Zappos.com Case
MIS 3537
Internet Enabled Supply Chains
Spring 2017
Due Date: February 6, 2017
Refer to the case “Zappos.com: Developing a Supply Chain to Deliver WOW!”. Answer the following questions briefly.
1. Is Zappos mainly a pull or a push supply chain? With an illustration of Zappos’ current supply chain, show the push-pull boundary of Zappos? Also show the push-pull boundary of Zappos’ Drop Ship model.
2. Show the evolution of Zappos’ supply chain in a diagram. What changes did Zappos make in its supply chain? Do you think that these changes are justified?
3. What are Zappos’ core competencies and sources of competitive advantage? How sustainable are they?
4. How would you expand the business? Would you add more products, more geographies, or by selling private labels?
5. How would you expect the environment of a more cost conscious customers to affect Zappos’ business? What can Zappos’ do to maintain sales in such an environment?
All groups (expect the group making the presentation) are required to submit a printout of their answers to the instructor at the beginning of the class. Also, be prepared to discuss the case in the class.
1) Is Zappos mainly a pull or a push supply chain? With an illustration of Zappos’ current supply chain, show the push-pull boundary of Zappos? Also show the push-pull boundary of Zappos’ Drop Ship model.
Zappos’ supply chain originally consisted of pull strategies, but as the company expanded it shifted towards push strategies. When the company was founded, Zappos’ did not own warehouses; they contracted through shoe vendors, who warehoused the merchandise and shipped directly to customers once a purchase order had been made. Zappos owned no inventory; they simply bridged the supply and demand within the footwear market. This strategy allowed Zappos’ to save on operating costs, during their early days.
While this ‘Drop-Ship’ strategy came with benefits, it also had many flaws. For example, website inventory accuracy was only at 95%. Additionally, this model did not provide any information as to when customer orders were shipped. In order to combat these shortcomings, Zappos’ invested in building a distribution center in Kentucky.
Over the next few years the company increased capacity and eventually dropped their ‘Drop-Ship’ model completely. These warehouses would lead the company to adopt a complete push strategy. They were now warehousing large quantities of vendor merchandise. Bringing all operations in house allowed the company to reach warehouse accuracy levels of 100%. However, storing large amounts of merchandise places more liability on Zappos’ rather than competition.
Current:
Drop-Ship:
2. Show the evolution of Zappos’ supply chain in a diagram. What changes did Zappos make in its supply chain? Do you think that these changes are justified?
Zappos changed is supply chain methods drastically since they first started. Zappos began using the drop-ship method, which used Zappos as the online store while the brick and mortar retailer would process would ship the shoes themselves. This method was flawed due to the fact that zappos wouldn’t know if there were any problems with shipping unless the customer contacted them.
Zappos expanded to warehousing their own products. They purchased a storefront and warehouse which enabled them to purchase shoes directly from suppliers and be stored in their own warehouse. This allowed Zappos to be in control of shipping which rose customer satisfaction. With business expanding UPS offered to operate the warehousing since they already handling the shipping and had the facilities to accommodate the increase in orders.
After a short time zappos realized that UPS also couldn’t handle the amount of different products Zappos had so they in turn dropped UPS and created their own fulfillment center in Kentucky. With this fulfilment center they in turn ended the Drop-Ship method since they found customers who used the warehouse method were more satisfied compared to the Drop-Ship method.
Since Zappos was offering more and more brands and already had a distribution network they created “Power by Zappos” which was a way to buy shoes through the retailer’s website directly and then Zappos would process and ship orders. This allowed more and more customers to use Zappos.
These changes were justified because they needed to do everything in their power to maximize customer satisfaction since they were a new company in a whole new market of online show buying.
3. What are Zappos’ core competencies and sources of competitive advantage? How sustainable are they?
It was in the late 90’s that the Internet was just becoming popular, and even more so, e-markets were just beginning to form. Nick Swinmurn was an average shoe customer looking for a better way to choose the right size, color, and style of any shoe that he wanted. This issue is what led to the creation of Zappos.com as well as what gave them a competitive advantage over the traditional brick and mortar shoe store. Being able to shop from the comfort of your home while also having endless selection of brands and styles of shoes as opposed to having to drive to a store for a possibly limited selection was Zappos initial competency in the shoe market.
Zappos was not only able to build up their customer base, but they had proven that they could keep customers coming back. In 2008, they noticed that their return customer rate spiked up to 75% compared to being 40% in 2004. This spike was attributed to their core values and the shopping experience that it created. They did this by offering things like quick and free delivery. Something else they offered was the ability to receive the shoe, try it on, and return it if the fit wasn’t right. Prioritizing the customer and their experience is what led to long-term success.
The company was also proving to be sustainable through new innovations such as ‘Powered by Zappos’. Through this program, Zappos was able to run distribution systems for other companies. They ran call centers and provided distribution centers. ‘Powered by Zappos’ gave Zappos direct access to other companies’ supply chain, which facilitated further business for them.
4. How would you expand the business? Would you add more products, more geographies, or by selling private labels?
Zappos responds to their customers’ needs to learn about what would be lucrative for them to do. Expanding the business should be done by increasing the categories and variety of products made available by the store. People that purchase hiking boots are not just interested in hiking. People that purchase those kinds of shoes are interested in the general outdoors, and that goes for all of the types of shoes that Zappos sells. Every shoe has a purpose and with each purpose there is a market. Zappos thrives off of their loyal customers. A Zappos customer will buy a product from them if it is available. Id Zappos bought products in the markets that their shoes pertain to then their customers would buy it from them. Learning what their customers want and obtaining inventory of that product is how Zappos should expand their business.
This is an exceptional solution for Zappos because they are not restricted like brick-and-mortar stores are. These stores need to clear shelf space for the new season so they would have to discount their products at their respective seasons end. Zappos is not restricted by the need for shelf space so they can discount or raise the price of a product to the demand of the market. The ability to do this allows Zappos to create more value out of a product than any brick-and-mortar company at any time.
5. How would you expect the environment of a more cost conscious customers to affect Zappos’ business? What can Zappos’ do to maintain sales in such an environment?
Cost conscious customers would not affect Zappos’ business too negatively. The reason for this is that Zappos strives to “wow” their customer with the above and beyond services that they supply. Service is an investment rather than an expense to Zappos. With this mindset, Zappos supplies customers with the best possible experience that they could have with a company and increases the chance that the customer will become a repeat customer. If a customer were to have a problem with the price they could post negative feedback to the site regarding the price of the shoe. Customer reviews would allow Zappos to know if their customer base was becoming unhappy with their store.
Zappos customers viewed service and very important and extremely loyal, so their business was not affected much. Zappos did not want to be successful based on discounting because using that model would pose an issue to new models of shoes. The buyer would be more inclined to buy the old model of the shoe because it would be discounted and the new model would not be. To sell excess inventory without damaging their business, they purchased the online shoe company 6pm to do it for them. 6pm customers were typically looking for the best price and deals. With service not being of top priority to this customer base, it allowed Zappos to sell their inventory through 6pm and cut the cost of selling the discounted shoe. Using the 6pm online store Zappos could maintain sales by catering to cost conscious customers all while not affecting their business model on the Zappos website.