Developing a Supply Chain to Deliver Wow!

loutclankedIA et Robotique

13 nov. 2013 (il y a 8 années et 3 mois)

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Developing a Supply Chain to Deliver Wow!

Stanford Graduate School of

David Hoyt, 2

Presented by:

Jon McDonald

Business 550

November 23, 2010

World’s Largest Online Shoe Retailer

Founded in 1999 by Nick Swinmurn

$1 billion annual gross sales (2008)

3% of U.S. population are Zappos’ customers

Known for its high quality experience: deliver
“wow” to customers, suppliers, and affiliates

Repeat customers grew from 40% in 2004 to
75% in 2008

Strong supply chain management is an
important part of the company’s success

1,500 employees, half in its Nevada
headquarters and call center, and half in
its Kentucky fulfillment center

The company culture is an influence on
the supply chain

“Wow Experience”

Website speed

Telephone support: calls answered within 20

Free returns within 365 days

Free shipping

Large pictures of shoes on website so
customers know exactly what they are getting

Call Center

Staffed 24/7 by 400 people in Las Vegas

All new hires spend two weeks in call center

5,000 calls received a day, 5,000 chances to
“wow” a customer

Free, Rapid Delivery

Free shipping, often arrives next day

Overnight deliveries made by UPS

Work closely with UPS to increase efficiency

Many Stages of Growth


Other products added: clothing, electronics,
, luggage, sporting goods

Operational model:

Delivery system

Inventory system

Web system

International expansion

Evolution of the Operational Model

The drop
ship model:

Orders placed on Zappos website

Orders forwarded to vendor

Orders filled by vendors

Major problems with drop
ship model:

Information on website only 95% accurate

Zappos did not know when orders shipped

Zappos did not know of unhappy customers until
it was too late

Evolution of the Operational Model

Brought inventory in

November 2000 Zappos began to stock inventory

Bought 30,000 sq foot store in Willows, CA

100 miles north of Sacramento

Not ideal:

No major airport

Shipments made by UPS Ground

Warehouse was a manual operation

Continued to use the drop
ship approach

Evolution of the Operational Model

Party fulfillment

Outgrew Willows distribution center

UPS approached Zappos to manage its inventory
and fulfillment

Zappos continued to own the inventory, but it
would be stored at a UPS facility near its hub in
Louisville, Kentucky

Order fulfillment would be handled by a third

Evolution of the Operational Model

Advantages of third
party fulfillment:

thirds of customers would receive deliveries
within two days using UPS ground and at a lower
cost than shipping from Willows

More efficient use of automated tools

Zappos would not have to make major capital

Evolution of the Operational Model

Disadvantages of third
party fulfillment:

Zappos business involved more stock
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 they had to develop
their own distribution center

Evolution of the Operational Model

Kentucky Distribution Center

Opened their own distribution center 30 miles
from the UPS hub in Louisville

Developed its own systems and procedures
focused on a highly SKU
intensive business that
required almost perfect inventory accuracy

Random stocking approach

Evolution of the Operational Model

Initial 265,000 square foot facility filled to
capacity in 2006, Zappos opened a new
832,000 square foot facility

Automated conveyors, carousels

Robotic system installed in 2008, doubled
worker efficiency

Evolution of the Operational Model

End of drop

Zappos was still sending orders to its vendors for
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

Zappos stopped using drop
shipments in order to
fulfill its customer service mission

When an item reaches zero inventory in the
warehouse it no longer appears on the website

Supply Chain Management


Difficulties of excess inventory or loss of potential
sales when items become a huge hit

Merchandising department has 100 employees,
half of whom are buyers and assistant buyers

Buyers are the primary points of contact for

Extranet allowed vendors to see the same
information as the buyers

Operating a Supply Web

Technology to design and run a retail website

Call center to deal with customer questions and

Distribution system optimized for delivery to
retail customers

Zappos excelled at all these areas and began to
work with manufacturers to sell directly to
customers under a program called: “Powered by

The supply web allowed the same inventory to be
accessed through many websites

Scheduling Product Delivery

Zappos placed orders with 1,400 different
brands in 2008

Suppliers given delivery windows in which
product may arrive at distribution center

Inefficiencies in the warehouse operation, as
some days had significant order arrivals, while
other days were quiet

Dealing with Excess Inventory

Not constrained by space needs that brick and
mortar stores face

Some price reductions based on decrease in

Opened several outlet stores to deal with the
excess inventory

Bought the online shoe company 6pm, which
Zappos uses to sell some slow moving

Opportunities for Improvement

Ship shoes directly from China to Zappos
distribution center

Cut down on partial truckloads by introducing
own fleet of Zappos trucks

Expansion outside of North America


Zappos remains true to its philosophy of
customer service

Zappos has been successful even in tough
economic climate

Zappos was sold to in July 2009
for 850 million dollars


1) What company bought Zappos in 2009?





2) What is not part of Zappos “wow” experience?

Website speed

Telephone customer service

Guaranteed lowest price

Free shipping and returns

3) What did Zappos do to deal with excess inventories?

Opened several outlet stores

Bought to use to sell discounted inventory

Used some small price reductions

Initiated a relationship with to sell excess inventory

All of the above