Small Online Retailer in E-Commerce Industry - Example

Business Plan for small online retailer 2007 Inroduction E-business refers to conducting business over the internet. Most retailers are now present online as part of their multi-channel sales process. On the other hand, this business plan is for setting up a small retail business that would sell only online. For a start-up small business venturing into a territory that is dominated by the giants of the retailing industry, we need to find a niche product. We have identified the business as buying overstocked items from big retailers and selling them online. To begin with, it is necessary to study the market and identify the type of products that sell through the internet the most. Then, we need to understand the supply chain and logistics of the retail business. Once we have market and supply chain analysis, we need to elaborate the execution and technology plan as well as the website design that would be able to attract the most number of customers. This would require a detailed pricing of the products and developing the marketing plan. Finally, we need a cost estimation for the business and the revenue forecasts. Business Overview Our business model is essentially hinged on offering branded products at low prices since we plan to purchase overstock items from big retailers and sell online through the e-commerce website. The items that would be sold online would include apparel, books, music CDs, DVDs, mobile phones, digital cameras, handycams, etc. Market analysis The demographics of online shoppers are changing over the recent years. The first generation of online shoppers was tech-savvy, affluent, typically male. Of late, more middle class men and women are taking to online shopping. Hence, while earlier specialized e-tailers like Amazon and eBay dominated 60 percent of the online global retail market in 2003, the share has come down to 52 percent and is expected to fall even further (Liss, 2006). More people in Australia now shop online for the same products that they would shop in brick and mortar formats. Online shopping has grown on the basis of more people going to the internet. People are also getting confident to transact online with websites introducing technology for payment security and personal information protection. Online advertising, including paid search on Google and Yahoo, has also spiraled, with revenues crossing $13 billion in 2006. It is projected that online advertising will touch $17 billion, overtaking traditional advertising formats. For 2007, online sales are expected to be 20 to 25 percent of total global retail sales (Plunket Research). Among consumer products, the items that have most online sales are consumer electronics, apparel, books, music, etc. According to Kanbay Research (2006), the most significant determinant for online sales is low price offerings. As much as 35 percent of the revenue opportunities are derived from low price. However, it is not essential that the retailer has to offer the lowest price in the segment. It is also essential that the price is consistent and fair as perceived in the market. Besides prices, convenience, promotions and variety are the other determinants for driving online sales. Supply chain model We develop a supply chain model on a modified Vendor-Managed Inventory (VMI) system in which the supplier, usually the manufacturer, decides on inventory replenishment of the multi-firm retailers. The supplier-managed inventory model was made popular by Wal Mart and Proctor & Gamble in the 1980s (Waller et al.). In this model, the vendor (or the supplier) monitors the buyers’ (retailers’) inventory through regular physical or electronic messaging system and based on this decides on the order shipments, quantities and timing. Hence, the traditional mode of the buyer initiating purchase orders is turned around with the seller initiating the process. Hence, the buyer gives up the financial responsibility of inventory management while setting some sort of stock target. In this model, the suppliers’ costs are reduced through reduction of volatility in the supply chain and demand uncertainties while buyers can provide a higher level of customer service with replenished inventory at the beginning of the month. In our business model, supply arrangements will be tied up with the big retailers and the frequency of replenishment may be daily, weekly or monthly, depending upon the type of the product. Since the supplier tracks the supply of overstocks at its physical outlets as well as the demand for the online sales of these products through the web site, resources for transportation of products from the retailers to the distribution centers of the suppliers as well as ours in the various cities can be optimally used. On our part, we will be able to monitor the supplies from alternate retailers through VMI than we could with any other model since the frequency and scheduling of supplies from multiple retailers are unlikely to match. VMI enables improved customer service since product availability is better with scheduling through this model. A non-critical delivery may be delayed over a critical delivery. In particular, during crucial shortage in certain distribution centers, inventory balancing may be done through this method. Stock balancing may also be achieved across distribution centers when there are return products from one center that may be diverted to another in the fastest possible time. Thus, the supply chain model that we propose involves tying up agreements of overstock purchases from big offline retailers and contracting a VMI with each of them in various cities. Accordingly, we will set up distribution centers in various cities. The suppliers, that is the big offline retailers, will monitor the replenishment schedule according to their stockout plans. This will reduce the uncertainty of product replenishment at the distribution centers and also result in optimal usage of transport and delivery facilities. However, we must remember that the big retailers themselves maintain distribution centers for overstock items and many of them also engage in e-commerce and auctions of such items. Hence, the supply chain results in both a competitive scenario as well as a complementary one. Technology plan To develop an effective VMI supply chain for online retailing of overstock items purchased from big retailers, various technology requirements need to be met. A successful implementation of the model depends on an efficient communication, product identification and tracking system. Software systems that take care of replenishment quality and timing, safety stock levels, transportation routing and inter-distribution center transshipments are required. There are many commercial software systems are available for these but wee need to choose the system judiciously in accordance to the systems available with the retailers that we tie up with. The locations of the distribution systems will also depend upon the retailers and the VMI networks available. For effective communication system, Electronic Data Interchange may be an enabler. Bar coding for product identification will be helpful for warehouse management while uniform communication standards will make supplier replenishment easier. Besides the technology required for the supply chain, it is essential to design the website effectively and introduce ways that can monitor sales leads and advertiser interest. Retail task management and store management software are essential for tracking online sales. These software allows tracking of individual online stores for products. The website itself should be secure from intrusion. This may be put in place through data encryption and passwords. Other security systems like firewall, secure socket layers, public key infrastructure, a certificate authority and authentication should be utilized to make the website secure as well as to gain customer confidence (austrade). Website design Layout and navigation options of the web site are the most crucial aspects of website design. For a successful e-commerce website, the product should be available with the minimum number of clicks. Every aspect of the online platform should be measurable, unlike the traditional platform. For example, we should be able to know how many customers visit the site and particular pages daily, how many items are loaded on to the shopping cart, how many sales are converted and the specifications of the products sold. This will enable us to introduce promotions effectively as well as place advertisements in accordance to demand of products. The easy-to-navigate website can draw a large number of customers than one that is jumbled even when it stocks a larger number of items. Website design in terms of color, layout, fonts, arrangement of products, signage and availability of items are crucial for the success of the online retail platform (Misra). Pricing and Taxation issues The website should clearly state the prices of the products along with the shipping charges. The pricing structure will need to be in sync with existing e-commerce sites for similar products. However, the price should capture all aspects of costs like credit card transaction charges, taxes, insurances, etc. Other issues of payment security, like authentication of payment security, date of delivery on completion of order placing should be clearly communicated. Besides, there needs to be contact details so that customers can communicate in case of problems. Generally taxation occurs at point of sales, But for online sales of items like books and software, the Australian rules are not clear. For all other items, value added taxes should be added to the price. Execution plan Step 1: The first step in setting up the e-business model is to buy a computer and get a reliable internet connection. The computer would need to be high speed and with a large memory. Besides, it would require to be loaded with the standard software like word processors, spreadsheets and pagemakers. Personal desktop computers (PC), with the following configuration may be considered: Intel Processor: Celeron Core Duo 2GHz Memory: 256MB of random access memory (RAM) Storage: 40GB Hard disk drive, CD/DVD writer and reader Screen: 15 inches flat Modem: 140Kbps Operating System: Windows XP Professional Internet software: Internet Explorer Step 2: The next step in executing the business plan is to undertake primary research of the competition and the market. For this, we will undertake focus group surveys, questionnaire surveys and secondary research of the discounter retail market. The aim of the research would be understand the size of the market, the customer needs in the localities that we would target, the number of competitors in the areas and the size of the penetrable market. Step 3: After acquiring the computer and completing the research, we need to design a website that would be attractive to the target customers in terms of layout, fonts and colors, be easy to navigate, provide all the necessary information and be secure. The website design may be contracted out to a professional designer while the running maintenance may be done in-house. Step 4: Choosing the domain name is important for an e-business. The domain name should support the intended branding of the company, be able to stand on its own and convey the meaning to the target audience. It is convenient to choose a domain name with au suffix for easy identification. We should take care that the name is not too long or confusing and also that there is no other domain with a similar sounding name. After the domain name is decided upon, we will need to register it. The cost of the registration will depend upon the type of domain, the registration period and the services included. Step 5: The next step in setting up the e-business trading of overstock items is to build up the supply chain. We will need to tie up with big retailers for purchase of overstock items. We propose a VMI supply chain model so that there is a smooth channel of stock flow from the suppliers to our distribution centers. Staff planning The requirement of employees is as follows: Warehouse managers: 4 Logistic executives: 2 Customer Service ex: 2 Website maintenance: 2 Cost planning The tentative initial set-up costs of starting the e-business would be as follows: Cost of 3 computers: $1500 X 3 = $4500 Cost of website design: $1500 Cost of VMI software integration with suppliers: $2000 Cost of setting up 4 distribution centers: $8000 Total start-up costs $16,000 Annual costs: Salaries of 10 employees = $2000 X 10 = $20,000 Registration of domain name and hosting cost = $200 Inventory holding costs: $3,000 Total annual costs $23,200 Stock purchases: $50,000 Miscellaneous Logistic costs $5,000 Grand total of initial finance requirement $ 94,200 Financial objectives We begin the e-business with an investment of about $100,000. The financial objective is to reach a break-even by the end of the third year and to achieve 20 percent profit annually thereafter. In the first year, we assume that we can sell the stock at a profit of 30 percent, so that the sales volume is $65,000. After covering the annual costs of about $25,000, about $40,000 can be ploughed back in more purchases. Hence for the second year, total stock purchases amount to $90,000. Earning a 30 percent profit, the sales volume by the end of the second year would be $117,000. Thus, by the end of the second year, there is a return of $17,000 over the initial investment. Works Cited IT Facts (2006). $11.7bn spent online in January-November. Retrieved from http://www.itfacts.biz/index.php?id=P7852 Liss, Jonathan (2006). Online Retail Marketplace Shifts Away From e-Tailers Like Amazon and eBay, November 16. Retrieved from http://www.feedsfarm.com/article/81515593fb208f989622827cee313000aa7c6d55.html Plunkett Research, E Commerce Industry Overview (n.d). Retrieved from http://www.plunkettresearch.com/Industries/ECommerceInternet/ECommerceInternetTrends/tabid/168/Default.aspx Kanbay (2006). Four Critical Elements of Retail Supply Chain Success. Retrieved from www.highjumpsoftware.com/promos/download.asp?item=29 Misra, Manav (2006). Lessons Learned from Online Retailing. April 5. April 5. Retrieved from www.redprairie.com/upload/documents/PublishedArticles/CSA-LessonsLearned.pdf Pleshette, Lyve Alexis (2006). Selling Beyond eBay: New Ways to Make Big Money in Online Sales. Retrieved from http://www.powerhomebiz.com/092006/ebay.htm Australian Government, Department of Communications, Information Technology and Arts (2004). E-Business Guide, June. Retrieved from http://www.e-businessguide.gov.au/__data/assets/pdf_file/1003/e-businessguide_getting_started_booklet.pdf Small Business Mentoring Services Inc (SBMS). Business Plan Guide. Retrieved from http://www.sbcs.org.au/SBCS%20-%20BUSINESS%20PLAN%20GUIDE.pdf Australian Government (Austrade). Adopting a Common Sense Approach to Security. Retrieved from http://www.austrade.gov.au/Security1509/default.aspx Read More