This is a paper from our action research course with Dr. Lars Mathiassen back in 2010! Mala Kaul, currently Assistant Professor at University of Nevada, Reno, and I conducted the class project together. We are glad it is accepted for publication at International Journal of Business Information Systems. We don’t see a lot of studies using action research as the research method because it is a challenging approach to meet the needs of both theoretical and managerial contribution. However, it is a great approach if we see ourselves as an engaged scholar to bridge the cap between the academic and practice. Regardless, it is great to see our class project turing into a journal paper!
As a reflection of the strategic importance of buyer-supplier relationships in supply chains, information sharing and knowledge exchange have been found to positively impact coordination, transparency, and perception of trust between buyers and sellers. However, our knowledge about IT as an enabler in buyer-seller relationships is limited. Against this backdrop, we examine how a large retailer, BuildSmart, adapted and leveraged a portal to help listen to the voice of their suppliers. Through a collaborative action research project, we developed a semantic sense-and respond approach to design and implement mechanisms that allowed BuildSmart to continuously sense how suppliers experienced their portal and how to generally improve their supplier relationships. As a result, we present a conceptual model for managing IT-enabled buyer-supplier relationships and demonstrate how conceptual modeling can be combined with sense-and-respond thinking to support IT-enabled process management.
Collaborative Action Research, Supplier Relationship Management, Sense and Respond, Supplier Portal, Conceptual Model, Buyer-Seller Relations, Semantic Approach
In May, I took a trip to Shanghai, China, for a project to establish a partnership between a Chinese horticultural company and a Holland breeding company. It was a win-win collaboration for both, not only helping the Holland company to break into the Chinese market with minimal resource, but also upgrading the Chinese company with new product varieties without adding R&D investment. During the meeting, there was only one concern from the Holland company: the price for the new products in Chinese market were set lower than the Holland company expected. The Holland representative could not accept the recommendation from the Chinese company. After all, the same types of flowers are sold at a premium in other global markets! In order to understand this pricing recommendation, we visited the horticulture supply chain in that region, from flower growers, to flower market, to flower retailers. After examining the entire supply chain, the representative agreed with the lower pricing strategy today for future long term growth.
Production – Flower growers
When the Holland representative saw the greenhouses in the region, he commented: What a low cost production! The farmers enjoy the benefits from local natural geographic condition. All things being equal, such as the amount of fertilizer used for every square meter of land or type of greenhouse equipment invested, it costs the U.S. growers five times more than the Chinese growers in labor, not just because of cheaper labor in China. The underground water system in the Eastern China region provides the Chinese growers a natural watering system. Therefore there are much less labor required to water and grow the plants. On top of it, the government subsidizes the greenhouse facility investment, which lowers the production cost even more.
In the different areas of the same region, there are significant differences among greenhouse business models. We visited the greenhouses managed by the young generation of growers, who are connected using the internet and smartphone like an iPhone or Android phones. They are educated and ambitious. They want to grow the best plants and dominate the market. Due to the economy of scale, they can not only achieve lower cost from higher production efficiency but also receive a volume discount for plants and farming materials. From them, I see the picture of tomorrow’s Chinese agricultural industry.
The traditional farming model co-exists with the modern farming management. Many individual farmers manage only two or three small greenhouses in their backyard. All farming work is done by the family members. Those individual families unite together to form an organization. The organizer of the group sells their harvest together and also combines their purchasing of raw materials to lower the purchasing cost. The organizer benefits from the commissions of sales.
With the advantages from Mother Earth and the effective business model in the local market, the production of flowers is efficient and lean, and thus minimizes the production cost.
Distribution – Flower Market
A visit to the local flower market explains why premium pricing will not work even though the growers grow high quality flowers. The local market consists of the first level wholesalers and the second level distributors. Wholesalers ship the flowers by truck from their fields to the market. Distributors will buy from several wholesalers for different varieties and then deliver them to retailers.
During the consolidation and distribution process, there are two major factors contributing to damage of flowers:
1) Packaging. There is minimum packaging for the flowers. In other global markets, the flowers are carefully packed in paper cartons or in buckets for best protection and petals expansion. In China, the growers only use a single layer of plastic cone to cover the petals. This kind of packaging method does not provide much protection for flowers during transportation.
2) Shipping. From the growers to the market and from the market to the retailers, the flowers are firmly stacked inside trucks or cardboard boxes without any space to breathe. In the same size of truck, the Chinese farmers can ship almost 20 times more than the U.S. farmers can. I joked that the extreme loadability was such an effective way to minimize their supply chain “carbon footprint”!
The ruthless transportation minimizes the transportation cost for flowers, damages flowers during transportation, and causes a much lower price for flowers without perfect presentation.
Customers – Retailers
Retailers and the final sales of flowers determine the brutal transportation in some way. The majority of customers of retailers are not individual consumers like you and me, but businesses! It may be a phenomenon only in China that businesses buy a lot of flower baskets for business openings or events. So, flowers are not sold for a long vase life but a very short exhibit life of a few hours. Under these kinds of circumstances, flower quality is really not a selling point unless those flowers are used for a wedding ceremony. Unfortunately, unlike luxury products, such as a purse, flowers are not a product defining a consumer’s social status. Therefore, consumers pay less attention to flower quality so retailers will not push upstream distributors to improve flower quality by minimizing damage from transportation.
For any global company breaking into a new market, it is extremely important to evaluate the local supply chain in its entirety from upstream to downstream. By understanding the local supply chain, the company can define its marketing and pricing strategy without disconnecting from the local market. The Holland company would price itself out of the market without understanding the entire process from growing to transportation. Through a complete investigation into each component of the supply chain for these flowers could we fully grasp the individual dynamics of the Chinese market. Any international company needs to fully assess the specifics, find the local expert who understands the unique market characteristics in order to implement the correct marketing strategy. This article is a case of horticultural product going into a new market. However, the learnings from this case can apply to many other products and industries who are seeking opportunities in the international market.
They seem to be totally two unrelated incidences. First, there was a very interesting news story on Dec 5th, 2009 at NPR, What The ‘Garlic Bubble’ Means For China’s Economy. The news discussed a very interesting scenario of “garlic bubble” when “garlic prices in one Chinese province have shot up as much as 40 times the going rate”. China is the biggest producer of garlic so this bubble definitely shakes the food industry. There were three reasons which caused the bubble:
Due to the collapse of the global economy, there is less demand for garlic, so garlic farmers in China produced 50% less garlic.
Due to the wide spread concern of swine flu, Chinese started to buy loads of garlic to keep them from getting sick.
The Chinese government stimulus plan pumped its banks full of money and made lending very easy.
Therefore, limited supply ran into unforeseen high demand. “Smart” people saw this as a great opportunity thus “the garlic frenzy was turning into some kind of gold rush”. Many people borrowed easy money from banks, and started stocking tons of garlic in the warehouse and waiting for garlic prices to rise. The bubble hence created. Government stimulus plan caused an unintended result. I haven’t read follow-up story how this garlic bubble broke in the end. I can only imagine how a purchasing agent from food industry jumped out of his/her office chair seeing the garlic price increased dramatically in short time. It’s also funny to think that every restaurant or food company has to reduce the portion of garlic ingredient and probably pray for the “garlic bubble” to burst.
Another story made me think about the impact of “uncertainty” to supply chain and related supply chain risk management. I was discussing supply chain in the horticulture industry with an industry expert. I was told that the demand for next year is almost out of question to forecast and that whole supply chain seasonality almost doesn’t exist. The big box retailers, such as Wal-Mart and Home Depot, keep pushing out their order forecast to growers since they couldn’t decide what to buy for next year from their weak 2009 point of sales (POS) data. This uncertainty put growers at a huge risk as they face the challenge of missing growing season. If I were a grower, I might be forced to hold up my purchasing decision to the very last minute, facing the risks of higher purchasing costs for rush orders or even not able to obtain the materials I need. If I went ahead to make my own “speculated” forecast, I would face an even bigger risk of ordering the wrong products and put the business in total loss.
In the blog of Supply Chain Risk Literature: a complete review, Jan Husdal summarized the typology of supply chain risks. Among them, “uncertainty” is the biggest cause of all risks. Every company is fully exposed to today’s global economy, consequently it’s even more difficult to predict or forecast with high level of “certainty”. Unfortunately, I don’t have a good solution to avoid such risks brought by “uncertainty”. All I can suggest is to realize those risks associated with supply chain, and increase communication with all trade partners. Communicate! Communicate! Communicate! Only doing so will break the organizational silo, minimize the exposure to supply chain risks, enable organizations to act quickly to unexpected incidences, and hence minimize the financial loss caused by supply chain uncertainty.
So, what can a garlic buyer in the food industry do to minimize the loss from this garlic bubble? Fly to China and buy a warehouse of garlic immediately! No, I’m kidding, although it can be one possible option. First thing the buyer needs to do is to prevent the situation of out of garlic. Not only he/she need constantly communicate with the suppliers about pricing fluctuation, inform factories or restaurant to check current on hand and incoming inventory for allocation, but also need start searching for other supply sources. They might not able to get a lower price in short term, but, hey, our consumers can still have garlic in our tasty food, perhaps several cents more expensive than they used to be, but we don’t feel it.
Before this Black Friday, I had no idea about Zhu Zhu Pets. Then over night, I learned about its hot sales situation from all Media outlets. A Google News search yields 2249 results as Zhu Zhu Pets have become this seasons’ most desired products and hottest news topic. This situation reminds me of the Nintendo Wii three years ago. Both Wii and Zhu Zhu Pets created such a unique Black Friday phenomenon: a hot product caused a huge buzz during Black Friday sales and “disappeared” from retailers’ shelves due to a supply shortage. Do you remember that Wii was sold at a premium in the black market three years ago? The same thing is happening to Zhu Zhu Pets, which is now being sold for as much as $50 at eBay, five times more than its original price!
There are a few things in common between Nintendo Wii and Zhu Zhu Pets:
1. Both are great products at a low price, creating great value for budget-cautious consumers. Wii is less than $200 and it is a game console designed for everyone in the family. Zhu Zhu Pets, the fuzzy robotic toy hamsters, are less than $10 and targeted at children. Both are well designed products with a great pricing strategy, which made them stand out from all other competing products in their respective categories.
2. Both products experienced surprised high demand exceeding the forecast and supply, and hence results in a shortage. From a supply chain point of view, out-of-stock is never a good thing because it means loss of revenue, especially when consumers can easily switch to competitive products. However, for both cases, because the uniqueness of the products, consumers will patiently wait for the products to be back on the shelf. We can see Wii as a good example. The market size for Wii did not shrink because of the supply shortage. I don’t like to diminish the importance of supply chain, however, it’s far more important to develop a great product to stimulate the market. The challenge for the supply chain here is how quick the products can be replenished from overseas and available for customers again.
3. Both cases might use a clever ploy to make the item more desirable by having a short supply. There were many speculations that Wii used this marketing scheme three years ago to make Wii such a popular product and continue to be one of the top console systems. (Example: Nintendo’s Wii: Privily, Why So Rare Art Thee?). Today the buzz caused by the shortage is behind us. We can see Wii’s piled up at any electronic store this year. I suspect that Zhu Zhu Pets is using the same ploy to make this inexpensive fuzzy toy the most desired product of this Holiday shopping season. The question is whether this cute robotic hamster can be the toy remaining on the shelf for years to prove its value proposition. Wii did it. I finally own a Wii console three years after its first launch. Now, let’s see if I will able to buy a Zhu Zhu Pets for my child after three years.
A few weeks after Dell announced the sale of its Tennessee plant to Genco, Dell stated that it will close the facility and cut 900 workers in North Carolina. Dell describes its decision to close the facility as “part of an ongoing initiative to enhance the long-term value it delivers to customers by simplifying operations and improving efficiency.”
As a former Dell employee, this news gave me a little feeling of nostalgia. I joined Dell China as their pioneer staff, with employee ID 49, when Dell just got their feet wet in the Chinese market. I experienced the most glorious time of Dell when their stock was traded more than $100 and split again and again. I witnessed the Dell China factory grew from a leased temporary factory to a campus of new factories with advanced technology. I even had a hand-shaking photo with Michael Dell when he visited the China plant. Being a young professional out of college without a lot of experience, Dell gave me a great opportunity to learn the management of a western company and opened the door for me to supply chain management. When I came to the States to pursue a degree in supply chain management, I read so many cases and articles about the innovated manufacturing and supply chain in Dell, and how their “U” shaped manufacture display was one of their core competencies to enable production flexibility for their made-to-order business model.
HP has become the world’s leading computer company by focusing on sales, marketing, and distribution of computers made at very low cost in Taiwan and China. In comparison, archrival Dell, which was widely celebrated 10 years ago as one of the world’s best manufacturers, is now saddled with high cost factories and is struggling to compete.
What has been changed in the past decade?
Technology advancements have made personal computers a commodity and changed consumer behavior significantly. In the past, customization and capability of “made-to-order” created huge value to computer users. Customers enjoyed selecting from the different capacity of parts to customize computers meeting their price and usage requirement. At that time, Dell’s flexible manufacturing had a huge advantage over its competitors, and their made-to-order and ship-direct business model were the most innovated and successful supply chain practices.
However, a few years ago, Dell started to sell their products through distributors such as Staples, Best Buy and even Wal-Mart. Their ship-direct strategy slowly started shifting to a traditional made-to-stock distribution channel. Computers become such a commodity that consumers can pick up any model at different price levels in a store and be happy with the standardized capacity. There is no need for consumers to place customized order online and wait for delivery. So, the flexible manufacturing designed for made-to-order is fading away.
Time changes, consumer behaviors changes, and technology changes. In 2005 Dell was valued at $100 billion, or more than HP and Apple combined. Today, it’s worth $30 billion, less than a third of its rivals’ market values. (Businessweek, Dell’s Extreme Makeover) If Dell wants a makeover to catch up to its rivals in this rapidly changing business environment; if Dell doesn’t want to become an OEM of PC manufacturer; it’s the right move for Dell to get away from its traditional production efficiency and cost cutting modal and focus on marketing, customer service and innovation.
Even I am not using a Dell computer nowadays. However I wish my former employer, who taught me the best supply chain practice and changed my life and career direction, can achieve its makeover goals.
A green supply chain is like a mystery. The idea always conjures images of a higher cost and investment to the business. However, is that really the case? Will companies need to spend more to be green? How can green initiatives drive financial and social benefits? I hope my short article can answer these questions. In my last article, I discussed the approach to collect data in the supply chain to quantify carbon emissions. Once we can quantify and start measuring the carbon footprint of the company’s supply chain, we can find ways to reduce it and measure their improvement.
Before I start discussing the possible solutions, I would like also to express my opinion for the recent trend of using “green” as a reason to call for nationalization or deglobalization. The trend suggests that manufacturers should be moved back to the U.S. to shorten the supply chain distance thus reducing the carbon footprint. I agree that a short supply chain close to production or the end consumers can be beneficial in some cases, such as the JIT practice. However, according to IEA, International Energy Agency, international shipping accounts for approximately 2.7% of world CO2 emissions, which is small relative to the benefits brought by global trade. Hence it’s not the reason to prevent globalization and international trade. I’m a strong believer of “competitive advantage”, which is the way to promote global welfare and technological development. “Green” initiatives should focus on innovation and waste reduction, in either technology or process. “Green” shouldn’t be used for a political reason and incur more costs for the whole society. According to the North American Supply Chain Carbon & Sustainability report, moving production closer to home is 12% of all environmental initiatives. Practically, companies will be interested in the green initiatives only when they are able to achieve a lower financial cost and a better customer satisfaction at the same time. That is true that companies can develop products more environmentally friendly and some consumers are willing to pay a premium for the green contents, such as for a Toyota Prius. However, the majority of consumers are not ready to pay more for green, especially for commodities. Hence, to enhance a company’s competitiveness, the approaches to reduce the carbon footprint of the supply chain should also aim to drive cost efficiency and customer satisfaction.
Just like the total cost analysis for supply chain, there are many trade-off decisions to be made in green supply chain optimization, and the goal is to maximize carbon emissions reduction. I’d like to suggest the environmental initiatives from supply chain functions’ point of view, represented in the below matrix.
As we can see, many of those initiatives are day-to-day initiatives and process improvement activities to drive operational efficiency, increase recycling, reduce waste, and enhance communication and visibility in the supply chain. Hence, the outcome of the green initiatives not only improve operational effectiveness of balancing costs and service, but also reduce the carbon footprint from movements, spaces and materials in the supply chain. A “green” KPI or measurement enables companies to associate the positive financial results to the carbon footprint reduction. Once the mystery of “green” is discovered, the cost of green initiatives won’t become an implementation barrier and companies can benefit from quick financial and social return from those initiatives. As a result, the “green” strategy is not just a social responsibility. It becomes the “sustainable” and “desirable” strategy for any company.
A carbon footprint is “the total set of GHG (greenhouse gas) emissions caused directly and indirectly by an individual, organization, event or product” (UK Carbon Trust 2008). Once the size of a carbon footprint is known, a strategy can be devised to reduce it. Recently there are a lot of discussions around measuring carbon footprint in supply chain. UPS announced that they plan to reduce their carbon emissions by 20%, with an ability to capture and report on the carbon footprint of each package shipped by each customer, based on distance and mode. Wal-Mart announced the “green label” program to label the sustainability index each of products it carries, so “the retailer’s 100,000 suppliers around the world will have to calculate and disclose the total ecological costs of their products” (Daniel Goleman, Wal-Mart Exposes the De-Value Chain). Software companies are catching up to develop programs for supply chain optimization around a lower carbon footprint (Roberto Michel , Supply chain network design: its Green powers not exactly new). With government commitment to reduce global carbon emissions by 50% by the year 2050, businesses are scrambling about the opportunities to reduce carbon emissions. However, there is also a survey of company executives showing that it is “not the best time for launching big corporate initiatives” to calculate a company’s carbon footprint (Robert J. Bowman, Supply Chain Visibility: Lots of Talk, Little Action).
An end-to-end supply chain is a material flow from suppliers to manufacturers to distributors and ultimately to consumers in the end. So it can become a huge task to measure carbon footprint especially when many companies are also struggling with poor supply chain visibility. However, I believe that companies can take some easy steps to start quantifying their supply chain carbon footprint, and at the same time improve their supply chain efficiency and visibility.
From a supply chain management point of view, energy is used during transportation and manufacturing, and thus creates carbon emissions, also called greenhouse gases. The challenge for companies to reduce their carbon footprint is whether they have ability to quantity their current emission levels.
There are three key components in supply chain contributing to carbon emissions:
Any movement in supply chain, from inbound or outbound shipping to transferring products in the warehouse or on the factory floor, consumes energy and directly produces carbon emissions. Energy consumption is different based on different transportation modes, distances and weights. The calculation can be based on gallons of fuel consumed for transportation, and hence the footprint measurement can be calculated at the unit level during transportation.
In supply chain, space such as office, factory and warehouse are used to support supply chain activities. However, space consumes energy, such as electricity or heating oil. Excess or unnecessary space caused by supply chain inefficiency, such as excess inventory or poor packaging design, not only increase supply chain costs, but also produces unnecessary carbon emissions.
Material will be more difficult to be directly measured than movement and space, especially if the company is responsible for the end-of-life material management of toxics, hazardous materials, and waste. So a good way to capture the carbon footprint caused by different materiasl is to evaluate total energy consumed to process the material including its life cycle production and the end-of-life waste management. For example, a new material might take a longer time and more resources to produce from its raw components to finished goods, but it might require very little energy to process its waste. Therefore the total size of the carbon footprint for the new material is smaller.
For any company who is interested in taking actions to capture and quantify their carbon footprint, as an easy way to begin with, they can start from collecting data in their end to end supply chain, and convert those data into energy consumption and carbon emissions. The below matrix represents the data collection plan for a traditional manufacturer through different supply chain phases:
Absolutely data collection can be a big task, especially when a large amount of materials and products are involved. But once the database is established, the company can use those energy consumption formulas to quantify their carbon foot print of their supply chain, and thus implement sustainability KPI to measure their global citizenship accountability and environmental sustainability improvements. Once companies start to take action to measure their carbon footprint, they will not only see the reduction of their greenhouse gas emissions, but also the reduction of their supply chain costs, which I will discuss more in a future article.
When a company starts to hear their customers saying “it’s very difficult to do business with you” without providing exact details; when a company sees their internal customer service scorecard showing good numbers, but the customer survey result shows “poor service”; or when a company starts to see their long term customers switching to their competitors; it is the time for the company to evaluate their value chain to understand what they need to do win the trust and confidence back from their customers.
However, it seems difficult to figure out what customers are really looking for, and it’s difficult to decide which actions to take to improve the customer experience. There are many functions in the company, what exactly are the areas causing negative customer experiences? In order to understand what activities are leading to customer satisfaction, we can begin with the generic value chain and then identify relevant firm specific activities. “A value chain is a chain of activities. Products pass through all activities of the chain in order and at each activity the product gains some value.” (Wikipedia) Using value chain analysis will quickly help a company map out “touch points” with customers, capture pain points, and identify opportunities for process optimization. I’d like to use a case of an equipment rental company to explain how value chain analysis is used to identify issues in order to enhance customer experience.
In this case, customers choose to rent instead of buy equipment for a lower cost but at the same time expect good service. Customers can have the company deliver equipment to them or pick them up with their own trucks. After finish using the equipment, the customer can self return them to the company service locations or the company will arrange collection from customers upon request. Customers pay an initial fee when they receive equipment and then start to pay rent based on the days of usage. Below is the value chain analysis I did for the company to understand how each function interacts with customers and how they can impact customer services. Please note below analysis only include primary activities. Supporting activities such as procurement, technology, human resource and firm infrastructure are not in the analysis, although they can also indirectly impact customer experience from different prospective.
Primary functions of inbound logistics, operation, outbound logistics, marketing & sales, and customer services are interacting with customers on a daily basis; hence activities under those functions directly influence customers’ satisfaction and their purchasing decision. By breaking down those functions into activities, we can easily see the components in the value chain and how they create and build value for customers. By asking questions for each activity, we can thus realize what customers are expecting for each activity and whether there is enough to be done to guarantee customer satisfaction.
I’m not going to explain each activity in detail. The result of this exercise is to help company executives realize the challenges from their existing process structure and to make the right decisions and actions to truly “serve” customers. Executives should also face the fact that internal metrics are not always reflecting a customer’s true experience. When the metrics are designed to meet internal criteria and when those numbers are tied to employee performance bonuses, we can expect that employees are incented to make a good number instead of to provide good service. For example, on-time delivery performance is a key measurement for each employee in the company. However, the company only measures the shipments with Prove-On-Delivery (POD), and thus filters out at least 10% of data from measurement because carriers do not provide POD for every single shipment. The company measures on-time based on the final date stored in the system. When a shipment is going to be late, the employee in Logistics calls the customer to get “approval” of changing the date of delivery in the system, as if customer had another choice. At the same time, the company defines the on-time delivery window which is not necessarily what the customer is asking for. Using a six sigma term, there is a gap between internal specifications and external customer measurement. Unfortunately, because of political reasons and high pressure for “performance”, even functional high level executives are not willing to change the wrong measurements to correctly reflect real performance. No wonder that even with high performance numbers in the service scorecard, we can not prevent customers from switching to competitors.
From such a value chain analysis exercise, many functional experts can identify process improvement opportunities and take necessary projects to reengineer processes. However, without further data analysis, the analysis won’t lead to a priority list to allow the company to put the limited resources to the most critical processes. Besides, the company will not make fundamental changes without establishing performance metrics truly reflecting customers’ requirements. Value chain analysis can help companies to understand where they can create value for customers. However, only when the company truly embraces “customer experience” and makes fundamental changes will the value chain create real value for customers.
Being a supply chain professional, the “sad” thing is that I always translate my real life experience into supply chain practices and theories. This time, I would like to tell a story of my Zappos ordering experience and how I see their supply chain service.
I was shopping for a pair of shoes for my wedding. I didn’t buy the shoes from a local store because I wanted to find something cheaper. The first thought coming to my mind for online shoes shopping is Zappos, which can explain the good reputation of Zappos being the leader of online shoes shopping.
The goal of supply chain management is to provide the right product at the right place with right price. Online shopping eliminates the barrier of place, but it requires an efficient delivery. On their easy to navigate website, I found the style of shoes I was looking for at a discounted price (supply chain theory: availability of right product at right price). It showed three pairs in stock for my size, so I placed my order online. In 10 minutes after completing the entire transaction, I felt I should have waited to search more options, so I wanted to cancel the order. Then I realized Zappos didn’t provide me the option to cancel online. I had to call their 24 hours customer service hotline. With my professional habit, I also measured how long I was waiting while calling customer service, roughly 30 seconds. Since 24-hour service is provided, the waiting time of less than one minute is more than acceptable, although I wished they provided me the option of online cancellation to eliminate my call to their CS.
Shortly after I cancelled the order, I decided to order the shoes again. What an unpredictable customer behavior…However, when I tried to place a new order online, I noticed that their stock availability became two. My supply chain instinct told me that their stock availability was not updated simultaneously when my first order was cancelled. I decided to call CS and see if they could reactive my old order, instead of placing a new one.
Samantha in CS answered my call (now she @samiamquinn is my twitter follower @BettyFeng and following because of my tweet about Zappos CS). Over the phone, I could feel her warm personality and joyful smile, totally contradictory to the cold voice of a CS from CHASE credit card I recently experienced. She placed a new order for me and upgraded my order to VIP for next business day delivery. Samantha explained that since my order was placed after cutoff time, I should receive my order on Monday morning. As someone working in logistics, I fully understood what cutoff time meant, so I didn’t expect my order to be batch processed until the next morning and picked up by their carrier UPS at the end of the next day.
To my surprise, I received shoes from Zappos the next morning! I have shopped online many times before but never experienced such quick delivery. As a regular customer with knowledge of supply chain management, Zappos order processing and fulfillment amazed me. The order was placed at 10:30pm in the night, shipped out of the Zappos warehouse in Shepherdsville, KY, and delivered to my home in Orlando, FL at 11:15am the next day. The whole process can be illustrated as the following:
The email time stamp of order shipping confirmation was 2:30am, so it’s from a 24 hours operated warehouse. I looked up all of flights from Louisville to Orlando in the early morning for more insight. It seems only the flight was leaving at 5:46am and arriving at 10:03am could make the final delivery at 11:15am.
Needless to say, with my knowledge in order management, I understand how many activities and challenges are behind this 13-hour process from order to delivery. The speed of order processing and delivery is something extraordinary. For regular order processing, it normally takes one or even two days lead-time to let the system batch process customer orders and check their credit, then have the warehouse pack the product and ship it out by the end of the business day. Below are three key components to enable Zappos make a delivery at such speed:
24 hours customer service. I’m guessing Samantha in CS kindly manually processed my credit and dropped my order to a delivery request. Generally the late night order is after the cut-off time so it’s unlikely to have been processed by a system batch job.
24 hours warehouse operation. This is the most important factor for their incredible speed. Without 24 hours operation in the warehouse, the delivery request will not be picked, packed and shipped by early morning for a late night order.
Close partner relationship with UPS for early morning pick-up, or multiple pick-ups in a day. This is most likely the reason why Zappos’ warehouse is located close to UPS’ main global hub in Louisville, KY.
Like Zappos’ logo indicated: powered by service. Zappos uses customer service as their brand to achieve customer loyalty, especially when customers have a lot of choices. Zappos demonstrated to me an exceptional example of customer service not only through their CS rep, but also through their supply chain. Their supply chain system and management for order fulfillment is overall robust and agile, except the fact that I can’t cancel an order online and their stock availability can’t be updated immediately after order cancelation. I mentioned in my earlier article that supply chain is a revenue driver, because supply chain services of order fulfillment and on-time delivery directly impact customer satisfaction and loyalty. I know the case I just experienced with Zappos was extraordinary, but you can expect that I will be their long term customer after such a great experience and will happily recommend Zappos to others. I also believe that a company willing to do extraordinary things for their customers with a higher standard of supply chain service will be competitive and successful for the long term.