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Zappos.com:
Developing a Supply Chain to Deliver Wow!
Stanford - Graduate School of Business
David Hoyt – 02/13/2009
Prese...
Zappos.com
 Founded in 1999 by Nick Swinmurn
 Swinmurn meets Tony Hsieh, a young
entrepreneur who invests $500,000 in
th...
Zappos.com
“A service company that
sells shoes, handbags,
clothing, eyewear,
watches, accessories.”
Tony Hsieh
Zappos.com
Zappos Culture and Values
 Strong supply chain management is an important part of
the company’s success
 The company culture is an influence on th...
 Website speed
 Telephone support: calls
answered within 20 seconds
 Free returns within 365 days
 Fast, free overnigh...
 Staffed 24/7 by 400 people in
Las Vegas headquarters, 2008
 All new hires spend two
weeks in call center
 5,000 calls ...
 Free shipping, often arrives next day
 Overnight deliveries made by UPS
 Work closely with UPS to increase efficiency
...
Advertising spending...
 75% internet
 15% print
 10% other
New customers acquired heard about Zappos...
 44% from Int...
Zappos.com
Revenue Growth
 Vendors
 Other products added: clothing, electronics, jewelry,
houseware, luggage, sporting goods (hiking, skiing,
skat...
The drop-ship model
 Orders placed on Zappos website
 Orders forwarded to vendor
 Orders filled by vendors
Evolution of...
Bringing inventory in-house:
 November 2000 Zappos began to stock
inventory
 Bought 30,000 sq foot store in Willows,
CA....
Experimenting with third-party fulfillment
 Outgrew Willows distribution center
 UPS approached Zappos to manage
its inv...
Advantages of third-party fulfillment:
 Two-thirds of customers would receive deliveries within
two days using UPS ground...
Disadvantages of third-party fulfillment:
 Zappos business involved more
stock-keeping units (SKUs) than the
system could...
Kentucky Distribution Center
 Opened their own distribution center 30 miles from the
UPS hub in Louisville
 Developed it...
 Initial 265,000 square foot facility filled to capacity in 2006,
Zappos opened a new 832,000 square foot facility
 Auto...
End of drop-shipments
 Zappos was still sending orders to its vendors for drop
shipping until 2003, though 75% of orders ...
Buying
 Difficulties of excess inventory or loss of potential sales
when items become a huge hit
 Merchandising departme...
 Technology to design and run a retail website
 Call center to deal with customer
questions and problems
 Distribution ...
Supply Web
 Zappos placed orders with 1,400
different brands in 2008
 Suppliers given delivery windows
in which product may arrive ...
 Not constrained by space needs that brick and mortar
stores face
 Some price reductions based on decrease in sales
 Op...
 Ship shoes directly from China to Zappos distribution center
 Cut down on partial truckloads by introducing own fleet o...
Zappos.com
Conclusion
Zappos.com: Developing a Supply Chain to Deliver WOW!
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Zappos.com: Developing a Supply Chain to Deliver WOW!

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The Secrets to Zappos' Success. Zappos success story as powered by excellent customer service. In Tony Hsieh’s own words, “Zappos is really a customer service that just happens to sell shoes”.Lessons we can all learn from Zappos.

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Zappos.com: Developing a Supply Chain to Deliver WOW!

  1. 1. Zappos.com: Developing a Supply Chain to Deliver Wow! Stanford - Graduate School of Business David Hoyt – 02/13/2009 Presented by Melih Torlak
  2. 2. Zappos.com  Founded in 1999 by Nick Swinmurn  Swinmurn meets Tony Hsieh, a young entrepreneur who invests $500,000 in the company  Known for its high quality experience: deliver “WOW” to customers, suppliers and affiliates  3% of U.S. population are Zappos’ customers in 2008  Repeat customers grew from 40% in 2004 to 75% in 2008
  3. 3. Zappos.com
  4. 4. “A service company that sells shoes, handbags, clothing, eyewear, watches, accessories.” Tony Hsieh Zappos.com
  5. 5. Zappos Culture and Values
  6. 6.  Strong supply chain management is an important part of the company’s success  The company culture is an influence on the supply chain  1,500 employees, half in its Nevada headquarters and call center, and half in its Kentucky fulfillment center Zappos.com
  7. 7.  Website speed  Telephone support: calls answered within 20 seconds  Free returns within 365 days  Fast, free overnight shipping  Providing extensive online product information  Large pictures of shoes on website so customers know exactly what they are getting “Wow Experience”
  8. 8.  Staffed 24/7 by 400 people in Las Vegas headquarters, 2008  All new hires spend two weeks in call center  5,000 calls received a day, 5,000 chances to “wow” a customer  Fast, friendly & expert customer service Call Center (Customer Loyalty)
  9. 9.  Free shipping, often arrives next day  Overnight deliveries made by UPS  Work closely with UPS to increase efficiency Free, Rapid Delivery
  10. 10. Advertising spending...  75% internet  15% print  10% other New customers acquired heard about Zappos...  44% from Internet  43% from ‘word of mouth’  13% from other Zappos.com
  11. 11. Zappos.com
  12. 12. Revenue Growth
  13. 13.  Vendors  Other products added: clothing, electronics, jewelry, houseware, luggage, sporting goods (hiking, skiing, skateboarding, surfing, off-road bicycling - 2008)  Operational model: • Delivery system • Inventory system • Web system  International expansion Many Stages of Growth
  14. 14. The drop-ship model  Orders placed on Zappos website  Orders forwarded to vendor  Orders filled by vendors Evolution of the Operational Model Major problems with drop-ship model  Inventory 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
  15. 15. Bringing inventory in-house:  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 • Warehouse was a manual operation  Continued to use the drop-ship approach Evolution of the Operational Model
  16. 16. Experimenting with third-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 party Evolution of the Operational Model
  17. 17. Advantages of third-party fulfillment:  Two-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 investment Evolution of the Operational Model
  18. 18. Disadvantages of third-party fulfillment:  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 they had to develop their own distribution center Evolution of the Operational Model
  19. 19. 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
  20. 20.  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
  21. 21. End of 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  Zappos stopped using drop-shipments in order to fulfill its customer service mission Evolution of the Operational Model
  22. 22. Buying  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 vendors  Extranet allowed vendors to see the same information as the buyers Supply Chain Management
  23. 23.  Technology to design and run a retail website  Call center to deal with customer questions and problems  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 Zappos”  The supply web allowed the same inventory to be accessed through many websites Operating a Supply Web (Powered by Zappos)
  24. 24. Supply Web
  25. 25.  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 Scheduling Product Delivery
  26. 26.  Not constrained by space needs that brick and mortar stores face  Some price reductions based on decrease in sales  Opened several outlet stores to deal with the excess inventory  Bought the online shoe company 6pm, which Zappos uses to sell some slow moving inventory Dealing with Excess Inventory
  27. 27.  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 Opportunities for Improvement
  28. 28. Zappos.com
  29. 29. Conclusion

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