Logistics Activities of Order Management and Customer Service - Term Paper Example

Logistic Management Assessment 2 EXECUTIVE SUMMARY It is clear that many trends and circumstances represent fundamental changes in the Australian retail market and has impacted the potential for retail trade development. In order to survive these changes, willingness to go above and beyond existing retail strategies is paramount. On the Global Retail Stage, over the last decade, little has remained the same. The current trends in retail industry are moving from the traditional in-store retailing towards online retailing. Differentiation between the two remains a challenge for today’s retailers. From the case study at hand, the setting up of an online store requires the consideration of the differences that there exist. This report tries to clarify these differences with regards to various logistics activities of order management and customer service, Australian distribution centre design and operations, and physical distribution within Australia. The report in one way or the other addresses relevant topics and issues that affect the Australian retail industry. The report is intended to provide the management of the online retail company to be set up with information on logistics activities management. This will help them evaluate and address critical retailing address. TABLE OF CONTENTS EXECUTIVE SUMMARY 1 TABLE OF CONTENTS 2 INTRODUCTION 3 DISCUSSION 4 Online Retailing and In-Store Retailing 4 General Differences between Online Retailing and In-Store Retailing 5 Online and In-Store Retail Order Management 5 Online and In-Store Retail Customer Care 6 Australian Distribution Centre Design and Operations 7 Physical Distribution within Australia 9 CONCLUSION 10 LIST OF REFERENCES 12 APPENDIX 1: THE TWO CYCLES OF GROWTH OF RETAIL SALES DRIVEN BY INNOVATION 14 APPENDIX 2: VALUE OF INTERNET COMMERCE IN AUSTRALIA, 2003-04 TO 2009-10 15 APPENDIX 3: THE DIFFERENCE BETWEEN TRADITIONAL RETAIL AND ONLINE STORE 17 INTRODUCTION Retailing, believed to be one of the largest sectors in the global economy, is experiencing a transition Australia not being an exception. Traditional retailers have always tried to redefine themselves though the introduction of value added services such as home delivery and credit. The growth in retailing has however been restricted basically to the urban market in Australia. The reasons for these are that the modern retailer in the urban market is yet to feel the saturation effect thus viewing other markets with less seriousness. Also, despite its cost effectiveness, modern retiling trends have come to be closely associated with lifestyle. The retailers would have to identify with different lifestyle so as to appeal to all classes of the society. This can thus lead to one assuming that the retailing revolution is emerging as per the economic revolution of society (Minis et al. 2010). Retailers, once seen as “downstream resellers of products”, are mostly seen as intermediaries in the manufacturers’ distribution channels, whose role is to only ensure a smooth flow of goods and services between the suppliers and the consumers. Today, retailers are indeed no longer seen as an appendix of the consumer’s supply chain but rather comprise of an independent market mainly looked up to by a large group of consumers for whom they buy (McKinnon 1989). They not only provide readily identifiable location for consumers to make their transactions when acquiring goods and services but also provide support services of various kinds to the consumers. In fact, retailing is a significantly important economic activity that links production and consumption while affecting most of the population. According to the Financial Times (2006), retailing has been identified as the world’s eight-biggest sector of the economy (Jones, Nicolas, & Carla 2007). Over the last decade, consumer awareness has increased regarding the price and quality of the products and/or services they expect. This is due to the increased literacy of the Australian consumers and the exposure to other developed nations through the current technological advancements. These days, consumers are more interested and are keen on the quality of products and services they expect from the market. They have even become more and more vocal about it. It is due to this awareness that consumers always seek to identify more reliable sources for purchases. The consumers also seek to purchase their products and services from those places where their feedbacks are more valued (Sands 2008). In order to earn customer loyalty, retailers mainly focus on providing their customers with the best-quality products and services with value and innovation. Retailers thus need to be aware of the key retail trends influencing the market at the recent times and in the future. Current market forces have been found to shape a global consumer and market place that will appear completely different in the future thus forcing the retailers to make thoughtful changes to not only their practices but also their business models so as to survive. As consumers look for opportunities that will save them time and money, advancements in technology has played a crucial role in this (Toomey & Wysocki). Advancement in technology through e-commerce has revolutionized the retailing sector to give rise to online retailing in place of the traditional in-store retailing. This has faced some challenges despite its huge success. According to The Economist (2004), online shopping has continued to grow in popularity. This is especially among women and other targeted demographics. Given that not all items can be sold successfully online, it is important for business managers to consider a shift to exclusive online retailing or incorporating online retailing to the traditional in-store retailing. This report tries to explain the differences between online retailing and in-store retailing in regard to the optimal design of the new company’s Australian logistics activities of: order management and customer care, Australian distribution centre design and operations, and physical distribution within Australia (Minis et al. 2010). DISCUSSION Online Retailing and In-Store Retailing It cannot be doubted that the internet has transformed the manner in which consumers shop and interact with the companies they buy from. In a survey conducted by the Harris Interactive, 48 percent of the consumers claim that in the last five years they have increased their online shopping. In today’s society, particularly for retailers, the internet plays an increasingly essential role. Customers not only use the internet to shop online but also they use it to find products, compare prices, investigate alternatives, for purchase in an in-store retail store. Also, the line between online retailing and in-store retailing is becoming somewhat blurred given that most in-store retailers are enhancing their online offers while at the same time online retailers engaging in in-store retailer’s behaviour. More so, the combination of both online and in-store retailing is being used in today’s market as a tool for competitive advantage among retailers (Harris Interactive 2007). In order to succeed in the online retailing industry, retailers are advised to observe three key items. The first is trust. The retailer must focus on creating the trust in its customers. The retailer must be reputable and trustworthy. Timeliness is another issue. It is important for the retailer to keep his information to the customers updated at all the times. Information about price changes, available products e.t.c must be updated regularly. Ordered products should also be delivered in a timely manner and any complaints taken care of as immediate as possible. An in-store retailer can be described as a business that chooses to satisfy customer demands through retail stores (The Economist 2004). General Differences between Online Retailing and In-Store Retailing Form the consumers’ perspective; it is interesting to note the difference between online retailing and in-store retailing. Consumers will always associate online retailing with lower prices or rather “deals”. This is due to the easy cross-referencing using the readily available search engines and the increased number of auction sites. Consumer competition is greatly facilitated while using the internet to purchase goods and/or services as a result of greater accessibility. It is worth noting that while consumers can only access a limited number of in-store retailers per day, they can access countless retailers within the same given timeframe. It is because of the greater opportunity to bargain and access to hundreds of retailers within mouse-clicks that the retailing trends are moving towards online retailing especially among the younger generation (Toomey & Wysocki). Generally, the use of information technology exists as a major difference between online retailing and in-store retailing. Information technology acts as the middleman, and a facilitator for globalization and integration in the online retailing sector. There is also a difference between the two when it comes to costs to not only consumers but also the retailers themselves. The current trends show that consumers’ perspectives are shifting towards online retailing. However, the difference between online retailing and in-store retailing still pose some difficulties to a number of consumers. Today, many consumers behave as if they see no greater distinction between online and in-store retailing. They see it just as another sales channel where they can make products and prices comparison and make purchases conveniently (Sands 2008). Online and In-Store Retail Order Management Order management can be described as the process of passing order information from customers back through the supply chain from retailers to distributors to service providers and producers the process will also include the passing of information about order delivery dates, product substitutions, and back orders forward via the supply chain to consumers. The use of telephone and paper documents have for long been relied upon by this process. Paper documents naming just but a few; sales orders, purchase orders, pick tickets, invoices, change orders, and packing lists have been part of the process. Online retailers would generate a purchase order from its online customers; call the relevant supplier who will do the delivery to the customers. Some online retailers have gone to the extent of establishing their own warehouse where supplies and deliveries are made from. On the contrary, in-store retailers would only make a delivery either when a customer walks into the store and makes his order, or when the customer calls the store to make his/her order (Hugos 2006). The key component of customer satisfaction and sales growth is on-time order fulfilment. Due to new supply chain strategies, this has become more complex and at the same time challenging. It is important as a retailer to realize that the traditional legacy systems that divide the orders by region, product type or customer will not always deal with the new challenges of multi-channel selling. It is also important to note that on-time order fulfilment has a tremendous effect on not only enhancing customer satisfaction but also customer loyalty and at the same time improve realization through cross/up-sell opportunities. Some retailers have also resulted to outsourcing the order management function thus enabling them to put control points, focus on sales and marketing and at the same time reduce late shipments, demand-supply mismatches, and non compliance (McKinnon 1989). It can be appreciated that most of the online shoppers are price sensitive. They would always shop online where they can get lower prices, discounts and multiple stores where they can compare prices. Freight costs which accounts for a larger percentage of the total cost may impede buyers from purchasing online. The incentive to shop in-store retails is the absence of delivery fees and in case it is there, then it is lower due to the reduced distances. As their sales promotion, some online retailers will cover delivery fees for their customers especially in major cities. This is however only applicable to those products with higher profit margins or else the retailer will operate in losses. It is thus crucial for the online retailers to source reliable logistics providers at reasonable prices ((Jones et al. 2007). Retailers have however faced some challenges when it comes to order management. Customers would always prefer to shop in a way that pleases them, via any channel with minimal or without any sacrifices made. Blurriness in sales channel differentiation has also been another challenge. Customers would always expect consistent and identical product information. The same is expected of the services and inventory availability from all channels (McKinnon 1989). Online and In-Store Retail Customer Care To rise above the price competitions, increase market share and profits, retailers should focus on differentiation through the provision a better customer experience. Studies have shown that 73 percent of consumers would do business with a company based on a great customer care experience. This underpins the importance of making sure that there is always customer satisfaction in not only the products delivered but also the services offered. Customer service is the foundation of online retailing success. With the level of competition available and the often undifferentiated retailers, capabilities in customer service are decisive to rival those large retailers. Online buyers would usually consult the sellers before they make their purchase through instant messengers. In light of the above, it is essential for the customer service personnel to better understand the customers’ needs and have rich product knowledge. Timely answers and polite attitude is the key focus. Customer will turn to other competitors if their expectations are not fulfilled. So as to achieve customer satisfaction, professional knowledge and comprehensive customer support are the key factors (Hugos 2006). Online retailers would utilize the online customer support system where customers’ inquiries are responded to immediately. In-store retailers on the other hand utilize the telephone services which are somewhat efficient expect in scenarios where many customers are making inquiries at the same time and some have to be kept on hold. Seven days refund policy without conditions is widely used in online retailing. If the goods remain well packed, customers are allowed to replace products within fifteen days from the date of placing order. It is advantageous to online shoppers in that they are given better protection as compared to in-store shoppers given that purchases at traditional physical stores good once sold can be returned of payments refunded only when products are defective (Langevin & Riopel 2005). There is a great difference between online retailing and in-store retailing when it comes to consumers’ immediate access to information. Consumers are able to get information about products offered either directly from the manufacturers’ websites, online reviews written by previous customers, and other interested bodies. The information is so direct and easily accessible as compared to the in-store retailing whereby you have to walk to the store for inquiries, make phone calls, or fill out unnecessary customer feedback forms (Delta & Matsuura 2008). Australian Distribution Centre Design and Operations Major challenges for many supply chains are represented by increasing globalization and market volatility. This is particularly for the distribution centres within them. According to Harris Interactive (2007), distribution centres are key nodes in most supply chains. This accounts for approximately 22% of total logistics costs. There has been an increasing trend in the building of large distribution centres and at the same time new warehouses continue to be designed and built. The success or failures of businesses are affected by these distribution centres which play a vital role. The design of distribution centres can be described as a series of steps based on forecasted demand, the objective being to identify the most efficient design for the planning horizon. In the final design of these operation centres, the following elements are considered: Equipments: These include storage and handling equipments. They range from automated equipment to more labour intensive ones. Building design: Features to be considered include height, floor strength and flatness, fire walls and exits, climate control, and goods in/out doors. Systems: This includes the functionality of warehouse management systems and equipment control systems which are needed to support the planned operations. Process design: Various warehouse functions are supported by processes. These functions include those of receiving, add value services, picking, despatching and marshalling. Staffing: Considerations include the use of permanent and temporary staffing, multi-skilling, and health and safety issues. The above elements are considered when designing a distribution centre and the operations involved. On-line retailers will design the distribution centres that favour them. This would be small warehouses that are more distributed throughout a region so as to easily supply to its customers. In-store retailers will have their stores strategically located to satisfy the customers’ needs. These stores are usually large with stocks enough to satisfy the customers’ needs (Delta & Matsuura 2008). Online retailers have discovered that the distribution system needed to support home deliveries differ greatly from those used by traditional in-store retailers to transport goods from warehouses to their store networks. Today online retailers mainly use three different supply chain models: Direct delivery to the customers from the store which is sometimes referred to as in-store picking, direct delivery to the customers from either a central distribution centre or a regional distribution centre, outsourced deliveries where distribution, warehouse and delivery operations have been contracted to third party logistics providers (Harris Interactive 2007). For in-store retailers, consumers usually purchase products from retail stores who in turn receive these products from distribution centres. The distribution centres on the other hand order and receive products from the manufacturing plants. Suppliers of raw materials will supply the manufacturing plants with the required materials needed to produce finished goods for the distribution centres. Online retailers on the other hand will satisfy customer demands without the in-store retail level. Here, orders are collected from and online catalogue and mapped either using postal codes to the appropriate distribution centre. Products are delivered directly to the customers’ residence from strategically located distribution facilities (Langevin & Riopel 2005). Designing a distribution centre and the operations involved will depend on whether the company is embracing in-store retailing or on-line retailing. If the goods are assumed to be shipped in Australia, this is done in bulk which is later broken down into smaller shipments at the distribution centres. In-store retails on the other hand will infrequently sent large volumes to the retailers while for on-line retailers, individual orders are sent fast and directly to the customer. The typical activities in a warehouse and distribution centre will also vary depending on whether a company is running in-store retail or on-line retail. These activities would include: Receiving goods, Identifying goods, dispatching goods to storage, hold goods, pick goods, marshal the shipment, dispatch the shipment, and operate an information system. On-line distribution centre will not hold goods for long because they are sent directly to the customer as opposed to in-store retailing where goods are held for the customer to collect or order home delivery. Goods identification when dealing with on-line retailing needs to be done with utmost care because the customer is never around to help in the identification process unlike in in-store retailing where the customer is asked to confirm the identity of the shipment. Operating an information system is mandatory when dealing with a distribution centre. Running an on-line retail store will require that online order management be integrated in the system. Physical Distribution within Australia An online retailer receives online orders and satisfies them through warehouses or fulfilment centres. These are usually owned by the suppliers, eTailer, or a third party distributor who deliver directly to consumers’ residence. Both cooperation and conflict between traditional in-store retailing distribution systems and online retailing distribution systems have been said to continue even in the future. Today companies in various industries recognize the importance of using online retailing distribution to supplement the traditional in-store retail distribution chains (Delta & Matsuura 2008). The key element in the success of any online business is delivery. More are the customers concerned with product damage during transit. This is more so especially for fragile and valuable products. Online purchases can largely be impended by the risks of product damage. That being said it would be ridiculous to overlook the quality of delivery. The only physical interface between the online sellers and buyers are usually the logistics providers. Customers’ impression towards the retailers is significantly influenced by the mode of delivery of the ordered products. It is advisable for upcoming start-up enterprises with minimal or without resources to deliver products on its own- like that in our case - to cooperate with well trained logistic services so as to avoid potential disputes in the future (Langevin & Riopel 2005). CONCLUSION The current trends in retailing industry are the shifting of traditional in-store retailing towards online retailing. Hybridisation of the two has been a strategy to survive competition whereby in-store retailers move online where they sale their products and deliver them from their in-store retails. The hybrid allows the consumer to acquire products either at the store or online. The delivery is then customized as per the requirements of the customer and at the same time may use any part of the retail supply chain infrastructure. All the supply chain activities begin with the consumer regardless of the model used. Online and in-store retailers use somehow different strategies when it comes to order management and customer service. Online retailers would be much in close contact with their customers providing 24/7- fulltime support. Customers feel more appreciated and valued because all their questions are answered promptly. In-store retailers on the other hand have stuck to their traditional strategy whereby telephones are mostly used. Orders are easily delivered via distribution centres when shopped online. Well established distribution centres have been put into place to ensure that products ordered online are effectively delivered to the customers. These distribution centres are mostly outsourced and evenly distributed in the region. In-store retailers are rather strategically located for easy access by the purchasing customers. LIST OF REFERENCES Harris Interactive, 2007. Online retailing Report, [Online]. Available at: [Accessed 2 January 2012]. Sands, S., 2008. Retail Therapy: Online Offline Trends in Retailing, [Online]. Available at: [Accessed 2 January 2012]. Toomey, A. C., and Wysocki, A. F. Distinguishing between traditional and online retailing: Evaluating E-commerce with respect to the food system, [Online]. Available at: [accessed 4 January 2012]. 2004. Leaders: E-commerce takes off. The Economist, 371 (98375), p. 24. Jones, A., Nicolas, C., and Carla, F., 2007. Australian Retailing Trends. The Australian Centre for Retail Studies, [Online]. Available at: [Accessed 5 January 2012]. Hugos, M. H., 2006. Essentials of Supply Chain Management. 2nd ed. New York: John Willey and Sons. Delta, G. B., and Matsuura, J. H., 2008. Law of the Internet, Volume 1. 3rd ed. New York: Aspen Publishers Online. McKinnon, A. C., 1989. Physical Distribution systems. Oxford: Taylor & Francis. Minis, I., Zeimpekis, V., Dounias, G., and Ampazis, N., 2010. Chain Optimization, Design, and Management: Advances and Intelligent Methods. Hershey: Idea Group Inc (IGI). Langevin, A., and Riopel, D., 2005. Logistics Systems: Design and optimization. London: Springer. APPENDIX 1: THE TWO CYCLES OF GROWTH OF RETAIL SALES DRIVEN BY INNOVATION APPENDIX 2: VALUE OF INTERNET COMMERCE IN AUSTRALIA, 2003-04 TO 2009-10 APPENDIX 3: THE DIFFERENCE BETWEEN TRADITIONAL RETAIL AND ONLINE STORE Traditional retail online Order management, Customer service Traditional retail stores rely mainly on telephone and paper documents in order management. This includes, placing orders and delivery notifications When it comes to customer service, traditional stores would utilize telephones and customer care desks to address customer issues. Feedback forms are given to the customers and suggestion boxes provided right at the store. Online stores utilize online systems in order management. Customers place their orders online and delivery notifications are e-mailed to them. Online stores utilize online customer support; usually a chat service to address their customer issues. On-line surveys are also done by the customer care department to get customer feedback and suggestions. Wish design operated Distribution centres are designed to hold large volumes. Distribution are normally made to the locals Distribution centres are built to hold small volume due to their short storage period and quick delivery. Distribution of goods is made to widespread locations via currier services. Physical distribution Cost of distribution or rather transportation is high for goods are transported from distribution centres, to retailers before they are bought by the customer. Normally large volumes are infrequently distributed from the distribution centres to the retail stores. Cost of distribution is reduced because goods are sent directly from the distribution centres to the customers. Usually small volumes are frequently distributed from the distribution centres to the retail stores. Read More