Online Retailing Industry - Example

STUDENT NAME: LU WANG STUDENT NUMBER: S 0219484 COURSE: LOGISTICS CASE STUDY ONLINE STORE Executive summary 1. Introduction 2. Aims and purpose 3. Business design I. E-order fulfilment and logistics II. Transaction costs and the buyer III. Cost of evaluation and selection IV. Shipping costs and their impact 4. Conclusion 5. Reference list EXECUTIVE SUMMARY This is an online retailing company that formed by a consortium of domestic and overseas investors who want to invest in Australia, the company proposes to build a warehouse in Sydney with a possibility of expansion to other cities like Melbourne and Brisbane. The company proposes to deal the supply of car accessories and tools, leisure products for boating, camping and fishing and electrical household appliances. Due to the huge number of Australia household access to the internet on both personal computers and mobile, the prospect of online retailing is high. The company plans to use web-only in the first warehousing in Sydney and will expand later to multi-channel services as expansion taking place. The future plan on the company is to operate in three states that is Sydney, Melbourne and Brisbane, the products sourced from Singapore and Hong Kong and the other services outsourced to minimize cost at all stages of the business for manufacturing and distribution here in Australia. 1.0 INTRODUCTION The recent trend toward the outsourcing of logistics activities has given prominence to the concept of third-party logistics service providers (3PL). 3PL defined as providers of logistics services that do the logistics functions on behalf of their clients. Because of the need for timely delivery system, perfect information system and low logistics operations cost due to of economic scale, 3PL providers have had to improve the flow of information both internally and externally and integrate their logistics services into the retail delivery provided by convenience stores. The retailing delivery includes four functions: 1) packing process, 2) delivery system and 3) pick-up point. The RD system has two special features. First, to address concerns on safety of payment methods online, and this is important for people who do not have credit cards. The second special feature is that the RD service provides consumers with a self pick-up approach through convenience stores. The monthly data collected from financial institutions on the value of spending on debit and credit cards, further divided into domestic and overseas merchants spending. Through estimates made from domestic electronic purchases has grown from around eight per cent in 2005 to eleven per cent in 2010. (RBA 2011) Though these estimations indicates electronic transactions that includes all e-commerce activities, because of these wider coverage of e-commerce activity, the RBA figure does not give a clear picture of online retail share of all retail sales. (Frost and Sullivan 2010) Estimate that around forty one per cent of online expenditure in Australia directed to overseas sites in 2010. A more recent report estimated that forty four per cent of online sales will be overseas in 2011 which equates to $6 billion. (PriceWaterhouse Coopers 2011) Survey data collected in 2010 indicates a slightly higher proportion of Australians shopping online at 68 per cent. (ACMA 2010) A survey of 1000 Australians aged 21 years and above done by the Swinburne University of Technology estimates that 69 per cent had purchased goods online in 2011, compared with 40 per cent in 2007. (Ewing and Thomas 2010) Through the research by Roy Morgan Research there is an indication that in September 2010 about a half of Australians aged 16 years and above bought goods online in the previous one year compared with only ten per cent a decade earlier. (Roy Morgan Research 2011) 1.1 AIMS AND PURPOSE The report is to analysis, the best way of investing in online retailing by the consortium of investors. It analyses both web only and multi- channel mode if online retailing, in which the report has to recommend the best mode of online store for the company to use in its first warehouse in Sydney. The report discuses the business model used here is click-and- mortar and the company will outsource its products from Singapore and Hong Kong the distribution services in Australia. The orders placed managed through the execution of the operating plan based on demand forecast. That is the interface between buyers and sellers will consist of: The phases of order management will attempts to change the manner in which the customers place orders and the company executes the order immediately received from the customer. The report discusses the advantages of using e-retailing, for companies as it is more convenient for both the company and the customer to, provide products and services on 23 hour based without any addition cost while enabling the costumers to make purchases at anytime of the day and at their convenient time respectively. 2.0 BUSINESS DESIGN The consortium will use Click-and-mortar model in which the first warehouse situated at Sydney with later expansion plan to Melbourne and Brisbane. Will outsource distribution channels and logistics support in other cities where the company does not have a physical present. 2.1 E-Order fulfilment and logistics Will embrace supply chain management systems to make sure that the right product is at the right place at the right time in the required quantity, quality and form with reduction of cost of delivery and after services. (McKinnon 1989 p. 38) The internet will drive E- retailing process of the company to offer goods to customers anywhere around Sydney and it is environment before embarking on the entire states. This will eliminate the need for a physical shopping trip and is in itself the biggest challenge for e-retailers managing the delivery to customers. The Australian population as a number of reasons as to shop online, some of which are easy internet access, money savings by participating in auctions and purchasing used items time savings and availability of special products. In order for the company to benefit from e-commerce it has to understand the reasons why some people have inhibitions when it comes to internet shopping. The most commonly cited reasons are online payment security issues, delivery issues and concerns regarding returning goods if not satisfied. The internet has provided supply chains with plenty of opportunities for increasing customer satisfaction while minimizing costs. (Lancioni et al 2000 p. 50) Introduce online vendor catalogues, track shipments, 24/7 service and reliable supply of goods and services. The use of online store for supply chain management has had a positive impact on the logistics industry, be it for those in e-commerce industry or those in the traditional markets, as the internet has made a constant monitoring of supply chain activities possible which in turn can result in higher efficiency or lower costs. Fulfilment and customer order delivery are the most important parts of e-commerce achieved through accurate order taking, processing, pick and pack, ship, after-sales service and returns handling (Pyke et al 2001 p. 29). The company will employ various innovative solutions to reach its target customers and meeting sales forecasts through the following means: 1. Use of Warehouse Management Systems (WMS), to manage warehouses often linked the e-retailers website and information systems. 2. Logistics postponement, using information to delay final assembly of components until required and also directing the final destination of goods only when the required information received regarding an order. 3. Vendor Managed Inventory, here the producer is in charge of maintaining inventory at the required levels either with them or with the e-retailer or any geographic location which can easily facilitate a quick delivery as soon as the order placed. 4. Radio Frequency Identification, the introduction of RFID tagging of products and pallets enabled continuous tracking possible no matter where and when. 5. Automated warehouses, use robots for the pick-up process. 6. Rolling warehouse, it is a logistics method in which products on the delivery truck not pre-assigned to a destination but a decision about the unloaded at each destination is made during unloading using the latest information available (Knaack 2001) . 7. Leveraged shipments; shipments planned based on a combination of size or value of the order and geographic location (Lee & Whang 2001 p. 58). 8. Pooling transport infrastructure among e-retailers done by some companies in the traditional retail model a good example uses the pooling concept to take care of after-sales service and spare parts inventory. Will manage customer delivery within Sydney and outsource other logistics services like express courier parcels and services to where we do not have a physical presence across Australia. But as the company expands will set more physical presence in other states like Melbourne and Brisbane. This aimed at managing own inventory through building warehouses in Sydney, Melbourne and Brisbane to become a leader in the logistics front especially in warehouse management, automation and inventory management. But at the initial years of operation from our Sydney warehouse customer will place orders online. The website management system will identify the nearest distribution centre which is to handle the order or in the scenario where the customer is within 3 kilometre from our Sydney warehouse they will collect the goods from our offices, those who are within 100 kilometre radius the company will door deliver while those within other parts of Sydney the company will outsource its delivery and after sale services. The company will use software tool at the distribution centre to receive the order and assigns the task to the employees automatically. The products stocked in bins which will a red light which turns on automatically when an order placed, resets when an item picked, this light will guide the pickers to the correct product to minimize delivery of wrong orders and improve our delivery efficiency. The picked items placed on a crate in a conveyer belt and bar code scanners placed at different points identifies and tracks the product until the crate arrives at a central location in the warehouse where the bar code and the order numbers matched before diverted to the packing section where the boxes packed, weighed and despatched to one of the many truck bays. The company will endeavour to add and retain customers through, excellent customer e-service processes that could satisfy customers and lead to the success of online business. (Heim and Field 2007 p. 972) The company will strive to acquire the required traffic through identifying and delivering relevant information to attract the target traffic, converting website visitors into buyers, order fulfilment by delivering the customer order and winning customer loyalty. Customer retention and acquisition is very important. (Turban et al 2008) Will set a strong Online store services quality that will influence customer satisfaction. (Melian-Alzola et al 2007 p.276) 2.2 Transaction costs and the buyer Describe the sequence of transaction steps that form the retail transaction chain: warehouse access, search, evaluation, selection, ordering, payment, order fulfilment, and after-sales service each having its own associated cost component. The company will fact in all related costs for web-only versus multi-channel retailing marketplace. Search costs and their channel impacts. As indicate in various studies, the transaction costs, product search cost is one of the most important to consider when deciding the selling price. (Chircu and Mahajan 2006 p. 806) Online storefronts will serve not only as transactional channels, but also as search channels for our products and services involved in multi-channel retailing when the company is full in operation both in Sydney, Melbourne and Brisbane. (Choudhury and Karahanna 2008 p. 479) According to Saunders, 66 percent of consumer respondents declared that they had made use of more than one channel of the same retailer in the overall purchase of items during their shopping experience demonstrating the advantages of the company using a multi-channel model of business. (Saunders 2002 p.30) 2.3 Cost of evaluation and selection (Chircu and Mahajan 2006 p. 806) Argue that the cost of evaluating and comparing across products is a second important transaction cost that buyers consider in online retailing, prior to making purchases. Researchers, in general, are of the consensus that increasing the number of options available to a shopper increases the complexity of the decision-making process, thus increasing the cognitive load on the shopper. (Lee and Lee 2004 p. 153) In related research, (Boyer and Hult 2005 p. 565) Will make the web site easy to use and customer friendly, because web site “ease” directly related to the extent of purchasing from the site. The likelihood of buying measured as the “conversion rate,” which defined as the percentage of visitors to an online store who buy the product from that store on that visit. 2.4 Shipping costs and their impact Found that the per-order shipping cost was higher for multi-channel retailers than it was for web-only retailers. Web-only stores, thus bringing the total price of the online goods to a similar level as that in the brick-and-mortar store at first the company will offer web only services and as the company expand will shift to multi-channel retailing. (Ancarani and Shankar 2004 p. 172) Consequently, this will give the company a competitive edge and favourably competing successfully in the marketplace through reduced transaction costs associated with doing business with the customer. One method of the main method to company will use to reduce transaction costs of activities is outsourcing. (Bolumole et al 2007 p. 40) These are the factors that the company will assess whether to outsource its services. The company from it is initiation it will outsource its products and warehousing facilities in Singapore and Hong Kong from where all the sourced products will be collected and shipped in bulk to Sydney to reduce flight costs. (Aubert et al 2004 p. 927) Because of the degree of asset specificity required in transporting products was crucial in deciding to outsource logistics services to cut cost. (Ivanaj and Franzil 2006) With time the company will expand to other states like Melbourne and Brisbane to reduce the costs of outsourcing and encourages the company to expand to these cities. (Bolumole et al 2007 p. 40) Bienstock and Mentzer argued that within logistics, asset specificity corresponds to such specialized activities as warehousing for specialized products, packaging, and transportation, Fundamental operations as transportation and warehousing sometimes require specific and costly investments specialized forklift trucks, and guidance systems among others. (Bienstock and Mentzer 1999 p. 51) Because the company will be web-only retailers based, will not have these facilities available and will seek outsourced services. Has argued that companies with limited experience in specific areas are better off outsourcing these activities, since the supplier can then bring the knowledge expertise that the parent firm lacks, Web-only retailers, owing to their very nature and have limited contact with the customer as compared to multi-channel retailers the company proposes that web-only retailers will try to mitigate this lack of customer knowledge by outsourcing these functions to specialist firms. (Pisano1990) Outsourcing the logistics function. The extent of outsourcing the logistics function measured as the sum of four activities: 1) Content delivery. 2) Order fulfilment. 3) Order management. 4) Payment collection. Product type groupings Outsourcing the target marketing function. The extent of outsourcing the marketing function measured as the sum of four activities: 1) Affiliate marketing. 2) E-mail marketing.(3) E-commerce platform. 4) Search engine marketing. 3.0 CONCLUSION As summarized by (Turban et al 2008) The advantages of online retailing to it provides a state wise reach, cost reduction, supply chain improvements by reducing inventory and delivery delays business carried out 24/7. The company will specialize and make more money from niche markets, customer service improved, efficiency in procurement and electronic products delivered easily, new or novelty products to the customers faster and improved transparency as information related to comparison of organizations, products are easily available. Benefits to consumers: large variety of products and services available, cost savings, hard-to-find items and out-of-date product spare parts is usually available, information is easily available, opportunity to participate in auctions, buy unique items and no local sales tax. (De Koster 2001 p. 453) E-retailing has had a huge impact on operational management, manufacturing, supply and outsourcing in a number of ways. The introduction of online tools such as Frequently Asked Questions and configuration of products activities such as supply chain and outsourcing has shifted to others organisations so as to reduce cost of operations. E-retailing has facilitated the creation of hub-based supply chains which is a notable improvement in supply chain design and management as companies such as logistics service providers provide a platform for online retailers to link with their suppliers and customers to ease business operations. E-retailing improved the manufacturing processes, by increasing the ability of multiple manufacturing plants as a single location this is possible through information sharing online. E-retailing plays an important role in changing the mindset of mass production to Just-In-Time and build-to-order manufacturing which has massively reduced the cost of manufacturing and made most of the products and services affordable to majority of the population in Australia. Reference list Ancarani F and Shankar V 2004 “Price levels and price dispersion within and across multiple retailer types: further evidence and extension”, Journal of the Academy of Marketing Science, vol. 32 no. 2 pp. 176-88. Aubert B, Rivard S and Patry M 2004 “A transaction cost model of IT outsourcing”, Information & Management, vol. 41 no. 7 pp. 921-32. Australian Communications and Media Authority (ACMA) in 2010 e-commerce activity in purchasing goods online. 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A survey of 1000 Australians aged 18 years and over conducted by the Swinburne University of Technology Pyke D F, Desmond P and Johnson M E 2001 e-retailing Supply Chain Management Review, vol. 5 pp. 26-32. Roy Morgan 2010 Research use of the internet by consumers to purchase goods. Results of their surveys. Saunders C 2002 “Survey: multi-channel buyers worth pursuing”, Click Z, January 28, p. 30, The Reserve Bank of Australia (RBA) 2011monthly data from financial institutions on the value of spending on debit and credit cards. Turban E, King D, Marshall P, McKay J, Viehland D and Lee J K 2008 Electronic Commerce. A managerial perspective, 2nd edition, Pearson Education International. Read More