from wholesalers as an intermediary between Zappos and the manufacturers Due to the highly enigmatical demand in the sector, having a wholesaler between Zappos and the brand names that manufactures the product is a strategic problem for the company. When Zappos places an order, it is relying on the gunstock that the wholesaler keeps in order to fulfill its need of supply. Furthermore, Zappos may find it difficult to rock-steady its supply as the company grows, having no control over wholesaler import decisions. This is especially critical in a sector with unstable demand faced with global economic uncertainty.Zappos must design supply chain-related strategies which provide the company with more flexibility in terms of profit margins in order to deal with more price-conscious customers in the future. Delivery to Zappos distribution centers from suppliers The company faces a problem in relation to inefficiency of partially firm trucks arriving to unload to Zappos pedigree facilities. As the case highlights, significant numbers of partially loaded trucks (LTL) arrive to unload products generating unnecessary traffic in the distribution center, subsequently slowing down the drop process. Theres a need for Zappos to address this issue, ultimately affecting its whole ope rations efficiency.Inventory Management At this point, the company uses manual scanners to register incoming and outgoing stock from its distribution center. This may lead to inventory inaccuracies due to the high probability of human error to occur in the handling of the incoming and outgoing merchandise. It is of the utmost importance for Zappos to have accurate inventory information, not only in terms of its supply chain management, but also in maintaining customer service levels because of the potential of having inaccurate information on the website such that a customer may order a product which is actually out of stock.Problem 2 Growing the businessThroughout the case it is been said that the company plans to expand. It is possible to grow the business in a national scale as well as internationally. The following issues need to be addressed by Zappos when evaluating company expansion determining strategic locations for new facilities to store its inventory and achieve a good balance between supplier lead times and delivery times to the final customer. In addition, the company faces the decision of whether to continue having its distribution centralized in Kentucky. Moreover, Zappos needs to evaluate whether or not it is still feasible to use UPS ground shipping in the long-term. The company would also face a problem not only when trying to maintain its customer service levels and an efficient delivery, but also when trying to get new employees to share its corporate culture.Recommendations boodle Importing Directly from Foreign Manufacturers Zappos should begin developing direct familys with foreign manufacturers, especially with Chinese suppliers, jump by importing some products directly, instead of buying from North American wholesalers. This strategy has the following benefits * hail savings from purchasing the same products at lower prices, providing the company with more pricing flexibility at dealing with cost-conscious consumers in a difficult economy. * Distribution channel efficiency is increased by eliminating middlemen in the supply chain. In this sense, there is no need for products to be shipped from foreign suppliers to a wholesale distributor and from there to Zappos Zappos can receive the product directly at their distribution center, reducing freight cost across the value chain as well as lead times. * A closer relationship with manufacturers might enable Zappos to obtain information regarding inventory levels, product availability, and order status and timing. It is worth noting that even in cases where Zappos is still purchasing from a wholesaler (who in-turn imports from the manufacturer), the wholesaler can request the manufacturer to deliver directly to the Zappos distribution center, earning the lead time and cost benefits.Opt for Ground Shipping as impertinent to Next Day Air Shipping Given the risk of failing to meet the next day delivery standards because of external movers, Zappos should only guara ntee 5-day delivery. In this manner, the company will consistently overdeliver, with 99% of customers receiving their orders within 4 days. This strategy not only makes sense from a cost perspective, but it also goes hand-in-hand with Zappos culture of outstanding customer service. However, the option of next day air delivery should be made available to the customer for a premium rate. Sign a Contract with a Selected Trucking Company specialized in Consolidation In order to minimize LTL shipments to its distribution centers and mitigate the economic inefficiencies that LTL implies, Zappos should sign a skip with a major transportation and logistics company specialized in consolidation in order to handle Zappos order pick-ups from some of its remaining local suppliers, optimizing cargo capacity and delivering such products to the distribution center.This contract strategy would only be possible to implement in areas with high supplier concentration such as Southern California and O ntario. It is granted that such a strategy would require a long and difficult negotiation process between suppliers, the logistics company and Zappos however, economies of scale benefits could be obtained from the large volumes to be handled and the cost savings distributed across the industry value chain. Search for Additional Partners and Expand Powered by Zappos Powered by Zappos partners act as distributors of the products carried by Zappos. In this sense, finding new partners will generate surplus revenues from both the fees of developing and running distributor websites and operations and from an expanded market base deriving from quadruplex websites offering Zappos products. Offer its own Zappos Private Label Zappos could expand the business by offering its own private label private labels offer the advantage of not purchasing from a third-party wholesaler which in itself is making a profit from the merchandise, allowing for more flexibility in terms of pricing and profit m argins.Overall, by commercializing its own brand, Zappos can offer its private label merchandise at lower prices than the industry standards, plot of ground maintaining its profit margin. This strategy would be effective at dealing with price elastic customers in uncertain economic times. It must be noted that to achieve this, however, the company would need to develop internal design capabilities and source its private label through selected manufactures which meet their needs. In order to achieve the lowest supplier prices, supplier relationships would need to be developed through established contracts which may include exclusivity agreements. Based on the large volumes that Zappos handles through its established customer base, the strategy could also earn benefits from economies of scale and increased brand awareness.Do not Expand Internationally in the Short-Term The huge capital investment required and the risk of affecting customer service levels makes international expansion undesirable in the short run. The companys financial base must be strengthened further before pursuing such expansion, maintaining the focus on customer service that the company has been known for. Customer service is core to company values and culture and therefore cannot be compromised by any strategic decision. International expansion must be accompanied by the same training standards, staffing levels and passion for customer service at company call centers and order delivery must meet Zappos promise. This last factor could pose a special challenge, given that Zappos would be relying on couriers operating in different countries which may introduce a factor of uncertainty beyond Zappos control as to what levels of delivery performance can be met.Invest in an Automatic Scanning System for Inventory Control In an environment where such accurate inventory information is required, the current manual scanning of goods entering and leaving the distribution center is inadequate. Errors in inventory control will inevitably have a negative effect on customer satisfaction in that the system may allow a customer to purchase a product that is in fact out of stock. A system which automatically scans incoming and exiting products (magnetic doorways or similar) guarantees inventory accuracy and goes hand-in hand with the core values of the company, making it a worthwhile and even necessary investment.Limitations* The capacity of the existing distribution center in Kentucky is unknown therefore we are assuming that the current infrastructure will be enough to sustain the operations of the company to meet an increasing demand and market share in the short-term.* Suppliers which have their own fleet might be reluctant to agree to let Zappos do order pick-ups and deliver their products however, our recommendation assumes that the suppliers are flexible in this sense.* A break-up of the companys operational be would be required in order to make better-informed strategy recomm endations. The performed analysis is based on purely qualitative information. 1 . MGSC 602 Strategic Management of Operations Coursepack, Zappos.com growing a supply chain to deliver WOW, Stanford Graduate inform of Business, Case GS-65, 02/13/09, page 276 2 . MGSC 602 Strategic Management of Operations Coursepack, Zappos.com Developing a supply chain to deliver WOW, Stanford Graduate School of Business, Case GS-65, 02/13/09, page 296 3 . MGSC 602 Strategic Management of Operations Coursepack, Zappos.com Developing a supply chain to deliver WOW, Stanford Graduate School of Business, Case GS-65, 02/13/09, page 273 4 . MGSC 602 Strategic Management of Operations Coursepack, Zappos.com Developing a supply chain to deliver WOW, Stanford Graduate School of Business, Case GS-65, 02/13/09, page 280 5 . MGSC 602 Strategic Management of Operations Coursepack, Zappos.com Developing a supply chain to deliver WOW, Stanford Graduate School of Business, Case GS-65, 02/13/09, page 276