The Possible Product and Service of Zappos com - Case Study Example

The Possible Product and Service of Zappos.com Overview Zappos.com wanted to proved the best possible product and service in order to “wow” everyone who came in contact with the company—customers, employees, and corporate partners—and so they systematized all the business elements such as, website, inventory, supply chain, call center culture , recruiting, etc. Zappos grew quickly, and by 2008 was profitable with net sales amounting about $650 million. However, the company had to face a number of issues on its progress. When the company could influence only 3 percent of the American market for shoes, they expanded their product lines to items such as camping gear and video games. It is essential to determine that such a strategy in anyway contributed to the success in shoes or whether it would be able to replicate the success in other product lines. It is also fundamental to determine how the company could scale the business with revenues of tens of billions. Moreover, the major effort of the company was to “wow” its customers by providing with maximum customer satisfaction. The market faced a hard situation as the economic scenario varied dramatically in late 2008, together with financial market collapsing and recession. Unlike the other many websites selling at lower price during the period, the service intensive company’s business was based on sales at little discount or no discount. Evaluating the competences o the organization would enable us to understand the chain issues, and other critical elements to company’s success. Decision Making Zappos always strives to foster a culture that understands the impact of working capital on the profitability of the firm. The process of decision making and the daily activities of the firm must be carried out on the basis of working capital management analysis. The company manages the decision making through a cross-functional communication system. The decision making is used to drive and maximize working capital performance of the firm. Zappos.com also has already developed a training program to impart working capital management principles into practice. The management team utilizes the decision making process to integrate capital management into the fabric of organizational culture. In the same way, the process of decision making in the routine activities reveals the glowing significance of cash management. It helps the management in all forms of risk management within the firm. The organization takes record of the important decision and measures taken by the management team. Zappos makes weekly reviews of the company’s decisions and measures taken. It can help the management in dealing with the potential issues before they turn out to be big problems. Zappos holds monthly managers meetings to evaluate and appraise the overall decision making process. Managers across the organization come together once a week to analyze each decision taken. When there are shortfalls in decision making process and its actual performance, such meetings become a platform for correction. Core Values • Deliver WOW through customer service • Embrace and drive change • Create Fun and Little Wildness • Be adventurous, creative and open-minded • Pursue Growth and leaning • Build open and honest relationships with communication • Build a positive team and family spirit • Do more with less • Be passionate and determined • Be humble (Source: Zappos.com) “WOW” Experience Website speed is so fast and with attractive layout, which enables an accurate browsing. Besides, large pictures of shoes on website so that customers know exactly what they are getting. In the same way telephone support is so customer friendly that calls are answered within 20 seconds. Also the company offers free returns within 365 days, if found not satisfied. The products are dispatched free of shipping charge. The call center of the company is facilitated with staffs working 24/7, 400 of them in Las Vegas headquarters. Approximately, the call center receives 5,000 calls a day, 5,000 chances to “wow” a customer (Zappos.com). All new hires are asked to spend two weeks in the call center. Stages of Growth- The supply chain Zappos, becoming aware of its mission as a service company, formulated and put into practice strategies that evolved through time. Strong supply chain management is an important part of the company’s success. The company maintained a Supply Chain Management Evolution with maximum efficiency and profitability. More than 1,500 employees are appointed and associated with the supply chain, half in its Nevada headquarters and call center, and half in its Kentucky fulfillment center. Moreover, the company culture has a great influence on the supply chain. The supply chain had undergone various stages of growth through the years. The first supply chain policy involved Vendors. Later on, the company added other products to their chain such as, clothing, electronics, jewelry, houseware, luggage, sporting goods. After some months they adopted the Operational model, which included the Delivery system, Inventory system, and the Web system. When the company found that the strategy was working effectively, it considered business expansion and made its way to the international market. The drop-ship model was a strategy implemented by the company later on. Through this policy, orders are placed on Zappos website and orders are forwarded to vendor and finally orders are filled by vendors. This policy advises the company not to keep in possession any inventory managed orders. One of the major problems with drop-ship model was that the information on website only 95% accurate. Besides, Zappos did not know when orders are shipped by the vendor. Ultimately, Zappos did not know of unhappy customers until it was too late Therefore, Zappos thought of brining the inventory in-house. This strategy was used to hold inventory within the firm. Under this policy, during November 2000, Zappos began to stock inventory. And the company bought 30,000 sq foot store in Willows, CA, 100 miles north of Sacramento. But the disadvantage was that there were no major airports nearby and it was not an ideal place. And they negotiated with UPS, and shipments were made by UPS Ground. The warehouse was under manual operation and the drop-ship approach was also applied in practice. The company also tried experimenting with third-party fulfillment. Outgrew Willows distribution center was utilized with this policy and UPS approached Zappos to manage its inventory and fulfillment. Zappos continued to own inventory, but it was stored at a UPS facility near its hub in Louisville, Kentucky. And the Order fulfillment would be handled by a third party. The advantage of third-party fulfillment is that the two-thirds of customers would receive deliveries within two days using UPS ground and at a lower cost than shipping from Willows. Besides, it uses more efficient use of automated tools. Moreover, Zappos would not have to make major capital investment. And there are Disadvantages too with third-party fulfillment. The major one of them was Zappos business involved more stock-keeping units (SKUs) than the system could handle, since each shoe style/size/color combination was a separate SKU. Zappos had 70,000 to 80,000 SKUs, and within 6 to 8 weeks the company knew that they had to develop their own distribution center. The company’s new policy created a provision for a distribution center in Kentucky. It opened their own distribution center 30 miles from the UPS hub in Louisville, developing its own systems and procedures focused on a highly SKU-intensive business that required almost perfect inventory accuracy Distribution center in Kentucky was a fully automated warehouse, which also maintained a few drop-shipments. Initial 265,000 square foot facility was filled to capacity in 2006, and so Zappos opened a new 832,000 square foot facility with automated conveyors and carousels. The warehouse was Robotic system installed in 2008, which doubled the worker efficiency (Zappos.com). Finally, the company decided to end using drop-shipments. Zappos was still sending orders to its vendors for drop-shipping until 2003, though 75% of orders were being shipped from the Zappos warehouse. Customers served by the Zappos warehouse were happier with the experience than those whose orders were drop-shipped. So, Zappos stopped using drop-shipments in order to fulfill its customer service mission. And in the new system, when an item reaches zero inventory in the warehouse it no longer appears on the website. The objective in the first priority as a company is its company culture. The whole concept is centered on the belief that if zappos can get its culture right, then most of the other stuffs like the plant, long-term brands, and great customer service will just naturally happen on their own. Zappos, in its new face introduces a more elegant look to its main site. The old look is separated and labeled as classic zappos. Constant expansion: Zappos is no longer going to focus only on shoes. It is expanding its markets through being versatile. Within 20 years one will be walking into a Zappos hotel or Zappos airlines. Issues and Problems Zappos faced a hard situation in 2000 when it was on the edge of running short of cash (Zappos.com). Even when zappos concentrated on increasing delivery speed, the percentage of shipping cost on net sales remained the same with increased return rates. This adverse situation affected the profitability of the firm. The company was able to reach gross margins of 31 percent, even after considering the shipping and returns elements—having noticeable returns of more than one in four orders returned. However, shipping, including both outbound and for returns, constituted a substantial element to the company’s cost structure, at about $100 million, and it amounts to 17 percent of the company’s gross sales of $597 million in 2006. This percentage had remained relatively constant over the years, in spite of increase in return levels and decreases in decrease in delivery times. And this phenomenon reduced the profitability of the firm to a large extent. In the same way, Zappos reached its heights and became profitable in 2006. However, they did not maintain an objective of maximizing the profit, or did not prefer to invest their money toward the growth of the company. They objective did not include any plans or suggestions for growth through the company expansion. Furthermore, Zappos has been maintaining a 365 days return policy with a higher return rate. There were customers who made use of this free return policy to experiment with different brands and styles as they had higher return rate. In fact, the returns were almost 35 percent of gross sales. This policy of the company created unnecessary sales returns, and to a large amount. Moreover, this situation caused a negative impact on the operational efficiency of the company. With regard to the call center operations, the management measured the call center operators on the metrics of efficiency, with the objective of considering maximum customer calls. Since operator efficiency was evaluated on the basis of volume of calls met by the operators, there was a tendency to focus on customers than meeting particular customer requirements. This process reduced, to some extent, the customer satisfaction and the number of persons interested in using the customer service. In addition, the company’s surprise upgrade policy adversely affected the extent of customer satisfaction. The company guaranteed next-day delivery for all orders during the holiday season. And as customers expected next-day delivery, they were not wowed as before (Stanford). Moreover, customers were disappointed on the rare occasions when there was delay in the delivery of the products due to unavoidable problems such as bad weather conditions affecting plane schedules, or failure of communication systems. Thus, the policy reduced the overall customer satisfaction to a great extent. Moreover, the new change had a negative impact on the company’s reputation of “wowing” the customers. Besides, zappos was an unknown start-up, which forced the already established retailers to pressure the brands to resist online sales, as they were not willing to welcome the new competition. They thought that internet was a place where everything would be discounted and they feared that this new practice might affect their profitability. Furthermore, the company faced a complication that the brands were only successful when grouped, if the retailers offered only athletic shoe brand, it did not facilitate enough selection to attract customers. It was a hard task to convince the companies to bring out the first brand of a category to be undertaken by Zappos. Adoption and implementation of the “drop-ship” approach had two major problems. First of all, the inventory information available on the website was accurate only about 95 percentages. The company made use of mediums such as, fax, hone, and email to collect information from its vendors, where update process was done manually. The updated information was unreliable due to uncertainty in the vendor’s records and late information updates. Due to this condition, customers were much annoyed ordering for products that were not in stock leading to cancellation and waiting too long for the delivery. Secondly, due to the drop-ship method, the company was not aware when a customer order had been shipped. The vendor might offer to dispatch in a day or two, but on receiving a large order from a major department store, the Zoppos order may be delayed by the vendor. Challenges The company had to face a major challenge when scheduling deliveries from its suppliers to the distribution center. There was a great difficulty in managing traffic of shipments from its vendors to the warehouse. The central issue was that the company had a limited visibility into the supply chain of the manufacturer. They faced great uncertainty in guaranteeing the availability of a specific brand on a particular date due to the ambiguity of actual date of receiving the shipments from the manufacturer. There were days in which shipments at the warehouse were backed up waiting to be unloaded and other days in which there were no shipments arrived. The Zappos’ plan was to sustain the price of a brand without changing for the first two months of its introduction irrespective of its sales volume, not considering whether the expected sales margin was reached or not. If the product could not make through the expected sales margin, the system automatically cut down the price until it achieved a satisfactory sales volume. This was not a desired practice as the customers might find it an easy way to grab the product at a considerable cheaper rate, if waited for a short period of 60 days. And there were a substantial number of customers making the maximum use out of this practice. Alternatives Zappos must continue to adopt and implement new processes organizational changes that will result in growth. The firm must target to become bigger than a $1 billion business in terms of sale. Zappos remains true to its philosophy of customer service. It has been successful even in tough economic climate. Finally, Zappos was sold to Amazon.com in July 2009 for 850 million dollars. The considerable fact is that the customers’ behavior can change; and their tastes and preferences have greater chances for change in the present economic climate. Changes in the consumer preferences coupled with various other factors forces the company to always stand for innovative ways of sustaining and always creating a WOW experience through an efficient customer service. It would be more efficient for the company to have its own truck fleet that could manage the collection of products from the supplier and to transfer it to the warehouse as it would optimize cargo capacity. The firm had a higher concentration of supplier warehouse in the regions of southern California, especially, in the areas around Ontario and Long Beach, and in some area on the East Coast. Therefore, Zappos should manage the warehouse facility from being concentrated in some place. It would be advisable to make use of the warehouse than depending on the supplier warehouse in order to speed up the delivery and to facilitate accurate stock information. And it would be an added advantage to enhance the operational efficiency of the firm. Zappos also have the possibility for increasing the efficiency of outbound freight, even if the matter of overnight objective was still retained. Adopting such policy would result in many of the customers receiving the shipments within one day, through the UPS Ground. This practice would constitute a less expensive shipment over weekends, in areas where “overnight” was regarded to be the next business day. With the exploration of considerable opportunities in U.S., Zappos need to meet the significant challenges and costs to replicate the company’s success in foreign markets too. With the existing strong customer base, the company can establish a Canadian call center and a distribution center. The process of establishing a distribution center and achieving a substantial volume of sales in Canada would require the firm negotiating Canadian distribution agreements with many of the renowned brands. So such expansion of the company would bring greater profitability to the firm and would enlarge the customer base of the firm. Moreover, people consider that companies providing good service do really well. This policy would contribute to the success of the firm and a high market value to the firm. Apart from all other factors, the impacts of financial market collapse and economic slowdown had affected the business operations of Zappos. The margins were decreasing due to the immediate impacts of the phenomenon. Some of the labor-intensive activities of the firm must be eventually cut down to manage the unaffordable costs. The company has to make process and organizational changes in order to successfully accomplish the margin of $20 billion. In the same way, the customer behavior also has changed due to the impacts of the economic crisis. They seek for alternative or multiple channels to reach their products. The company is in need of making changes in their brand selection policies as well as pricing policies in order to face the slowdowns and market collapses. The company needs to consider all aspects of its business for improvements and efficiencies, including its supply chain. The company must function according to the mission, “Developing a Supply Chain to Deliver WOW!” Zappos adopted and sustained a strong company culture—developed and natured by the efficient management. “It’s always looking for ways to WOW everyone we come in contact with…It’s about teamwork and growth at both personal and professional phases” (Zappos.com). Works Cited Zappos.com: Developing a supply chain to deliver WOW! Stanford Graduate School of Business. Read More