Business Development of a New Online Retail Business Initiative - Example

Business Development of a New Online Retail Business Initiative School Name Course Name Name of Students January 2012 Executive Summary This report is about the relevant logistics activities of a business development of a new online retail business initiative. Australian online retailing is a multi-billion industry. However, there are obstacles regarding entering this business endeavour. These include huge logistics issues. Another problem is the lack of skilled staff. Hence, business logistics management is very relevant to competitive strategy of online retail business. Specifically, revenue generation can be boosted through the implementation of relevant and efficient management of business logistics. In order to achieve this, it is necessary to adopt new strategies. These include the implementation of mobile sites. The use of social media, including the ability for customers to review and share products on networks are of essence and will be of great boost. Australia online retailing businesses are suffering from the high price of postage and content management. This is leading to lower inventories as compared with in store retailing businesses. Several logistics aspects should be given ample focus. These are transportation, inventory, purchasing, warehousing, order processing, materials handling, production, packaging and customer service standards. Logistics and delivery issues would hurt profitability. There are plenty of issues around logistics. Many courier companies have limits. With that sort of things, it becomes an issue for smaller companies. This is because they cannot deal with those sorts of limits. And while online retail is growing, traditional channels are still enjoying greater access to products, which is providing the offline retail world with more power. Multichannel retailers operating offline found out that they made most of their sales through offline stores. The reason for this is that online stores are unable to manage the cost of ranging and content management even though online retail should hypothetically handle these issues better. This is the result of sheer distance issue Australian companies face. High cost also accounted for the dissatisfaction with Australia Post. Among these are on the local courier companies, customers collecting their purchases themselves and discomfort with direct downloads and global courier companies. Table of Contents EXECUTIVE SUMMARY ………………………………………………………... i INTRODUCTION ………………………………………………….……………. 1 DIFFERENCES BETWEEN ONLINE RETAILING AND IN STORE RETAILING IN REGARDS TO THE OPTIMAL DESIGN OF THE NEW COMPANY'S AUSTRALIAN LOGISTICS ACTIVITIES Order Management and Customer Service ………………….…………. 2 Australian Distribution Center Design and Operations ……………………. 3 Physical Distribution within Australia ………….…………….……………. 5 RELEVANT CONTEMPORARY LOGISTICS MANAGEMENT STRATEGY, PRINCIPLES, CONCEPTS, METHODS AND THEORIES …….……. 6 LOGISTICS MANAGEMENT ARGUMENTS ………………………………….…. 7 CONCLUSIONS ………………….……………………………………………. 8 BIBLIOGRAPHY ……………………………………………………………….. 11 LIST OF FIGURES Figure 1 Order Management …………………………………….. 3 Figure 2. Indicative map of a national land freight network …………. 4 Business Development of a New Online Retail Business Initiative Introduction This paper discusses about a logistics management situation. In this case, we are assisting in the business development of a new online retail business initiative. As an offshoot of the assistance that we are providing, we are developing this short report about relevant logistics activities. The business background and the high level operations of the business are described below: An online retailing company was created by members of a newly formed consortium of domestic and overseas investors. Online retailing is the marketing, promotion and advertising of retail goods via Internet (Commonwealth 2011). It involves business-to-consumer (B2C) transactions. Market for online retailing in Australia is emerging at a fast pace. It is said to be on track to become a more than thirty-six billion dollars ($36.8 billion, to be exact) industry by 2013 (Stafford, 2010). This increasing market is on car accessories and tools, leisure products for boating, camping and fishing and electrical household appliances. Car accessories and tools are competing with Super cheap Auto retail stores. Boating, camping and fishing leisure products are competing with BCF Boating- Camping-Fishing retail stores. On the other hand, electrical household appliances are competing with Harvey Norman retail stores. Study shows, that comparing with in-store retailing, customers in Australia are drawn to purchasing online because of its convenience, lower prices and broader choices of goods and services to choose from (Commonwealth 2011). There is a decrease of around ten per cent (10%) of the GDP or gross domestic product of the country’s manufacturing. This led to augmentation in imported consumer goods from other countries. China is one of the favorite countries to import manufactured goods from (Commonwealth 2007). This is because China has low cost manufacturing capability. It has also reduced international trade barriers. They did it by joining the WTO or World Trade Organization. Hence, several big retail businesses have put up region-based sourcing in China. This new online retail enterprise is contemplating on pursuing availing low-cost manufactured goods in China. The consortium decided that the distribution center(s) should be located locally. This is since there is insufficient logistics networks and high transportation cost for distribution from China to Australia. The outline of operations of this online retail business is that products for resale are to be purchased domestically. They will likewise do it via overseas sourcing office based in China. They want to have suppliers deliver the goods to collection centers in China. This will be at Shanghai and Hong Kong, Then the goods will be in bulk. They will be put in containers to Australian distribution center(s). This online retail business will initiate with only one Sydney-based distribution center. The products will then be distributed to customers in Australia from there. Differences Between Online Retailing and in Store Retailing In Regards to the Optimal Design of the New Company's Australian Logistics Activities With reference to the literature, this part of the report explains the differences between online retailing and in-store retailing in regards to the optimal design of the new company's Australian logistics activities. Among these activities are order management and customer service, Australian distribution centre design and operations and physical distribution within Australia. Order Management and Customer Service In online retailing, order management and customer service are with the aid of tools (Figure 1). So, instead of having to focus all of the attention on the orders and customer service, the online retailers can give more focus on reaching out to potential customers. With these tools, the online retailers just have to log on to their account, process orders, print shipping labels and track the inventory in real time. This saves time. The tool automatically scans inventory. Hence, re-order time can be scheduled. It can also pinpoint the best-sellers. Thus, inventory management and business processes management is easier. The account can be accessed anywhere thru the web. Figure 1. Order Management. On the other hand, in store, retailers use up several hours contacting suppliers and resellers. This is due to these differences in execution between in-store retailing and online retailing. In the next eighteen (18) months, this new enterprise will set up a new distribution center. The decision if it should outsource its domestic and international logistics activities will be determined. Australian Distribution Center Design and Operations The Australian Distribution Center Design and Operations are creating, maintaining and administering budgets and schedules. They are also assisting with obtaining proper permits. They are likewise overseeing installation, developing product slotting configurations for maximum material handling and storage efficiency and conducting equipment acceptance testing and providing start-up support when operations go live. Australian distribution centre design and operations have some differences. When goods are shipped to Australia in bulk, this bulk shipment has to be broken into smaller shipments at the distribution centre. In the retail store, large volumes are sent infrequently to the retailer. This is different in the case of online retailing. In the online store, individual orders have to be sent fast and directly to the customer. This has packaging implications. The courier or transport service needed is different too. Below, are two very different resources available. The land freight strategy contains interesting data about transportation routes and population density. The Australian Air Express is an example of a third party logistics provider. Figure 2. Indicative map of a national land freight network Source: Bureau of Infrastructure, Transport and Regional Economics and the Office of the Infrastructure Coordinator, July 2010. Freight can be by planes, ships, trains and trucks, trains involving the transport of merchandise. It is derived demand. Permitted locations for industry and residences have an effect on the routes used by transportation facilities and freight activities (Figure 1). Inefficiencies, when they occur, are passed on through supply chain. This may lead to national competitiveness loss. A further implication of being a derived demand is that any scenario analysis needs to consider factors that may affect the type and location of freight, as well as the transport and infrastructure it uses. For example, changes in climate may affect not only the condition of infrastructure used for freight, but the location of freight generators and the choice of mode. Physical Distribution within Australia The current fundamental changes happening in the retail industry impact physical distribution management. The use of specialised contractors, are among the range of physical distribution options open to large retailers. There are internal and external pressures currently acting on distribution operations. New information and materials handling technology have impacts. There are recent initiatives undertaken Australian retailer companies. These provide some likely future directions. Changes in retailing comprise a revolution. Location and efficiency in distribution will be increasingly produced through the movement of information rather than the movement of products. In the same way that retailer revolution has more years to run, so the physical distribution effects and implications will continue to reverberate for a number of years, challenging distribution practices and businesses. The challenge will be met by forward-looking, customer-service oriented companies who are, willing to invest in appropriate technology, personnel and logistics management. These companies will emerge over the coming years to dominate the distribution business, providing the service for the 1990s and beyond. A final caveat, however, is necessary. Companies must not assume that the distribution challenges can be met easily. In the same way that the retail revolution has caused major casualties, recent evidence suggests that some companies are treating too lightly the complexity of modern physical distribution systems. The new distribution is not easy. It requires considerable time, effort and skill to get it right (Jhoudhury, 1994). Relevant Contemporary Logistics Management Strategy, Principles, Concepts, Methods and Theories Logistics can indeed be a true core competence, strategically positioning the organization for market success and a source of long-run competitive advantage (Gunn, 1993). Integrated logistics management and changing customer needs lead naturally to effective business process redesign, elimination of traditional barriers and a total supply chain viewpoint. However, new approaches to logistics management are best built on a strong and flexible foundation. No redesign should be launched without proper prior attention to both the organizational and technical contexts. Logistics management is too frequently considered only as an afterthought to top level strategy formation. Many criticisms have been made of traditional planning and its inability to ensure that important functions such as logistics acquire a strategic focus. For instance, Hamel and Prahalad (1994) report that senior management spend less than three (3) per cent of their time concentrating on building a corporate perspective of the future. Without such creative organizational foresight, flexible and successful enterprise-wide logistical management may be serendipitous, or merely wishful thinking. Building business foresight is about exploring and learning. New and imaginative directions should be explored well. Maximising creativity with the help of logistical suppors will prove to be a good strategy. Supply chain visioning technique (Copacino, 1994) may not be sufficient to help managers address the complexities in which majority of the enterprises operate. According to Senge (1990), imbibing the characteristics of learning organisations helps business managers develop systems thinking, information sharing, teamwork and leveraging of the knowledge base. A more strategic orientation leading to integration and change would facilitate good business environment as shown by firms such as IKEA. Logistics Management Arguments There is great homogeneity in the way Australia market itself using arguments in the logistics. Differentiation level concerning logistical arguments is very low. Feature and cost innovation are both present in the market. In order to take full advantage of a broader spectrum of the market, there is a need change from being a customer-supplier model to a partnership-based approach. Customer-supplier model of price-based sourcing is an approach with strictly dictated specifications and standards. Partnership-based approach, on the one side, is that which the supplier plays important roles overall project. The supplier would actively participate in specifications design. This is achieved by conducting structured exchange of ideas. Patience is a must. The consortium of investors have to acquire more understanding of the manufacturing practices of the country where manufacturing is done and that of the country where marketing will be done. Standards on the country have to be followed. Approaching the same audience with similar arguments has little chance of attracting investments, as no unique capabilities or features are emphasized in the marketing mix of arguments. The lack of differentiation deters decision-makers, as they have difficulty evaluating location alternatives. This absence of strategic marketing planning constitutes a window of opportunity that, when opened, creates a possibility for the local to have the global ear. Conclusions Bigger firms face a large channel with recruitment. The reason for this is that these huge establishments prefer to secure the assistance of experts in the online business industry who have the proven their ability to manage large projects. Among those that they need to look into are the complex relationships, complicated projects and huge budgets. Smaller firms, however face difficult problems in terms of logistics. These include dealing with difficult tasks. Such assignments includes receiving the goods, warehousing and dispatching. In addition to that, they are also less able to find huge investments in software and the like. These facilities could assist in all the streamlining processes desired by the company. Difficulties faced by online business endeavours are affecting the customers. Therefore, there is a need to provide them with easy solutions and to find a more convenient way of transacting businesses. Access to goods and services are not readily available in Australia. This would be an essential driver for these customers in deciding to buy online or overseas. Australians do not resort to buying offshore due to price or shipping costs, but rather the lack of range available domestically. Australian consumers who are shopping domestically are those people who are shopping for convenience. And that is getting what you want, when you want it. And that comes back to range. This is an inventory problem encountered by Australian companies. Australian companies have much lower inventories, across a number of different verticals. Therefore, Australia has to start developing better cost management. Logistics is an issue for most retailers. It is therefore recommended that new players should disrupt logistics. This can be done by working with couriers and even offering partnerships with other online retailers. Like for instance, larger retailers that own their own fleets could deliver goods on behalf of other companies. A customer on the other hand, might wait for her next grocery delivery in order to return clothing that does not fit and that is free of charge. Shopping centre owners could provide online order pickup bays for their tenants. The goal would be to make it simple and affordable for Australian retailers to provide unprecedented levels of service to their customers, including delivery. Australian online retailers are attempting to fix their problems. Domestic online retailers need to promote their successes as much as possible in order to gain recognition. If domestic online retail will continue to prosper, it needs a continuous supply of talented individuals who have confidence in the sector's ability to perform in Australia. Introduce of new technology would help. The social aspects of websites would entice more online shoppers. One key trend in the growth of online retail is the growth mobiles. These are utilised for accessing the internet. They are also nowadays used in transacting and buying products. The use of social media is another trend too. Through this, people can easily discuss, share and promote to others the products or brands referred by friends and family. Integration of digital into traditional retailing is an exciting trend too. Through this, things like interactive store experiences, bringing technology into the traditional retailing environment would play a big role. Not only Australian online businesses need to start introducing ways to bring more customers online. There must also be methods to make it easier for customers to share shopping experiences with their family, colleague or others. The main advice that can be given to people is the need to address customers in these three areas. First main area is about confidence, which entails the need to give consumers the confidence to buy online when they cannot touch the product or cannot see it. There is a necessity to use things like high quality images or pictures, to make sure the retail experience is a high value experience. Use the digital medium in order to communicate the value of your product, and that goes back to the mobile strategy. The second aspect is communication. Online retailers need to start filling their sites with ways to communicate with friends and family through social networks. There is an urgency to be offering the possibility to rate and review products, and you need to allow other people to share your products on social networks. The shopping experience is now social, and you need to embed tools like the Facebook. Through that products can now be better promoted, discussed and talk about them with their friends. They have huge networks available to them. Convenience is a result of the development of mobiles and smartphones. Through this, people can buy products anytime and anywhere. This is especially important given the dollar is now at parity and people are looking at buying overseas. You need to make the shopping experience convenient for a number of different channels, especially smartphones, if online retail is going to grow. Establishing the level of the logistics activities will assure that the product and services / are within reach of the customers at the place and time required. These products / services have to be in the condition and form desired. They have been proven to be profitable and shown to use cost-effective way. Bibliography Bureau of Infrastructure, Transport and Regional Economics and the Office of the Infrastructure Coordinator, July 2010. Copacino, W.C. (1994), “The ultimate supply chain vision”, Traffic Management, Vol. 33 No. 5, pp. 29-31. Commonwealth 2007, Australian Manufacturing: Today and Tomorrow, House of Representatives Standing Committee on Economics Finance and Public Administration, Commonwealth of Australia, viewed on http://www.aph.gov.au/house/committee/efpa/manufacturing/ Commonwealth 2011, Economic Structure and performance of the Australian Retail Industry July 2011, Australian Government Productivity Commission, Commonwealth of Australia, viewed on http://www.pc.gov.au/projects/inquiry/retail-industry/draft Drew, Stephen A.W. and Smith, Peter A.C., The new logistics management: Transformation through organizational learning, International Journal of Physical Distribution & Logistics Management, Vol. 28 No. 9/10, 1998, pp. 666-681, MCB University Press. Gunn, T.G. (1993), In the Age of the Real Time Enterprise; Managing for Winning Business Performance through Enterprise Logistics Management, Oliver Wight, Brattleboro, VT. Jhoudhury, Michael 1994, Physical distribution in the retail industry. The University of Queensland. Hamel, G. and Prahalad, C.K. (1994), Competing for the Future, Harvard Business School Press, Cambridge, MA. Senge, P. (1990), The Fifth Discipline, Doubleday, New York, NY. Stafford, Patrick, Online retailers urged to fix logistics problems as Australian eCommerce heads for $27 billion in 2010, Smart Company, November 10, 2010. Read More